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$FACTR token IDO; Defactor announces plans for Balancer Liquidity Bootstrapping Pool

The Defactor team has made their rationale behind conducting their IDO through a Balancer LBP crystal clear, and they are incredibly excited for the launch of FACTR.

Image: Defactor

Defactor, the gateway for traditional businesses to access the billions of dollars currently available in Decentralized Finance (DeFi) liquidity pools, has recently made an important decision about their IDO.

With the launch of $FACTR fast approaching the team has decided that in order to have a more equitable, efficient, and wider distribution of tokens — they will be conducting a Balancer Liquidity Bootstrapping Pool on November 10th.

If this sounds complex and confusing — fear not. The “how” and “why” of this decision are explained below. If you’d like a more in-depth explanation from the Balancer team of how this all works, click here. Let’s dive in.

Problems with IDOs

Uniswap has provided a platform that enables project teams everywhere to easily launch tokens. However, this incredible innovation has some fundamental flaws.

Whales and bots often aggressively front-run retail buyers, resulting in enormous price pumps and corresponding dumps. This frequently results in a token falling by over 90% shortly after launch.

These pump-and-dumps benefit the few while hurting the majority of retail buyers who have now lost most of their money.

This often causes many members of the community to walk away, resulting in poor token distribution. We can all agree that this is not in the best interests of the project.

So what is a Liquidity Bootstrapping Pool, and how does it work?

A Uniswap pool contains two assets (in this case, FACTR and USDC), and they are always weighted 50/50. In a Balancer Liquidity Bootstrapping Pool, the two assets have different values, to begin with, and adjust continuously throughout the LBP.

For example, Maple Finance started their LBP with an initial weighting of 96 (MPL): 4 (USDC). This adjusted over the course of the pool to end at 4% (MPL): 96% (USDC).

The weight changes over time create downward price pressure. However, if the amount of FACTR bought with USDC exceeds the downward movement caused by the weight changes, the price can go up. This allows for more market-driven price discovery.

Below is an example of an LBP conducted by Maple Finance. Note how the price falls sharply at first. This prevents whales and bots from gaining an unfair advantage by buying in early.

Maple Finance LBP Price Discovery

Below is Perpetual Protocol’s LBP. See how the price falls initially but quickly recovers and ends higher than it started. This shows that buying too late in an LBP can be disadvantageous.

perp token price chart on lbp
Perpetual Protocol LBP Price Discovery

And for our final example, let’s look at Gro’s recent LBP. Here we see an initial fall in price and followed by price discovery and buying pressure driving the price back up again.

Gro Protocol LBP Price Discovery

These examples show that it is not a good idea to immediately purchase the token in an LBP, nor at the end. Instead, you should wait for the price to fall to a level that you consider reasonable.

Why is Defactor using a Balancer LBP?

To put it simply, Defactor believes that LBPs are the best means to distribute the token as fairly and as widely as possible.

Equitable and Wider Token Distribution

Due to the falling price, aggressive front-running by trading bots is strongly disincentivized as it simply wouldn’t be profitable. Whales are forced to split up bulk purchases into smaller buys to avoid driving the price up and creating high price slippage.

This means an LBP ensures that anyone, regardless of their capital size, is able to join the sale on equal terms. This results in wider token distribution — as seen in previous LBPs.

Wide token distribution is important, as Defactor will ultimately be a community governed project which abides by the principle that more rather than fewer governance participants are best for the project.

Crucially, Balancer LBPs are permissionless, meaning that anyone can participate. This is in contrast to other public sales that require whitelist access to participate.

Fair Price Discovery

The LBP is designed so that people don’t FOMO in immediately, but rather wait to buy in at a price that they consider reasonable.

This allows for more natural price discovery that is set by the market — not arbitrarily by the project. This avoids the ridiculous initial pump and dumps we talked about earlier.

Examples of previous Balancer LBPs

Quite a number of projects have chosen a Balancer LBP for their IDO. The first was Perpetual Protocol, which was followed by others including Gro Protocol, Klima, Maple, Hydra, Illuvium, and Radicle. Their reasons for choosing an LBP are outlined in the hyperlinks.

Conclusion

The Defactor team has made their rationale behind conducting their IDO through a Balancer LBP crystal clear, and they are incredibly excited for the launch of FACTR. The team has stated that they will publish more information about the Defactor LBP soon — describing how to participate and the parameters of the pool.

This will be in addition to more articles and announcements over the course of the next few weeks to make sure that everyone understands how the LBP will work. We can’t wait!

For more information on Defactor, please visit their website: https://defactor.com/ To stay up to date on all their news and announcement, please follow them on Twitter: https://twitter.com/defactor. Or reach out to the team directly on Telegram: https://t.me/defactor_official.

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