What is a Liquidity Bootstrapping Pool (LBP)?
Adekunle Joshua
When a new token is launched, one of the biggest challenges is to create sufficient liquidity and a fair price discovery process
This is where LBPs come into play, designed to address these issues effectively
A Liquidity Bootstrapping Pool is a time-bound smart contract that allows token creators to distribute their tokens in a controlled manner
It runs on automated market-making algorithms and gradually releases tokens based on preset rules
The key concept behind an LBP is to start with a high token price and gradually decrease it over a specified time period
This incentivizes early adopters to provide liquidity and helps to avoid sudden token dumps
During the LBP's duration, users can deposit both the new token and a base token (e.g., ETH) into the pool
The smart contract then issues LP (Liquidity Provider) tokens to participants, representing their share of the liquidity pool
As the LBP progresses, the token price decreases gradually according to a predefined formula
This dynamic pricing attracts a broader range of participants, including long-term holders and traders alike