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What is Liquidity Bootstrapping Pool?

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What is liquidity bootstrapping pool?

Liquidity bootstrapping pool is also called a smart pool or configurable rights pool. It is designed to act as a contract that monitors the core pool. The core liquidity pool contains the tokens deposited by liquidity providers to earn returns at the end of a period and based on an APY. 

A Liquidity Bootstrapping Pool (LBP) is a smart contract that monitors the operation of a core pool. Usually, the core pool contains the tokens that are used in a decentralized exchange. People trade against the core pool. 

The smart pool is different from other pools because it can alter the elements of pools in different ways. 

Smart pools are categorized as less trustless compared to a shared pool. The reason this type of pool was created is to allow projects to launch their tokens without a high capital requirement 

For this to work, a pool is set with two tokens in a trading pair, which is made up of a collateral token and the project token. 

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Usually, the pool is weighted in a way that is set in favor of the governance token of the project initially. As time elapses, the dynamics of the pool change and the collateral token becomes favored. 

The job of the smart pool is to control the sale, thereby ensuring that the price remains stable to achieve different purposes such as reducing the value to the wanted price or improving revenue. 

Sometimes, smart pools may be used to suspend the sales of a token. 

This can be done because a high wave of demand that was least expected has driven up the value of the tokens. It could also be done to keep a whale in check. This type of pool may have the power to pause swapping, but it is not regularly used because pools benefit when swapping occurs. 

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Rose Nnamdi is a crypto content writer that loves drafting content on cryptocurrencies and innovative platforms building on blockchain technology.

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