Liquidity Bootstrapping Pools (LBPs) are a unique type of trading pool designed to launch tokens, such as the ORI token, in a way that finds a fair market price. Instead of having a fixed amount of each token in the pool, LBPs can change the balance over time.
How it works? (Simply)
Dynamic Balancing: In LBPs, the balance between the ORI token and a stable token (like USDC) changes over time. Initially, there might be a high amount of the ORI token and a small amount of USDC. As time progresses, this ratio shifts.
Price Determination: Because of this dynamic balancing, the price of the ORI token starts high and gradually decreases. This method allows the market to determine a fair price for the ORI token as it becomes more available and the price stabilizes.
Benefit: The advantage of this mechanism is that it discourages large buyers (often called "whales") from buying up vast amounts of the ORI token right away. Instead, the design of LBPs encourages waiting for a fair market price.
LBPs use a particular algorithm called Weighted Math, which governs how the balance between the tokens changes over time. The creator of the LBP decides the starting and ending balance, and over a set period, the balance automatically shifts.
What makes LBPs especially powerful is the ability to set a high starting price for the ORI token, which deters immediate bulk buying. As the price drops, it attracts potential buyers, leading to price discovery – the process where the market finds the price at which the supply of the ORI token matches its demand.
Additionally, one significant advantage for teams using LBPs to launch their ORI token is that they don't need a massive initial capital. The shifting balance, from a high amount of their ORI token to a more balanced or even lower amount, results in them collecting more of the stable token (like USDC) over time, establishing liquidity for their ORI token without the drastic price swings often seen in traditional launch methods.