- Liquidity bootstrapping pool (LBP), also called smart pool, is a contract that governs the core pool of tokens.
- Basically, these configurable rights pools are used in cryptocurrency exchanges.
The concept of LBPs was initialized with the capability of launching tokens with low capital requirements. A collateral and two-pool token are established to achieve this project’s requirement. These tokens are set up with a gradual flip in collateral coins favored until the token sale ends. Controllers can manipulate the sale to gain their desired profit value and coin offerings while ensuring price stability and maximizing revenue.
What are Liquidity Pools?
Liquidity pools (LP) are platforms where investors or traders could find their preferred pool of liquidity or assets they want to trade at that particular moment. When they want to make a trade, for example some Bitcoin or Ethereum, they don’t have to wait for other traders to have that liquidity available at preferred price because it’s already waiting in that acquired pool.
Liquidity pools provide great opportunities for quick trading. One has to keep in mind that each LP must consist of an Ether (ETH). For example, a pool of ETH and BTC has to be there. If a user wants to trade using a liquidity pool, they have to use two different LPs paying fees of both as well. Uniswap and SushiSwap are perfect examples of these kinds of liquidity pools.
Balancer Liquidity Bootstrapping Pool
Traders faced issues monitoring new tokens using order books and struggling with the high investment needed for real liquidity pools. Balancer came to the forefront with new ideas for the liquidity pool that’s “Balancer Liquidity Bootstrapping Pool”.
Liquidity Bootstrapping Pools (LBPs) are considered as best LPs for emerging cryptocurrencies that strive to invest with a low capital. These low capital liquidity pools help in liquidity generation via small capital along with two key components that are, balancing of asset ratio and LBP crypto.
LBP Crypto Assets
It determines the crypto assets that each pool consists of. There are two types:
- Project Token
- Collateral Token
- Project Coins or Tokens
These are newly introduced crypto of Liquidity Bootstrapping Pool. During LBP’s inception, the amount of project tokens are more than pool’s Collateral token. As the bidding time increases, the weightage of project token to collateral token can shift to the playing field.
- Collateral Tokens
They are highly traded or can say, high liquid LBP’s crypto. At its initial launch, LBP had less collateral tokens compared to project tokens of existing pools. With progress in its auction time, the shift in the number of collateral tokens shifts to increase more than project tokens with a more even percentage. This shift in token’s value goes down to the creator of pools along with LBP’s trading volume.
Conclusion
Liquidity Bootstrapping Pools work in the same way as normal LPs do. It only possesses a few differences in its ratio, because of new tokens to have more reach across the market. The limitation is that its rug pull event is next to impossible. LBPs provide a better pathway to get tokens supplied to a large number of users. They are a better option to efficiently fundraise small projects that struggle with maximum distribution and liquidity to buying and selling of tokens.
