LBPS
Overview
Liquidity Bootstrapping Pools (LBPs) are pools that can dynamically change token weighting (e.g 1/99 to 99/1 for TokenA/TokenB). LBPs use Weighted Math with time-dependent weights. The starting and end weights and times are selected by the pool owner, who also has the power to pause swaps.
Advantages
Sell Pressure
During a weight shift, the token price of one token experiences sell pressure while the other experiences buy pressure. When this is mixed with modest trading volume, the price approaches the generally agreed-upon market price.
Fair Market
LBPs often start with intentionally high prices. This strongly disincentivizes whales and bots from snatching up much of the pool liquidity at the get-go. When LBPs are used for early-stage tokens, this can help increase how widespread the token distribution is.
Starting Capital Can Be Small
Teams who use LBPs to kickstart the liquidity of a token that has not been well distributed yet can do so with much smaller starting capital.
For a team running an LBP with their TOKEN and USDC, starting with 10% or 20% USDC, as opposed to 50% USDT, like they might need in the Uniswap pools, significantly reduces their starting capital requirements.
An example in an LBP shifting from 80/20 TOKEN/USDC to 20/80 would look like this:
The LBP model would ultimately result in the team holding far more USDC at the end of their LBP while reducing the (sometimes extreme) price volatility that teams experience when just launching a 50/50 pool.
For more details about LBP, please check here.
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