Guide to the Maple LBP

Maple Updates Apr 20, 2021

DISCLAIMER: The text below is just a description of how the LBP Price discovery works in theory. Any figures mentioned serve only as an illustration. Engaging in LBP without necessary skills or experience can result in a loss of funds.

TLDR: Liquidity Bootstrapping Pool (LBP) is an adjustable Balancer smart contract that is used for initial distribution and price discovery of new assets. It creates a constant selling pressure over a fixed time period, leading the price to continually drop if there is no demand.  Maple will be using an LBP to distribute 5% of the total token supply of its governance token, $MPL in a pool running from April 28th - May 1st 2021.

Overview

Maple Finance will distribute 500,000 MPL governance tokens (5% of total supply) via a Balancer Liqudity Bootstrapping Pool (LBP) on April 28, 2021 at around 4:30PM EST. The Balancer LBP will last for 72 hours, ending on May 1, 2021 at around 4:30PM EST. Access the token sale here.

The Balancer LBP will start at 4:30PM EST, available for a duration of three days. The LBP will start at a pool weight of MPL:USDC = 96:4 and will gradually shift on a linear function to MPL:USDC = 4:96 over the period, creating downward pressure on the price.

At the start of the Balancer Pool, we will temporarily increase the transaction costs to 10% in order to discourage front-running by bots, but then will lower it to 0.3% where it will stay for the remainder of the pool.

There will NOT be a Uniswap pool created by Maple Finance at this time. This Balancer LBP will be the only place you will be able to secure MPL tokens directly from Maple at launch.  Please be wary of potential scams and only access the official Maple LBP on Balancer.

In this guide, we will first provide an overview of how LBP price discovery works.  Second,  we will share how to participate in the Maple Balancer LBP, including a look at some hypothetical modeled scenarios of how price discovery could play out.  Finally, we will take a look at the lessons from a successfully executed LBP from PERP protocol.

LBP: An Overview

Why use a Balancer Liquidity Bootstrapping Pool?

Balancer Liquidity Bootstrapping Pools are a special type of liquidity pool that adjusts pool weights over time. Unlike Uniswap AMM liquidity pools which are fixed at 50:50, the flexible weights in the Balancer pool can support an unbalanced ratio of tokens.

The ability to adjust weights over time makes the Balancer LBP ideal for distributing new tokens for two reasons:

  1. Capital Efficiency: Only a small portion of the second asset (in Maple's case, it is USDC) is required to initiate a pool and optimize the distribution.
  2. Fairness: The linear step-down, from the starting weight of MPL:USDC = 96:4 to MPL:USDC = 4:96 at the end of the pool, creates constant downward pressure on the price which tends to balance the upward buy pressure, ideally keeping the price oscillating around market value. This relatively stable price discourages arbitrage bot manipulation as they can't count on the price going up steadily. Large buyers are incentivized to split their trades into a series of smaller tranches over a longer period of time to avoid driving the price up, making it easier for everybody else to participate.

Price Discovery

An important mechanic to understand with the Balancer LBP is that due to the downward shifting weights over time, there is a natural downward selling pressure on the price throughout the duration of the pool, which is offset by the inflow of USDC into the pool.

To illustrate, if the pool began and no one swapped for the MPL token, resulting in zero USDC inflow, the automatic selling pressure would cause the price of $MPL to decline to near zero by the end of the 72 hour duration (see below).

To access a FAQ about the Balancer's Liquidity Bootstrapping Pool click here.

By starting at a high initial price which gradually descends over time, participants are incentivized to wait until the price falls during the distribution period.

How to Participate in the Maple LBP

If you are not familiar with the Maple protocol, we first recommend reviewing the following articles before participating:

Preparing for LBP

To participate in the LBP, you must connect a Web3 enabled cryptocurrency wallet to Balancer. Balancer currently supports MetaMask, WalletConnect, Portis, Coinbase Wallet, and Fortmatic.

Once you have set up your wallet, you will need to prepare the following cryptocurrencies:

  1. USDC to exchange for MPL
  2. ETH for gas costs

The Maple LBP will be comprised of two assets: MPL and USDC. While other tokens will be accepted for the swap, we recommend preparing USDC to exchange for MPL. If you swap using other tokens, you may face a higher price as Balancer's "multihop" across pools will incur transaction costs while converting your token to USDC.

