How (not) to launch a token on Terra
13 min readDec 16, 2021
A little musing on how Terra launches went so far and where I see them going from here.
Intro
In Dec 2020 Terra wasn’t exactly a very lively blockchain (De-fi-wise at least) with just Mirror Protocol up and running and Anchor only to be launched 3 months later.
Fast forward a year and we have now 15+ dApps operational, another 100 or more in the works and quite a few launches behind us. Some of them very smooth, some other resulting in a lot of grief and sadness.
I say we do a little recap of the good and the bad:
- For the not-yet-launched protocols to learn from
- For the apes and degens to know, how to tell a good launch strategy from a bad one
Disclaimer
Life is too complex to formulate generic statements that would always be applicable. There might be something special about any particular project that would make my ideas obsolete.
That’s why for each area I will list:
- Things to try, and
- Things to avoid
As well, this article does not constitute financial advice, legal advice or any other kind of advice. It has been written for educational and entertainment purposes only.
Dissection of a launch
From my perspective, any launch has a few phases to it and this is how I organized my ideas:
- Early financing
- Price discovery
- Listing on an exchange
- General remarks (not really a phase, but I had to create a category for some misfits)
1. Early financing
Quite obviously, the team working on the project has certain needs. By that, I don’t mean that they need only funds to cover project expenses (which are hardly insignificant) — they are human beings, possibly with families, bellies to feed, with housing needs (duh!) and other. None of that comes for free, last time I checked.
So, unless they have a whale at the team willing to sponsor the whole thing, they are likely to need some financing on the early stage of the project. It may come in a variety of forms — VC funding, angel investor, pre-sale, public sale and some others I might not be readily aware of.
Things to try
- Public sale with a number of channels
LUNAtics are a wonderful community with a lot of helpful folks around and not so much hate one as one could expect on any random social media platform. WAGMI is the name of the game (milk?) and in that spirit it makes sense to allow fellow LUNAtics to participate in early funding. They will be more than happy to take on some risk and get a share of the benefits (if any).
Given varying preferences, offering multiple participation options would appeal to me, especially if at least one of them is a “swap” (right now available on StarTerra and Pylon, not to confuse with LBP). - Including a public sale channel without KYC
There is a number of reasons doing KYC-only public sale is a bad idea. from exclusion of a number of countries (most notably: USA) to keep-your- anonymity DeFi spirit. Don’t get me wrong — I don’t mind doing KYC myself, and I find it perfectly fine if a project team decided to include KYC in one of the public sale channels.
Then again, if KYC is the only way to participate, that screams “lack of inclusiveness” to me. And if the team was willing with KYC is not bad on its own, it is a different story — one that hints: “if they were willing to exclude some of us so early, what’s there to stop them from excluding more later on?” - Building a warchest
Started and popularized by Olympus DAO, now every protocol seems to be either sitting on a pool of tokens in their treasury or on its way to get one. That’s becoming a trend nowadays, and for good reasons:
- Protocol-owned liquidity (PoL)
- Soft/hard floor for the token price
- Ability to expand with little-to-no need for future funding rounds
Most notably, with recent LBP swap White Whale Protocol amassed $26m of capital in their treasury, which I consider a pretty healthy amount. - Long vesting period for the public sale, even longer for team/VCs
As an investor, I would like to see that both the team and VCs are willing to go the distance and understand what game they are playing. An infinite game, and not a sprint (please excuse a little “Simon Sinek” intrusion.
When I notice a long vesting period (in years), ideally with a cliff (=period until an vesting starts), I remain reassured that incentives are aligned — it is in the best interest of the team to keep delivering and of the VCs to keep advising them.
Things to avoid
- No public sale — from VC funding straight to listing
The very first thing that would come to my mind in such case is: the project team would rather keep the biggest upside potential to themselves and VCs/advisors. Community sponsorship is not welcome…
That’s not exactly a good message to send to the LUNAtics, especially since they are willing to take the risk and many of them are able to do much more than — from providing feedback to community management and content creation, to contributing directly. - Inappropriate allocation of total token supply to VC, team and advisors
Another flavor of the above. When I can see that VCs, team and advisors hold too much of the total token supply from the get go, a warning light starts flashing in my head. Similarly, if the vesting schedule is to short, e.g. that (potentially oversized) team/VC allocation is fully unlocked 3 months after TGE.
Both of these scream “rip-off” to me and hint at the desire to get rich quickly. I much rather prefer teams that just focus on buidling great stuff that will outlast them.
