Meteor LBE, Mainnet Launch, Yield Farming & More
TL; DR: On February 23, Minswap will initiate a Liquidity Priming Event (LBE) for the MIN/ADA pair. You can provide ADA and once the price discovery phase is complete we will launch the mainnet and you will have 10 days to claim the resulting MIN/ADA LP tokens and stake them in a yield farm for rewards MIN.
Our launch is coming soon! As we prepare to roll out the DEX, there is one overarching question we need to answer, which is: how to prime liquidity for our launch? In this article, we will explain how we plan to proceed with the liquidity startup and why we believe we have chosen the best method to do so.
Before we dig in, we want to lay the groundwork a bit. In DeFi, liquidity is the name of the game. This is especially the case for a DEX, where more liquidity leads to more efficient prices. To have a healthy DEX, it is essential that the pool with our native token MIN and the native currency of the Cardano blockchain ADA, be deep and long-lasting. But priming this liquidity is a tall order, as there needs to be a balance between incentives, allowing for effective price discovery and mechanisms against whale manipulation, to name a few.
Meanwhile, DeFi has recently witnessed the emergence of a new trend, dubbed “DeFi 2.0”. The basic principle revolves around the idea of “Protocol Owned Liquidity” (POL). Essentially this means a protocol with its own liquidity, in the case of Minswap this would be for example MIN/ADA LP tokens. The two main advantages of POL are: that this liquidity is a source of income for the DAO due to the fees generated by the LP tokens and that this liquidity is sustainable because it is controlled by the DAO and remains on protocol long term. We believe that POL is a crucial step towards a sustainable DEX and we want to implement it from the start via our Liquidity Bootstrapping Event (LBE).
How Minswap LBE will work
Before running the DEX, there will be a liquidity priming event for the MIN/ADA pair. This event will last for 10 days and 2% of the total MIN supply (100 million MIN), or 33.3% of the DAO’s treasury supply, will be allocated to it. There will be 3 phases for the event.
From February 23 to March 4 the first phase Where “Discovery phase” will take place. Community members can participate by providing ADA. Its operation is as follows: when a participant deposits ADA, he receives in return “purrADA”, which marks his contribution to the Liquidity Bootstrapping pool (thus throughout the event 1 purrADA = 1 ADA). As the event progresses and the MIN/ADA price changes depending on the amount of ADA supplied, participants can claim their ADA by returning the purrADA at any time.
However, in order to avoid any manipulation, during the last 2 days of the event, there will be a 25% fee for any purrADA redemption. This means that if you had deposited 100 ADA and got 100 purrADA back, if you trade the 100 purrADA in the last two days, you will effectively trade only 75 ADA because of the 25% fee. Once the 10 days have elapsed and the fair price discovery has resulted in a given MIN/ADA ratio, the initial MIN/ADA liquidity pool will be created with the participants’ ADA and the MIN of the DAO cash .
Then, March 4 will mark the start of the second Where “The Encounter Phase”, which will last until March 13. From March 4 to March 13participants can return their obtained purrADA within the Discovery phase to get the equivalent in MIN/ADA LP tokens that their share of purrADA represents of the entire pool. This will be done at a fixed conversion rate of purrADA to MIN/ADA LP tokens according to the MIN/ADA ratio at the end of the event.
After obtaining their MIN/ADA LP tokens, third phase Where “Settlement Phase” start on March 14. Participants will be able to stake these MIN/ADA LP tokens in a yield farming pool to earn MIN tokens. To encourage participation in LBE, LBE participants who obtain and stake their ADA/MIN LP tokens will receive a bonus on their Yield Farming rewards from 110% to 200% for the first week of Yield Farming.
Let’s recap with a Example. Let’s say, hypothetically, that 100 million MIN had been allocated for this event and 20 million ADA had been contributed by the participants. This would give us a price of 1 ADA equals 5 MIN.
So, let’s say you had deposited 100,000 ADA in the discovery stage, for which you had recovered 100,000 purrADA. As the total value of the pool in ADA would be 40 million, then 100,000 purrADA would mean that you own 0.25% of the pool. That would mean, in the dating phasethe 100,000 purrADA can be exchanged for MIN/ADA LP tokens representing 0.25% of the pool, which means 50,000 ADA and 250,000 MIN (remember for this example, 1 ADA = 5 MIN). In the Settlement phase, you can stake these LP tokens in a farm to earn MIN. In summary, by providing ADA in this event, attendees will be able to effectively exchange half of the ADA they provide for MINat the price which will be fairly uncovered at the end.
