The blockchain network is growing at a high rate with the evolution of new tokens by the day. One unique characteristic of the blockchain network is the ability to help new projects raise funds or launch new tokens at an affordable rate, making it acceptable to the general public. The cryptocurrency network is a network that supports the developers of new projects. One of such medium is the Liquidity Bootstrapping Pool.

The Liquidity Bootstrapping Pool's primary aim is to launch new tokens with little capital requirement. They are also known as configurable rights pools or smart pools. The liquidity bootstrapping pool can be simply defined as a contract that oversees a core pool containing tokens that may be exchanged on an exchange platform. As opposed to other shared pools, smart pool controllers can change the pool's parameters as desired. As a result, a smart pool doesn't need the same level of trust as a private pool, but it proves more trustworthy than a shared pool.

To fully understand Liquidity Boostrapping Pool, one needs to understand the concept of Automated Market Markers (AMMs) and their connection to liquidity pools. Automated Market Markers are configurated smart contracts that oversee the trading of tokens in a decentralized way. Decentralized Exchange (DEX) uses AMMs to enable automated asset swaps. How then can we relate LBPs to AMMs? Liquidity pools are elements of AMMs, consisting of assets that facilitate swaps. With these connections, it is evident that the AMMs and Liquidity Pools are essential to decentralized finance, as they provide alternative means of exchange on the blockchain network beyond the scope of trading. The essence of LBP is to give new crypto projects a headstart by enabling them to bootstrap liquidity and facilitating equal distribution of coins within their communities. It is also essential to conduct boot campaigns that allow the acquisition of Protocol-owned Liquidity (POL).

A simple illustration to simplify the function of LBP is having a product to sell but little or no buyer. Then you get a big poster to advertise your product and set up your sale right beside the poster, the poster serves as an attractant to buyers, in the same way, the LBP serves as an attractant for new crypto projects.

How Does Liquidity Bootstrapping Pool?

One good thing about Liquidity Bootstrapping Pool is that it facilitates security, by removing bot manipulation and ensuring a fair launch for all participants, regardless of portfolio size. They are intended to protect the good name of emerging projects, provide them an advantage over bots, and stop whales from making money through scams and other deception means. The two tokens in the pool are given different weights, which is how LBPs work. Tokens in other liquidity pools must keep a predetermined 50:50 ratio. A weighted pool works well because it enables a high starting price with less initial outlay of funds. To launch the pool and start distribution, the LBP controller has to supply the new tokens together with a little fraction of a second asset, which is usually a stablecoin.

To further explain this concept, imagine a balance scale with an equal level of weight on both sides, this is the 50:50 ratio by which other liquidity pools operate. But LBPs could make theirs on a 70:30 ratio, or any other ratio that is convenient, and then it gradually increases, this is why it has the editing aspect. The aforementioned Liquidity Bootstrapping Pool functions by adjusting the weight of the pool to sustain downward pressure on the market, thus effectively resolving the issue of unfair and unequal token distribution.

Final Notes

Liquidity bootstrapping pools are a great option for new projects that are prepared to launch their token fairly. It avoids the unfavorable pricing curve that most tokens now experience when introduced to the market. It will also help create the required awareness for new crypto projects.