The Alchemist community is pleased to announce the launch of Copper!
Copper is the most open and user-friendly way to participate in a Fair Launch Auction (FLA). Powered by Balancer’s LBPs, an FLA is a simple crowdfunding mechanism that enables projects and ideas from across the world to raise money from individuals in exchange for tokens representing a stake in the project.
There are no barriers to entry. No middlemen, capital gatekeepers, or geographical constraints. No KYC or any sort of privilege favoring the interests of larger investors over those of smaller ones. Capital can now flow freely and directly toward empowering the ideas that deserve it, while enabling investors of all sizes and backgrounds to fairly participate and capitalize on these early stage opportunities.
Given that the Alchemist project itself was started as a Fair Launch Auction, we deeply understand the value of fair token distribution events and their ability to positively shape a community’s future. Any idea can now be bootstrapped by an invested community and thus established as a transparent and equitable partnership. FLAs are the future of new venture funding and Copper is here to unlock the world’s “value reserves” to be “mined” by anyone — fairly, transparently and equitably.
What do FLAs mean for auction participants and projects?
From an article written by Hasu and Arjun Balaji:
“The foundational principle we observe is that a fair launch offers equal opportunity — not equal outcome — to acquire a coin 1) over a long period of time 2) at a relatively equal price. This can be broken down across two dimensions: length of issuance and price equality.”
An FLA is typically structured so that the price of the auctioned token starts high in the beginning of the auction and then gradually declines with time. (unless the buying activity of auction participants’ is high enough to offset the token’s weighted price fall).
As a result, FLAs give all auction participants a fair shot at becoming equal stakeholders in a project’s future, and empowers those participants to collectively decide what is the fair price for the project’s token at launch. This dynamic has the potential to foster a deep and grounded connection between a project’s developers and the FLAs participants. By going with an FLA, projects not only gain funds and token holders, but also foster a wider and more invested community, (one typically ready to be mobilized as project contributors at any time). As a permissionless format built on top of the Ethereum network, there are no barriers to any individual user’s entry and this incentivises open entry into FLAs for investors from all walks of life.
For projects, FLAs provide the ability to bootstrap liquidity in a capital efficient manner, (with minimal upfront capital), and this process results in a wider distribution of tokens between various holders. The price of the auction starts high in order to disincentivize bots, front-running and price speculation. Over time, the price will automatically decrease by design through set weighting across the auction period. A Fair Launch Auction thus effectively protects against front-running, and the historical ‘pump and dumps’ that have colored the token launch landscape in the past.
FLAs have the potential to fundamentally alter this space compared to the conventional ICO/IDO (Initial Coin Offering, Initial Dex Offering) style sales.
A Fair Launch fundamentally means that any new participant has an equal chance on their share of the pie, versus any other prior or later participant until the auction closes. Compare this fundraising method to the 2016/2018 era of ICO/IDO launches, where VCs, whales and big players, could “fund” projects for 1/100th of the public launch price, and then dump their holdings on retail investors. Those opportunities were all but a “fair launch’’. As the below images show, proper Fair Launch Auctions enable a much more distributed user base at launch.
https://etherscan.io/token/tokenholderchart/0x88acdd2a6425c3faae4bc9650fd7e27e0bebb7ab
https://newsletter.banklesshq.com/p/the-ultimate-guide-to-balancer-smart
Fair Launch Mechanics: how it works
Fair Launch Auctions enable projects and ideas to get crowdfunded publicly on the Ethereum Network. The mechanism is based on Balancer’s Liquidity Bootstrapping Pools (LBPs). It involves a project allocating some number of their minted ERC20 tokens to be auctioned off to the general public. The project then gives those tokens an initial value by collateralizing them with a credible asset like WETH, DAI, or USDC, and as such it has the potential to amplify the value of that collateral by up to 24 times when beginning the auction. Once the auction commences, the price of the project’s token starts high (proportional to the rate at which the project decided to amplify their collateral), and then gradually declines over the duration of the auction, in some cases even falling below the value of the initial collateral.
The following chart illustrates the mechanics described above. You’ll see that for a Fair Launch Auction involving token TKNX we have a current price of $0.22 and the token’s price is going to keep declining over the course of a month, dropping all the way down to a predicted value of $0.0156.
But there’s a twist! Note that on the chart legend the line illustrating the price decline is labeled: “TKNX price (without new buyers)”. This is because new buyers buying into the auction are the only way that the configured price decline of the TKNX token can be counteracted during launch — and if the volume of buying activity becomes large enough the price will stop declining all together, and potentially even start increasing.
What follows below is a visualization of the historical Bankless auction for their ‘BAP0’ token, which serves as an early case study of LBPs, and also as a way to showcase that these type of auctions could be used to not only fund projects but also act as a price discovery mechanism for physical objects, like t-shirts.
You can see that although price was falling throughout the whole auction it eventually found a floor, and at many points in time the falls in price for the ‘BAP0’ tokens were counteracted by heavy buying activity and thus resulted in a price increase.
The other detail to consider is that not only can participants buy into FLAs, but if they’ve bought in and are seeing the price of the token exceed their perception of what it’s truly worth they can always sell it back into the auction at its current price. So auction participants are never held as captives.
Here’s another example, this time for the MPL auction by Maple Finance.
And finally, Alchemist’s very own Fair Launch Auction ⚗️
Why go with a Fair launch style auction?
As you can tell based on the historical Fair Launch Auctions above, Copper allows for FLA participants to better interact with LBP launches generally and be more informed about the conditions of a particular Fair Launch Auction. By providing aligned educational content, auction insights, and a host of advanced metrics, Copper provides a more intuitive and user focused experience. With an emphasis on information parity between users and strong inbuilt discovery mechanisms; Copper is naturally the way forward for initiating and hosting Fair Launch Auctions.
Simply put: A Fair Launch Auction is the best way for projects seeking a fair, transparent and equitable launch for their token and a community of potential investors. This doesn’t mean a Fair Launch Auction is the holy grail of starting a project and acquiring funds, however, it does provide a method for launching projects that considers all involved parties’ interests fairly.
Not only is a Fair Launch Auction more transparent and accessible than existing venture funding methods, but it also overcomes some of the obstacles that “classic” ICO/ICO projects had, by making a broader audience, i.e. a community, part of the fundraising, without the risks of whales, dumps, etc, and thus making it fair for everybody willing to participate.
The reason why projects would want to go with a Fair Launch style Auction is that it equally benefits them as much as it benefits the investors. For projects seeking capital, they can do so with very little upfront capital and with — comparatively — low risk, compared to VC (Venture Capital) funding, loans, accelerators which present a much higher risk (and more strings attached) for projects looking to launch.
On the flip side of this situation, any participant who would like to be part of the investment auction has an equal opportunity for roughly the same price as the team themselves. But this isn’t the only reason why the FLA method is interesting for both parties. By having the opportunity for any participant to join this auction format, projects can leverage their communities and growth in order to get more people on board at launch. This also specifically reduces the risk of a “Pump and Dump”, where a small group of individuals who gained access to the project early (typically a private sale far below the listing price), can subsequently dump their tokens and heavily impact a project’s price at launch. By distributing tokens fairly to a wider audience this risk is heavily mitigated and makes for a more open and equitable launch experience.
We are delighted to be able to offer you a new way forward with Copper and we invite you to use the Copper platform to discover new LBPs and launch projects, ideas and communities in a fair and equitable manner
Come join us in our quest to fund new ideas, find the Philosophers stone and explore the Galaxy!
