Democracy Hour: Explained
The mechanics behind the fairest hour in any IDO
When constructing the various logics, contracts, and algorithms that power the Lithium Launchpad the team were looking to create an environment as fair as possible for all investors. With the holders of higher tiers having higher allocation, and keeping a higher percentage of this in the event of an oversubscription it was important for us to come up with an initiative to benefit our wider investor base.
It was a carefully thought through concept which resulted in the creation and implementation of Democracy Hour or “Power Hour” as the community have to come to call it. Democracy Hour is the first hour of any Private Round of an IDO on the Lithium Launchpad and it works by ignoring the logic mentioned above. Anyone buying tokens in the first hour of an IDO will get to keep the same percentage of their allocation, the maximum, regardless of the tier they are purchasing from.
For particularly popular projects, the number of tokens $EBSC holders want to purchase may be higher than the initial allocation of tokens.
We are choosing to deal with this problem by adjusting the number of tokens investors will receive, and then partially refunding the native token used to invest.
Simply put, this might mean that you invest 5BNB in a project, let’s call it ACME, for 1000 $ACME tokens. The project is then 20% oversubscribed. You get 20% fewer tokens back (800 $ACME) but also get 20% of your investment (1BNB) refunded.
The above is a simplified example, in order to give higher tiers access to greater token holders, let’s take a look at the algorithm.
Below is the general algorithm Lithium will be employing to ensure a fair distribution amongst tiers.
- Calculate the pool supply-demand difference and relation.
- Calculate the pool tiers staking costs and their relation.
- Calculate the supply-demand difference for each tier.
- Calculate the sum of each participating tier stake prices.
- Calculate the relation between each participating tier stake price.
- Decrease the top tier supply-demand gap proportionally to this tier share of the sum of participating tier stake prices.
- Subtract new top-tier supply gap from their demand value.
- Subtract the resulting top tier demand from the pool and distribute it between the top tier investors.
- Remove the top tier investors from the pool.
- Go to 1.
To make this algorithm more real, let’s look at an example calculation
10 x Starters $200 worth of BNB buy-in
1 x Starter $100 worth of BNB buy-in
1 x Investor $500 worth of BNB buy-in
1 x Investor $100 worth of BNB buy-in
Total pool demand:
Pool tiers staking cost relation:
This calculation gets the ratio of the the different tiers, based on the minimal threshold for each tier
$EBSC 200 000/ $EBSC 600 000 = 1/3
Investors supply-demand gap:
Here we assess the demand gap for each tier, without allocation of a difference in tier tokens
$600 — $600 x ($2000/$2700) = $155.6
Investor tier-adjusted supply-demand gap:
By applying the pool tiers staking cost relation with the supply-demand gap, we can calculate the tier-adjusted supply-demand gap
$155.6 — ($155.6 x 600 000/(200 000 + 600 000)) = $38.9
Investor tier gets:
$600 — $38.9 = $561.1
Investor 1 gets:
500 * $561.1/600 = $467.6 worth of tokens and $32.4 worth of BNB back to his account.
Investor 2 gets:
100 * $561.1/600 = $93.5 worth of token and $6.5 worth of BNB back to his account.
The rest of the pool ($1438.1) is distributed between the remaining tiers.
The only remaining tier is Starter so the remaining supply is divided between them equally.
Starters 1–10 get:
200*$1438.1/2100 = $137.0 worth of token and $63.0 worth of BNB.
Starter 11 gets:
100*$1438.1/2100 = $68.5 worth of token and $31.5 worth of BNB.
Democracy Hour Algorithm
Democracy hour encourages lower tiers to buy in early as the alogrithm ignores the tier adjusted supply gap. This means that all the tokens purchased by investors in any tier are treated the same and divided equally using the highest possible allocation division (evangelist).
We anticipate that this will not only create buying pressure at the beginning of the IDO’s ensuring a quick sell out and a lot of hype for the incredible projects launching with us, but also rewards the smaller tier holders in a way we think they will love.
This hour ensures that they can make the most out of their smaller allocation, keeping the same % as evangelists will out of their much more considerable allocation limit. Whilst this does not impact the amount evangelists can buy or keep it does greatly benefit the lower tiers buying IDO tokens in the first hour.