Common Launch Methods
Token launches in web3 involve a variety of mechanisms, including IDO, ICO, IEO, and LBP. Each comes with its pros and cons, here are various mechanisms as well as some of their pros and cons.
IDOs (Initial DEX Offering)
IDOs use on-chain mechanisms for token launching, distribution, and fundraising. They rely on smart contracts and AMM liquidity pools to carry out these responsibilities. The token is then listed on a DEX. This was a fairly common mechanism for many projects launching in the most recent bull market, especially for metaverse projects.
Pros:
Easy to build, run, and understand.
Decentralised and transparent.
Immediate liquidity on a DEX at generation.
Early community access at below-listed price.
Cons:
Allocation and distribution are challenging.
Price is set without community price discovery.
High transaction volumes can cause technical difficulties.
The centralised seeding of DEX liquidity pools on launch can cause issues with timing, miscommunication between parties and low liquidity.
ICO/IEO (Initial Coin/Exchange Offering)
Initial coin offerings or Initial Exchange offerings are token sales typically conducted by a large exchange or centralised intermediary.
Pros:
Credibility is derived from the due diligence conducted by the exchange itself.
Immediate listing on centralised exchange.
Immediate access to a large user base.
Simple and convenient.
Potential for larger raises.
Cons:
Exchanges enforce extensive fees with larger platforms often take significant percentages of token supply.
Uncertainty around regulation of token sales.
Centralisation and dependency on the exchange or platform.
Off-chain mechanisms provide limited visibility behind the scenes, with potential for questionable practices by exchanges.
LBP (Liquidity Bootstrapping Pool)
The LBP is a widely used launch mechanism in the DeFi space. In an LBP, a liquidity pool is created, and a bonding curve is established with an uneven weighting of tokens. The token's value is expected to decrease over time based on a predetermined curve. As the price drops, users have the opportunity to purchase tokens from the pool, trying to time their entry.
These user purchases affect the weighting of the pool and influence the trajectory of the curve. The dynamics of the LBP create an environment where participants can engage in token purchases at varying prices as they seek advantageous entry points.
Pros:
Fair distribution through gradual price decrease.
Community-driven price discovery.
Early buyer incentives.
Controlled supply.
Cons:
Complexity in comparison to traditional sales.
Timing risk for participants.
Potential price volatility for the duration of the LBP.
Alternative launch models
Over the years, various alternative DeFi Native launch mechanisms have been developed with the goal of solving common issues. Eclipse Fi is integrating many of these to solve certain issues. We also aim to innovate and incorporate new launch mechanisms, some of which are covered in our section on Modular Launches, and work with the community to enhance this space. These new mechanisms include:
Fair Auctions: Tokens are allocated through a transparent auction with competitive bidding, ensuring equal opportunity and a uniform final token price.
Dutch Auctions: Starts at a high price and decreases until reaching a buy-in price, ensuring fair distribution and efficient price discovery.
Liquid Auctions (or Liquidity Bootstrapping Auction): Bootstraps liquidity for a new token by allowing contributions to either side of the liquidity pool, with price set by the ratio of tokens. Users can lock their position for a specific period and receive new tokens proportionally at launch.
Lockdrops: Participants lock up a certain token or LP position for a period, receiving new tokens proportionally at launch, encouraging long-term commitment and community engagement.
Each launch mechanism has its own advantages and trade-offs. Therefore, supporting multiple mechanisms is essential in offering the flexibility projects need to enable more sustainable token launches.
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