2. Price discovery
Things to avoid
- Skipping price discovery
What happens when you skip price discovery? They say a picture says more than a 1000 words — let me show you some:
So, either of 2 things happen:
- Bots get in on the first block after liquidity is added with crazy-sized swaps
- People FOMO in in the first minutes
Additionally, being around/awake in the first minutes is sometimes quite critical — not easy to pull of for people with a 9–5 job or a family…)
In either case, the result is the same (although timeframe varies from 0.1–1 minute in the first case to 5–30 minutes in the latter):
- The listing price is something that is available only on paper
- Bots buy most of the early liquidity at low prices
- A spike can be observed with price raising pretty quickly (due to bots or FOMO) and then drops as people start taking crazy profits.
Only afterwards the actual price discovery takes place. It doesn’t have be like that though, as there is a way to avoid both botted launch and people getting even remotely close to FOMO. Read on to learn more…
Things to try
- Liquidity Bootstrapping Pool (LBP)
With just the recent launch of the White Whale Protocol’s $WHALE token, LBP has already earned a place on the Terra launching map. No surprise here, as the mechanism allows for slow and steady price discovery with bots having no advantage over regular human beings.
In simple words, LBP is a special type of AMM pool, where the ratio TOKEN:UST changes over time, with increasing UST weight. The result is price decreasing exponentially over time in case no purchases are made. A start from a high price makes botting unattractive and price decreasing on its own allows for market participants to take action whenever they feel like the price is good for them.
A side effect? White Whale amassed 26M $UST — it is not unlikely that for other protocols to collect a bag of similar size, solving many problems. - Pylon Scout
Different in details than the LBP, Pylon Scout has the same 2 characteristics: (i) does not provide any advantage to the bots and (ii) allows for a slow price discovery.
The mechanics are pretty simple. Let’s imagine $FOO token offered in such a way, 1M $FOOto be taken away. With Pylon Scout, people would have (say) a week to deposit as much $UST as they want towards purchasing $FOO, and only deposits would be accepted — no withdrawals in the first week.
Since the entirety of $FOO offered will be shared among all depositors (proportionally to their deposits), then:
FOO_price = Total_UST_deposits / Total_FOO_offered
This means: throughout the 1st week the price slowly climbs and reaches peak at the end of week 1.
In the 2nd week no more deposits are allowed, but withdrawals become available. If you feel like the price is too high, you can withdraw now. This makes the price go down until end of the 2nd week, when the Scout comes to an end and $FOO gets distributed to whoever left their UST in the pool.
My personal preference is towards LBP though, as it allows for DCA in contrast to the Scout which makes me take a single bet on the price. - Asymmetric LP seeding
Now that’s something new, and not yet tried on Terra (or anywhere else… someone please correct me as I might be wrong on that part). I see it as a twist on the Pylon Scout idea — a very interesting twist, that we will first see in action during Astroport’s Lockdrop Phase 2. Let’s take a closer look.
Phase 2 will allow for both $ASTRO price discovery and seeding initial liquidity at the same time. In the first 5 days, we will be able to deposit or withdraw as much as we want. We can deposit:
- $UST
- $ASTRO
- a combination of the above in any ratio we see fit
On day 6 and 7 no more deposits are allowed, only withdrawals — up to 50% of the total deposit on day 6, linearly dropping to 0% throughout day 7.
This will result in a pool that does not have an up-front predefined balance between $ASTRO and $UST — that will only be discovered at the end of day 7. The incentive to participate is significant: 10M $ASTRO will be airdropped to the participants.
The liquidity seeding comes from the fact that any $ASTRO and $UST deposited will be fully locked for 3 months as ASTRO-UST LP (friendly warning: risk of impermanent loss).
…I am very curious how this will play out… I have a good feeling about it though. The analytical part of my heart feels excited about a new (and clever) design being tested in real life, that’s for sure. - Protocol-owned liquidity (PoL)
If a project implemented any of the above and/or a decently-sized swap on Pylon or StarTerra, they should be sitting on a pretty reasonable bag of $UST.
If (part of) that $UST were to be combined with the token to be listed, the protocol could own most of the liquidity and prevent huge spikes of price at listing. Not to mention that:
- Trading fees are another (passive!) source of income for the treasury.
- PoL removes the need to incentivize LP, significantly decreasing token inflation and improving tokenomics.
Win-win.
3. Listing on an exchange
Things to avoid
- Listing with a low liquidity
The lower the initial liquidity provided by the project team, the more reliance on mercenary LP providers (and LP incentives) and the bigger the spike at the listing.
Providing too much liquidity is not a good idea either. In case of PoL, then the result is inefficient usage of the funds in project’s treasury. In case of LP incentives to build liquidity, too big of LP size means that LP rewards are just too big for current needs (price/volume combination), creating unnecessary token inflation. - Listing without price discovery
If the section above did not convince you that price discovery is good, I must have done a terrible job. Fire me immediately.
