Update 3.9.24
added:
Ballpark costs
Estimate $20-40k depending on eventual complexity.
TL:DR
This wish for change seeks approval to develop and then integrate a new type of liquidity pool for asset hub that would enable early stage teams to leverage their native asset to bootstrap initial funding in a highly capital efficient, fair and sustainable manner
This strategy aims to create tighter economic alignment between the treasury, native stablecoin integrations and next generation parachain teams focused on meaningful adoption of the technology rather than a race to listings before attempting to backfill adoption into overly inflated expectations.
Teams would begin with an LBP style launch and then have the ability to progress to listings on asset conversion pallet before later launching on mainstream exchanges.
Polkadot 1.0
Polkadot 1.0 was oriented around onboarding parachains via crowd loans and auctions.
Teams raised funding for development through external financing and marketed their native tokens and use-cases to KSM and DOT holders who received the new network assets when they agreed to lock up their tokens to help teams secure 1 year leases on Kusama or 2 years leases on Polkadot.
In this model value accrued to parachain teams and individual KSM/DOT holders contributing to crowd-loans.
Common good treasuries received no upside exposure in this design.
The economic incentives of crowd loans provided the ecosystem’s primary marketing.
Polkadot 2.0
In Polkadot 2.0 crowd-loans have been replaced by coretime sales.
KSM/DOT are now used to purchase blockspace.
This network income is burned - turning opportunity costs into direct costs.
Coretime income now gives an objective measure of demand for Polkadot’s primary product.
However... it also removes speculative incentives of crowd loans that enabled first generation parachains to raise development funding and kickstart their economies.
Asset Conversion Pallet
The introduction of asset conversion pallet (ACP) to Kusama and Polkadot Asset Hubs (k/pAH) was designed to concentrate functionality, simplify asset-swaps and speed up external exchange integrations as asset owners can use Asset Hub to track information the total issuance of their asset in the entire network.
It has also set the stage for a new class of Papi/Smoldot based DEXs such as Kheoswap.
ACP pallet is based on Uniswap V2 logic and allows assets to be converted from one type to another by means of a constant product formula.
Constant product formula's are not that capital efficient, especially for bootstrapping new tokens with low liquidity and introduce issues such as front-running and the ability for whales to secure large amounts of a new tokens issuance.
Parachains 2.0
In the absence of the short-term speculative incentives of crowd loans, coretime customers are now required to create real economic value to sustain their direct costs.
There is not the same hype and market that first kickstarted parachains and so we should see this as an opportunity to create a more progressive and aligned mechanism for the funding, listing and focused adoption of next generation networks.
Liquidity Bootstrapping Pools (LBP)
Liquidity bootstrapping pools as pioneered by Balancer and also implemented in Basilisk’s Kusama parachain enable the fairest and most capital efficient method of price discovery for new tokens.
Rather than using a constant product formula like Uniswap (ACP) pools can dynamically change token weighting (e.g 1/99 to 99/1 for TokenA/TokenB) using 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.
The benefits of this model are:
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 swap 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 minimal starting capital. For a team running an LBP with their TOKEN and STABLECOIN, starting with 10% or 20% STABLECOIN, as opposed to 50% STABLECOIN like they might need on another platform, significantly reduces their starting capital requirements.
Examples
Adding a bespoke LBP design to Kusama AH.
Introducing a bespoke LBP design to Kusama Asset Hub in the same manner as ACP reworked Uniswap v2, would lower barriers to entry for teams wishing to launch on coretime and smooth their path to liquidity in ACP and eventual CEX listings enabled by AH.
Ultimately we are iterating the underlying technical architecture to enable more finely tuned innovation support phases that will in turn ensure better conditions for teams looking to launch and sustain projects alongside generating more tangible value for the underlying network.
Treasury participation w/ Krievo structuring
Polkadot’s evolving on-chain governance capabilities - such as those offered by Krievo's parachain and operating system unlocks the potential to construct and mediate more balanced economic arrangements than were possible in its initial iteration of crowd-loans.
With this in mind, the introduction of an LBP type structure would introduce a useful new tool for common-good treasuries to support and gain exposure to projects focused on meaningful adoption rather than hollow speculation.
R&D
As a member of The Fellowship, Daniel from the Virto/Krievo team has agreed to lead the research and hopefully the eventual implementation of this WFC if it is approved.
As a member of The Fellowship, Daniel from the Virto/Krievo team has agreed to lead the research and hopefully the eventual implementation of this WFC if it is approved.
Ballpark costs
Estimate $20-40k depending on eventual complexity.
Related reading
Uni-LBP - A capital-efficient Uniswap v4 liquidity bootstrapping pool (LBP) hooks contract.
This is an interesting concept, I'll vote aye while I read though the details.