According to PANews, Liquidity Bootstrapping Pool (LBP) platforms are emerging as a new market mechanism, positioned between primary risk investment markets and secondary trading markets. LBPs utilize smart contracts to implement Dutch auction sales of primary market project tokens. Unlike traditional auctions, the IDO price in an LBP starts high and automatically decreases until a transaction occurs, at which point the decrease stops. If no new transactions occur after a certain period, the price continues to drop.
LBPs introduce secondary market mechanisms into the primary market token issuance process, enabling more effective price discovery for new projects. Through smart contracts and market games, LBPs achieve relative fairness in new coin sales, preventing whales from monopolizing new coins and then dumping them on the secondary market. However, LBPs cannot guarantee absolute fairness, and whales still have advantages such as capital and information asymmetry.
As the market enters a bull cycle and the primary market becomes more active, LBPs are becoming a lucrative business. For instance, Fjord Foundry, a leading LBP platform, has raised a total of $954,788,833, with an LBP trading volume of $1,474,431,124 and total protocol fee income (excluding curatorial fees, etc.) of $26,922,859.
However, the question remains whether participating in LBPs is a good investment strategy for retail investors. According to statistics from coincarp, the recent 36 IDOs on Fjord Foundry have an average current ROI of 304.78% and an average maximum ROI of 1872.69%. However, these figures only represent averages and do not account for variance. After removing the two highest values, the average current ROI is 127.55%, indicating that participating in Fjord Foundry's LBP could yield a relatively stable return of 27.55%. However, this return rate does not outperform the increase in Bitcoin during the same period.
In essence, LBPs are a pink sheet market. When considering transaction costs, gas fees, and opportunity costs, participating in LBPs may already be a negative EV game. Therefore, it is suggested to participate in LBPs with a mindset of making small, frequent investments.