I will make one last attempt though. After price discovery we have a pretty good understanding of the market price, which can be then used as the listing price. That removes the charm for the bots (and their operators) as there is little to be gained from being early.
Things to try
- Estimate the LP size needed
There are ways to understand the amount of liquidity needed ahead of the listing.
Usage of LBP is definitely one of them, as you can see the transaction volume over a period of time (e.g. 72 hours) and adjust your LP size to make sure slippage is not going to kill bigger swaps.
Another one could be relative assessment. A finger-in-the-air estimation of hype around a project in comparison to peer projects that have already launched will give at least an order-of-magnitude estimate of how much liquidity is needed.
With no data available whatsoever, going below $1–2M is a no-no. - Pre-seed liquidity
Make sure that there is enough $$$ in the treasury to seed decent liquidity or take care of it in another way (e.g. Asymmetric LP seeding a.k.a. Astroport’s Lock). If the team can do that part right — and they should be given history of launches on Terra — I can see at very least that they have done some homework and decided not to repeat the mistakes of others.
On contrary, not raising enough funds through pre-sale/public sale to seed the liquidity is a warning sign of poor capital management…
4. General remarks
There are some other lessons we have learned that are somewhat related with launching topic overall, but not so easy to match with any of the areas above.
Things to avoid
- Crappy / infrequent communications
If there is a thing that is more infuriating to me that a badly designed launch, bad communications would be the top contender to that title.
Just as much as any team should have an expert on tokenomics (or get one from one of the VCs involved), an expert on communications is a must just as well. A launch with great design is going to fail just as much if things are communicated in obscure, unclear, or infrequent/inconsistent way.
When in doubt, err on the side of overcommunicating. And I don’t mean marketing comms by that — only juicy info/alpha that brings clarity beside the hype. - Starting any part (especially public sale, price discovery and listing) without having communicated the whole plan
Dear project team members, if you want us to play your game of “purchase my token”, at least do us a favor of explaining the entirety of the rules up-front. In particular, any fixed-price sales after deploying a price-discovery mechanism makes no sense (incl. post-IDO sales / post-TGE IDOs or whatever these are called now).
Role models?
Mars Protocol and Astroport have laid out the whole launch plan already weeks ahead of the actual launch.
Protocols that could have done better?
WhiteWhale — launch of $WHALE is still advertised on StarTerra’s page, only the nature of that launch is not known (unless I have somehow missed that piece of info)
StarTerra — rules and token launch mechanics changing in a blink of an eye in a reaction to events that could have been predicted up-front (e.g. launching with low liquidity). - Regular airdrops
There is enough content and opinions that regular airdrops don’t provide any material benefits to the protocol. If you consider them anyway — think again and consult with the protocols that have/had them and decided to stop (e.g. Pylon Protocol stopped after a governance vote) - Unconditional airdrop
If choose to have an airdrop, either a genesis airdrop or a regular one, at least don’t make it unconditional. Make it into a barter deal, where the protocol gets something in return (other than thousands of people waiting to dump your token and buy $LUNA instead).
Providing liquidity, interacting with the protocol’s core functionality, staking and participation in governance seem to me like some ideas worth exploring here.
Things to try
- Accept feedback and seek understanding
In absence of feedback, we might keep living in a happy bubble not even knowing that things are definitely not okay. Not only accept feedback and opinions different than yours — actively seek to get that feedback and understand it.
Resist the urge to react immediately. Make a pause, take a deep breath and first make sure that (a) you understand the feedback provided and (b) the feedback provider feels heard. Only then proceed to responding. - Don’t worry to change your mind/approach, but make sure the community knows where you’re coming from
We are not perfect and that’s fine — part of being humans. If something fails even with all feedback taken into account and designed with best intentions, don’t hesitate to change the approach.
It’s like with holding a bag of token which price plummets. More often than not, it’s better to sell quickly and pivot to a better opportunity, humbly accepting the loss and lesson learned.
Similarly here — don’t keep following a broken approach. Make sure to communicate the pivot before it happens though, so that the whole community does not feel underinformed at best and betrayed at worst because you changed the rules in the middle of the game. - Own up your mistakes
Again, we are not perfect and that’s fine — we all make mistakes. What in my eyes distinguishes bad and good leaders (or decent and not-so-decent human beings) is ability to admit mistake… and own it.
If I have done something wrong, harmful or worse, the least I can do is admit it, apologize and make an honest effort to rectify my wrong doing. Being anonymous on CT or lack of risk of penalization is no excuse. I can only hope that LUNAtics are smart enough to figure out whom to trust on that one. - Being honest, straightforward, humble
Last but not least — stay humble, be honest and communicate in a straightforward manner. If nothing else, you will come across as friendly and approachable.
To all the protocols that are yet to launch and all IDO participants — all the best!