V2 Liquidity Pool
Liquidity Adjustment for USDC:IONs
To facilitate gas-efficient trading on-chain, AMMs such as PancakeSwap use something called a liquidity pool. A liquidity pool is basically a smart contract that holds the tokens of a trading pair in a certain ratio (usually 50/50). When someone buys or sells a specific token, trades are settled against this pool which allows instantaneous, cheap, and efficient transactions to be completed without a ‘middle-man’ like a broker in traditional finance.
Every time a swap is facilitated in a liquidity pool, there will be a price adjustment which is determined by a pricing algorithm. These price adjustments happen with every trade, and the impact of buys and sells are inversely correlated with the size of the liquidity pool.
Unlike other projects that allocate massive amounts of their initial raise to team or development wallets, we opted to park a significant amount of the capital (c. 80%) into an EBSC:BNB LP pool which was locked for 12 months via Unicrypt. We did this mainly to gain credibility. At the time, the space was characterized by rugs… teams would raise funds and then simply disappear into the abyss.
Over the last 13 months, the LP pool has fluctuated in line with our market cap, however, as of the token migration, this sat around 21.9% of our market cap. As illustrated below, this is significantly above the market standard and vastly larger than other familiar projects.
While the decision was the right one at the time and stage of the project, 14 months later, maintaining such a large liquidity pool no longer aligns with our goals and the current market environment.
When we swapped $EBSC to $IONS, we reduced the liquidity pool to be more in line with our competitors and other projects. The liquidity pool has been reduced from 21.9% to 5.29% of our market cap. As previously disclosed, the liquidity pool has migrated to Quickswap in the form of an $IONs-$USDC balanced pool.
We chose to pair with USDC in the short term in order to minimize the wider impact on the negative sentiment around larger tokens such as MATIC that we’re seeing currently. Should the market conditions change, we have the ability to swap back to MATIC to gain the full benefit of the next bull cycle.
What does this mean?
Most importantly — the new proposed liquidity will not affect the value of your holdings.
Fundamentally, this move means we release capital to support the project moving forward. The bear market has resulted in smaller raises, less revenue, and therefore a smaller runway to spend on product, marketing, and hiring activities. Many competitors are in a place where the longevity of their project is in doubt, and this strategic move will allow us to continue building in current conditions to best prepare us for the next leg higher.
For absolute transparency, here’s how this cash will be spent in the future (operating more like a DAO in terms of major decisions):
- Team — continue to build on our in-house capabilities by investing heavily in developing skill sets
- Product — Continue building during the bear market whilst competitors slow down product work
- Runway — Increase our runway to ensure we retain the ability to invest in the project no matter how long the bear market remains
- Remove the need to sell $IONs from the treasury wallet in order to pay for ongoing costs. This will remove sell-side liquidity for an extended period of time.
Please note that every penny of this LP release will be retained within the Lithium treasury to be re-invested into the project.
When we launched — the decision to lock 80% of our liquidity was the right one. It gave us the opportunity to generate credibility as a founding team and taught us to be frugal as an early-stage, community-owned startup.
We’re no longer the new kid on the block. Our product is insane, our pipeline is the best it’s ever been, and we’re now ready to embark on the next stage of our journey. This capital injection will expedite our growth, increase our ability to spend in important areas, and allow us to increase market share against our competitors who are currently being forced to sit on their hands.
We’re excited for what the future holds, and together — we are Lithium.