Record-Breaking Liquidity Bootstrapping Pool by Merit Circle Reinforces Balancer LBPs as Cornerstone of Decentralized Growth
How Balancer Protocol’s Liquidity Bootstrapping Pools (LBPs) Bring Projects To Life
The recent Merit Circle LBP shows how easy it is for companies launching LBPs on Balancer Protocol to break records. It is also a display of a much more fundamental element of how permissionless protocols enable people to coordinate around a shared purpose.
On the journey to decentralization, a fairly distributed token ownership is at the core of growing a protocol from a wide set of diverse opinions to a fully fledged DAO. Balancer Liquidity Bootstrapping Pools (LBP) are a prime building block to facilitate the growth of a decentralized future.
‘’The Balancer team built something that’s (in my opinion) proven to be one of the fairest and most accessible distribution methods of a token. We had a very smooth experience during the three days of our auction, using Balancer Protocol in combination with the Copperlaunch UI. If we had to do it again, we’d definitely choose a Balancer LBP.’’ — Marco van den Heuvel, CEO of Merit Circle
Systems for token distribution
The Web 3.0 space offers multiple ways to distribute tokens of a project. Some of the mechanisms are susceptible to bots sniping the initial liquidity and others have a high barrier to entry such as Know-Your-Customer (KYC) or minimum buy amounts. This is not the case for Balancers LBPs as they offer a wide set of benefits for auction participants.
Key characteristics of LBPs
The main advantages can be categorized as done by the Copper-Team, which built a frontend for the launch of LBPs. These are:
Price discovery. The price of the token starts high and drops based on a pre-configured price decay curve that can be resisted by buying pressure from auction participants. Anyone can buy into or sell out of the auction freely at any time, so price truly regulates itself.
Open and permissionless participation. Freely launch tokens and participate in auctions. No whitelists, hard caps, or listing requirements. There is no minimum or maximum allocation. Auction participants choose how much they want to buy.
Fair distribution. FLAs flip the first-come-first-serve launch model on its head and change token launches from being a race where the first bot in or the transaction with the highest gas fee wins. Get your token into the hands of as many people as possible in a fair way that disincentivizes front-runners and whales getting better rates than smaller participants.
Capital efficiency. The initial price of the token being auctioned can be magnified by up to 99 times relative to the collateral deposited along with it. Additionally, the collateral can be fully retrieved at the end of the auction unless the auctioned tokens already exist outside of the FLA and someone decides to sell into the auction.
This is a display of the powerhouse LBPs are.
Shifting weights — the secret sauce.
There are multiple ways to define how weights shall be adjusted during the fair launch auction cycle, depending on the needs of the project. Examples are exponential or linear weight changes.
Merit Circle made use of these key characteristics to launch their token (MC) via the Balancer smart contracts. The whole event started on second of November and lasted 4 days. In the case of Merit Circle the initial weight distribution was 96% MC and 4% USDC. This initial ratio of tokens gradually shifted to an even 50/50 distribution. This mechanism is what has a downward force on the price and benefits people wanting to buy at their preferred price points if buying demand is not too strong. The case of Merit Circle however was unusual in size and demand.
About Merit Circle and their grand vision for the Metaverse.
The vision of the Merit Circle DAO is to give its members an opportunity to earn through play and maximize value accrual to their members across multiple games in the Metaverse. These opportunities for players live on the Merit Circle platform and come in the form of:
- Meritocratic education system
- Scholarships
- Additional support systems to guide gamers to be earners
The grand vision of Merit Circle is to be an essential part of the future Metaverse and enable their users to earn revenue.
On-chain data does not lie — Why the Merit Circle LBP broke records.
The auction showed a strong demand from the get-go with an initial price surge to 2$ within the first hour. In the following hours, a gradual price decline can be seen. During these hours there were twice as many buyers compared to sellers. What followed is an overall strong demand price profile of the fair launch auction. Due to the weight shifting a price reduction should happen (if no new buyers). However, buying demand outweighed the price reduction mechanism and resulted in a slow upwards trend of the price. Buyers were able to buy along with this slow price increase and secure their wanted Merit Circle (MC) tokens.
Especially the beginning of a fair launch auction is a volatile time for the token price, so it is expected for traders to join the action and try to get in winning buys and sells. This has shown to be true. in the first hour of the LBP event the ratio of sales/purchases was around 20%. During the event this ratio fell to under 5% and slightly spiked in the end.
The steadily increasing number of MC token holders is another indicator that LBPs are well designed for fair token launches. After 50% of the token sale time has passed, there were around 2000 MC token holders and the final amount of token holders was around 4000.
How fair was the auction afterall?
Taking a look at the data after the LBP concluded shows that in the category of the top 1000 holders the amount of MC tokens is well distributed.
Not only did bigger holders get their share but the highest amount of MC tokens held by the midpack (defined as: 10000 < MC token holders < 100k).
Overall the LBP event was a huge success for Merit Circle and Balancer. The pool was started with 3,130,000 USDC and 75,000,000 MC-tokens. In the end Merit Circle was able to withdraw 108,774,442 USDC and 33,983,117 MC-tokens. After all this accounts for a raise of around 105 million USDC.
What’s next for Merit Circle?
The Merit Circle DAO is now equipped with a fair share of Token holders looking to shape the future of the DAO. The intention is to finish 2021 off with aggressive scaling of the community and implement staking strategies for token holder value accrual. 2022 Will be shaped by tooling implementation and eventual decentralization shaped by subDAOs and on-chain voting.
Conclusion & action items
Whether you are in NFTs, DeFi, DAOs, decentralized governance, building, auditing an so on, LBPs show how all web3 facets can come together to celebrate building fairer token distribution. Utilizing LBPs — specifically designed for token launches—really help projects such as Merit Circle to bootstrap their project.
If you are looking to bootstrap your token’s liquidity, consider using Balancer’s Liquidity Bootstrapping Pools (LBP). Create them via:
- Copperlaunch — https://copperlaunch.com/
- Balpy — https://github.com/balancer-labs/balpy
Looking for more resources? Head over to:
- Balancer docs — https://docs.balancer.fi/
- Balancer dev docs — https://dev.balancer.fi/
- Copperlaunch docs — https://docs.alchemist.wtf/copper
And join the conversation on Balancers or Merit Circles Discord:
- Merit Circle — https://discord.com/invite/meritcircle
- Balancer — https://discord.balancer.fi/
