Liquidity Bootstrapping Pools on Osmosis: Stargaze

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Networks will often have a private sale of tokens to investors and other core members before distributing them to a public sale. Public sales can be complex for people to navigate and they can lock populations out of gaining early access to tokens. Figment is launching a liquidity bootstrapping proposal on Osmosis to jump-start the sale of STARS to set a fair market price and ensure a fair distribution of tokens on Stargaze.

Here is a link to the governance proposal on Osmosis:

What is Stargaze

Stargaze is an interoperable NFT marketplace built as a Cosmos SDK application-specific blockchain. Stargaze initially launched on October 28th, 2021, and will enable artists to mint NFTs for cheaper than what they can on Ethereum, allowing collectors to trade NFTs with low gas fees.

STARS can be used for staking, participating in governance, interacting on the platform, and minting NFTs.

Wait, What are Liquidity Pools?

Liquidity pools are mechanisms where token holders can deposit their tokens into a smart contract on a decentralized exchange. Traders then use the liquid tokens in the smart contracts to swap between currencies. Liquidity pools must have proportional amounts of value for two different assets. They are usually 50/50 pools but can be any iteration, including 60/40 or 90/10.

Before liquidity pools, there were not enough traders using the platform, so decentralized exchanges (DEXs) struggled to find enough people who wanted to trade regularly. Automated market makers (AMMs) created incentivized pools of liquidity - so there would always be enough tokens available for traders on the marketplace.   

When token holders supply liquidity, they earn rewards, trading fees, and liquidity rewards. On Osmosis, liquidity providers deposit equal values of both assets into pools. In return, they receive LP tokens, which they can then bond to the network and earn rewards. They also earn transaction fees from the pool. 

Liquidity Bootstrapping Pool

Liquidity Bootstrapping Pools (LBPs) are smart pools that constantly change the weight of each token in the pool. The weighting is dynamic and changes throughout the life of the token sale. Opposed to a token sale before the network's launch, an LBP creates a more equitable distribution and fair market prices of tokens through market dynamics.

Instead of a permanent 50/50 or 90/10 weighting, LBP weights continuously change in one direction. LBPs have an initial ratio, a target ratio, and a period on which that ratio adjusts. For example, a pool can start with a 90/10 ratio and adjust to a 50/50 ratio over a month. LBPs only run for a few weeks at a time. Parameters are set before launch.

LBPs create a fair market price. LBPs have very few buyers at launch. The price slowly declines until traders are willing to buy the asset (red line).

The price may reach this point before the LBP ends. Arbitrage maintains the price traders are willing to buy until the end of the sale (blue line).

If the price is set too low, the asset will get bought before the LBP launches. If it's set too high, it doesn't create demand. (Latter is the green line).

The Risks of LBPs

If there are no purchases for the token at 90%, the price of this token will fall to zero as the weighting decreases, and the fluctuation in weighting creates constant downward pressure on the price.

Details of Stargaze’s LBP

Start Time: December 16th, 2021

End Time: December 18th, 2021

Starting Liquidity: 50,000,000 STARS and 135,000 OSMO

Start Ratio: 95/5

End Ratio: 50/50

Starting Price:

STARS Price: $0.28 USD

OSMO Price: $5.50 USD

Swap fee of 0.3%

To launch the LBP, Stargaze needs a loan of OSMO. This is the first time the Osmosis community has agreed to a cross-chain loan. The repayment of the loan will take place after the LBP has concluded. Stargaze and Osmosis will split the swap fee between the two networks in place of interest on the loan. 

Next Steps: Stargaze

At the end of the LBP, Stargaze has signaled a desire for a 50/50 liquidity pool on Osmosis. With the token launched, Stargaze will become the first NFT marketplace in the Cosmos ecosystem. There currently is no home for NFTs on the network, no safe place where people can trade and sell NFTs that they have collected so this will be additional, welcomed economic activity on Cosmos.


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