Since the MIN is provided only by the Cash DAO, this essentially translates to 50% of the pool belonging to the participants, and the remaining 50% belonging to the DAO. The DAO MIN/ADA LP tokens will be controlled by the DAO in the long run and earn LP fees for the DAO treasury.
Benefits and risks
It is impossible to predict how the LBE will turn out, and ultimately, as the supply comes into circulation, it is the market that will discover the price. The only thing we can do is provide sufficient context for participants to make informed decisions by highlighting a number of the benefits and risks we have identified.
We are excited about this approach because of the following benefits it presents:
- Discovery and transparency of fair prices: we will not run the DEX and decide the price of the MIN/ADA pair ourselves, but rather the community will set a fair price based on the amount of ADA supplied. The price of the MIN/ADA pair during the LBE will be visible at all times in our user interface.
- Fair and wide distribution: participation is permissionless and entry barriers to participate are very low, all you need is ADA! Everyone, regardless of the size of their capital, will be able to join the event on an equal footing, which will result in a wider distribution of tokens. As a community-governed project, we will begin to rely more and more on the DAO, so we believe that the more governance participants, the better.
- Less backlog pressure on the DEX: while we expect congestion to always be a factor, we want to avoid a situation where users rush and have to wait days under uncertain conditions in order to trade the MIN/ADA pair. This way, we hope everyone can get their hands on the MIN they want and avoid long queues.
- No head racing by a smart whale: given the price will only be determined at the end, and there will be the same price for all participantsit is not possible for a smart whale to place an order before the launch of the DEX.
As with all DeFi, there are a number of risks users should keep in mind. We try to expose the ones we have identified here:
- Trust the Minswap team: Minswap has developed a secure and fast off-chain system for the LBE, so that it processes requests smoothly, even when there is on-chain congestion. However, there is an element of trust in the Minswap team during the event.
- Price volatility: there will be significant price volatility before, during and after the event. Of course, the starting price will be very low compared to the current price and will adjust throughout the event. It is also possible that the price will change significantly at the last minute. We recommend that those interested in participating do their research thoroughly, and we’ve compiled a series of valuable resources below that we believe can aid in this effort.
- First approach : this is the first time we are deploying this mechanism and it will be the first time such a seeding mechanism will be used on the Cardano blockchain. Steps will be taken such as deploying the mechanism on the public testnet as a first step to ensure it runs as smoothly as possible.
- Custody of funds: Implementing on-chain governance on Cardano has proven challenging given the time constraint of our mainnet launch and the limitations of smart contracts. Although we have good practices and experience with security, we would like to avoid having a large amount of LP tokens in a team wallet for an extended period of time. This is why we will be locking LP tokens into a verifiable open source contract for 6 months, while we develop a DAO cash management contract.
Cool, but what about the DEX?
Let’s recap with a timeline to include LBE and other important dates:
- February 23 to March 4 — Discovery phase: you can supply ADA to the LBE.
- March 3 to March 4: Projects can create pools and provide initial liquidity for their pairs.
- March 5: Anyone can start providing liquidity to existing pools on the DEX.
- March 5 to March 13 — Dating stage: you can exchange the provided ADA for MIN/ADA LP tokens.
- 8 March — Mainnet launch — You can trade, provide liquidity and create pools.
- March 14: Yield farming opens in selected farms.
Disclosure of Tokenomics
An important topic that we want to inform our community about is the MINt token. MINt token conversion will be available one month after the launch of our Yield Farms, i.e. April 14th.
Additionally, we have added a new Tokenomics section to our Docs. The section includes the yield farming reward vesting schedule, the team token and development fund vesting schedule, and the current supply of MIN and MINt in circulation. As a reminder, Minswap is a fully community-funded project and therefore there are no insiders or investors with a token acquisition timeline to consider.
Here we share a series of resources on different approaches to starting liquidity. Although our approach is very different from those described below, we hope that these resources will give participants better context to make informed decisions:
- Perpetuals Protocol shares their experience with Liquidity Bootstrapping here.
- Maple Finance Shares Startup Liquidity Case Studies here.
- SundaeSwap shares its idea of Liquidity Bootstrapping or “Taste Test” here.
- Loops Markets Explains the Fundamentals of Seed Liquidity Pools here.
- Astroport shares its approach to starting liquidity here.