Following the success of the ZooDAO IDO, held from February 7–13, we are excited to announce the upcoming launch of the ZooDAO Liquidity Bootstrapping Pool (LBP).
The LBP is planned to take place over 72 hours, from 22 — 25 February, 2022, on Copper.
Disclaimer: Participation in an LBP is not without risk. This article is intended to inform users of the upcoming LBP, but does not serve as financial advice and should not be considered as such. Engaging in the LBP without the necessary skills and understanding of the mechanism may result in loss of funds. Users are requested to seek additional information beyond this article to inform themselves of the risks associated with participation.
Launching $ZOO: Two token distribution events
The ZooDAO team examined the value, risks and benefits of various mechanisms to make $ZOO available to the community, and decided to adopt a two-stage process towards distribution.
Launching $ZOO with an IDO through our dApp enabled us to first, reward community members for their support by making $ZOO available at a preferential rate, and second, establish a balanced supply of $ZOO tokens on the market to minimize the risk of extreme price fluctuation at launch.
An IDO in combination with an LBP enables ZooDAO to further dispense tokens while guaranteeing a wide and equitable distribution, minimizing risks to users and maximizing accessibility to the token. The LBP is not a means to raise funds for the DAO from community members — all funds gathered in the LBP are directed to our smart contracts to establish liquidity for the benefit of the community.
What is a Liquidity Bootstrapping Pool (LBP)?
An LBP is a Balancer pool that enables a project to release a token while building a large liquidity pool, with built-in mechanisms for constant downward pressure on the price over time to prevent front-running and price speculation. As a custom Smart Pool, an LBP contains a set ratio of two assets ($DAI and $ZOO), enabling efficient distribution of $ZOO to users without requiring significant up-front investment of $DAI from the ZooDAO treasury.
In an LBP, the price of the asset being distributed continuously falls, driven by the change in relative weights of the two assets held in the pool. As the weight of one asset increases, the weight of the second asset decreases in response to the shifting balance.
In an LBP:
- The price starts high, and is expected to continually drop over time.
- Each trade purchasing $ZOO tokens will independently influence the price of the token, with small reactive increases in the price visible from the price graph.
- If tokens are not being sold earlier in the pool, the price will continue to drop.
Benefits of launching an LBP
Since the LBP is scheduled to take place over 72 hours, $ZOO will be available to users in all time zones at a continuously improving price. Users are not incentivised to purchase large amounts at once, or purchase early in the LBP, ensuring $ZOO token availability throughout the LBP period.
Bots lose their advantage
As the price of $ZOO starts from a specified high point and gradually decreases over time, any large purchase initiated by a bot will continue to apply downward pressure on the price and make $ZOO more accessible for individual users.
Users determine a fair price
The dynamics of an LBP enable users to decide when they purchase, promoting transparent determination of a fair, market-supported price for $ZOO.
At this point, critically ask yourself: Have I understood all of the information provided above? If not, we strongly recommend visiting the resources linked below to help understand the mechanics and structure of an LBP, and any associated risks.We highly encourage users to familiarize themselves with resources explaining the risks and benefits of participating in an LBP.
More on LBPs:
The following key parameters are being set for the ZooDAO Balancer LBP:
- Start Date: 22nd February
- Platform: Copper
- Sale Duration: 3 days (72 hours)
- Start price*: 3.27 $DAI
- Initial $ZOO available: 3,000,000 $ZOO (3% of total supply)
- Initial $DAI: 200,000
- Start Weights: $ZOO 98%: $DAI, 2%
- End Weights: $ZOO, 50%: $DAI, 50%
Although the team has control over these parameters*, we are unable to moderate the demand, thereby making it impossible to make any evidence-based estimation of the price of $ZOO available to users during the LBP.
*Start price of an LBP is not determined exclusively by the team. It is identified through use of an LBP model which takes into consideration the total supply of $ZOO and $DAI available along with the relative start weights, and determines the start price required to meet the target end weights.
We have detailed several scenarios below to illustrate the price impact by various patterns of user behaviour during the LBP. These scenarios are entirely hypothetical; there are too many variables which cannot be controlled for to provide any meaningful prediction of price during the LBP.
The vertical (y) axis in the graphs below illustrates price of the token. The horizontal (x) axis is a measure of time, against a total 72 hours in the LBP.
The graph below demonstrates the impact on price if no users buy $ZOO during the LBP period. In this scenario, the price will continuously decline, approaching the x axis but never reaching 0.00 $DAI.
This is an unlikely scenario however, given the interest expressed in $ZOO and the likelihood of users purchasing $ZOO tokens during the LBP.
In this hypothetical scenario, we illustrate the effect of the first buyer — a whale — undertaking two large transactions during the first 15 hours of the LBP. As visible from the graph, the price of tokens would still decline following these purchases, due to the consistent downward pressure on price by the LBP model.
In the eventuality that users determine the price of the token to be too high at launch of the LBP, the price per $ZOO would decrease over time until users begin purchasing at a price they determine to be acceptable. In the graph below, this first purchase is highlighted, at hour 11. This purchased is followed by a steady purchase pattern, resulting in a relatively stable price per $ZOO until the end of the LBP.
The scenario below demonstrates the price effect on $ZOO if a whale secures a large portion of available tokens, followed by consistent buy pressure in response from other users. This dynamic would result in a consistent increase in price of $ZOO over time, as is visible following the highlighted section in the graph below.
Mitigating risks for users
The LBP model acts as a deterrent to a small number of whales single-handedly securing the entire pool of $ZOO, by releasing the token supply slowly with changing weights. Whales are then forced to split trades into a series of smaller purchases over a longer time period, enabling other users to purchase at advantageous prices.
While the team cannot provide any advice or guidance on strategies for participation in the LBP, the graphs detailed above support the conclusion that monitoring the price and exercising patience in purchasing is more likely to be successful than purchasing immediately after launch.
No two LBPs are the same. We encourage users to research other LBPs to understand price behaviour in real-world situations. Information on other LBPs is available on copperlaunch.
Correction: A previous version of this article stated the start price of the LBP at 3.63 $DAI per $ZOO. This has been corrected to 3.27 $DAI per $ZOO.
The information provided in this article or any other article by ZooDAO does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the DAO’s content as such. ZooDAO does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.
Some jurisdictions regulate or prohibit purchase, trading or holding of cryptocurrencies. It is the responsibility of individual users to determine if purchase, trading or holding of a token or any crypto-related asset complies with the relevant laws and regulations of the country or jurisdiction in which they reside.