Participating in the Maple LBP

On April 28, the Balancer LBP will go live at 4:30 PM EST. At this time, the Maple LBP page will become available for swaps. Below is a preview of the landing page on Balancer.

The landing page features a live MPL price chart. This allows users to know the current price and past price trends.

While executing a transaction in the Balancer pool, we recommend allowing for higher slippage, to ensure that your transaction goes through (see image below).

Once your wallet has updated your transaction status from "PENDING" to "SUCCESS", your MPL tokens should be available in your wallet.

If you cannot see your MPL token in your Metamask wallet, you can manually "add token" by pasting this token contract on MetaMask:

  1. Token Contract Address: 0x33349B282065b0284d756F0577FB39c158F935e6
  2. Token Symbol: MPL

For another helpful walkthrough of participating in an LBP please see this post from PERP protocol.

Price Disclosure and Tokenomics

Please see below for some relevant details related to price disclosure and team vesting schedule:

  1. The last Maple private raise was completed in March 2021 - with a fully diluted valuation of $50M or $5 per Maple token.
  2. See our MPL Tokenomics blog post for a chart of Maple token allocations. Team has a 2 year vesting schedule and seed investors have a 1.5 year vesting schedule.

Model Scenarios

The Maple team has setup an LBP model with the parameters of the MPL Balancer LBP. Once you have made a copy of this model, you can adjust the primary unknown variable (USDC inflow over time) to see how it will affect the price discovery curve.

The scenarios described below are examples the Maple team put together to show how LBP Price Discovery works in theory. As the market decides the final price of the MPL token, it is impossible to determine ahead of time how the price discovery curve will look.  All numbers provided are hypothetical and are purely meant to help understand the price curve discovery mechanics of the Balancer LBP.

Balancer LBP without any buy/sell orders

This graph displays the MPL token price over the 72 hour period if no buy or sell orders are executed as shown earlier in the post:

Takeaway: The price will trend downwards automatically if there is no USDC inflow into the pool. At the early stages of the pool, the price will be dropping the fastest.

Balancer LBP with high trading volume at start

As community members swap for tokens, the price of the token shifts with buy pressure.

Takeaway: In this hypothetical scenario, there is high inflow at the start of the sale due to whale or bot activity. This sharply increases the amount of USDC in the pool, causing the price of the MPL token to rise. However, the shifting pool weights allow the pool to absorb large swaps and the curve flattens.

Balancer LBP with steady trading volume

Takeaway: In this hypothetical scenario, constant buy pressure will cause the the price discovery curve to look flat. The downward weight pressure will balance the upward buy pressure, keeping the price oscillating around market value. This represents the base case of of the LBP and the ideal outcome as a fair distribution is achieved with all participants receiving a similar price.

Balancer LBP with high trading value at end

Takeaway: In this hypothetical scenario above, there is high inflow at the end of the sale due likely due to participants waiting toward the end of the sale to swap. This sharply increases amount of USDC in the pool, causing the price of the MPL token to rise.

Case Study: PERP

Perptual Protocol used a Balancer LBP in distributing their native token, PERP, in late 2020. Taking a look at the outcome provides insights on how to improve understanding of the price dynamics during the LBP.

During PERP LBP, some participants tried to buy as late as possible, causing a small pump at the end of LBP as they rushed in with their bids. Despite the small spike in price at the end, this was a well executed distribution.

Takeaway: While we cannot advise users on strategy, based on former LBP executions, buying too early and/or too late may cause participants to pay a premium in a Balancer LBP.

After the conclusion of their LBP, the Perpetual Protocol team published their experience with the process.  In recapping their LBP, the Perpetual Protocol team wrote:

A high IQ move to participate in an LBP should be picking a valuation that you’re comfortable with and then starting using way #3 [dividing the budget into smaller chunks and dollar-cost averaging with each chunk of the fund] when the market valuation is below the valuation in your mind.

It is impossible to predict how the LBP goes, the only thing we can hope to provide is sufficient context for users to make informed decisions. Ultimately, it is the market that discovers the price curve. The ideal scenario would look like something pictured below, where price declines at the beginning, and then remains stable throughout, resulting in a fair distribution of tokens at similar price for all participants.

Next Steps

The Maple team will be available on Discord to answer questions and provide support to ensure our community understands the process and potential risks.

We will be hosting a community call on April 21st at 4PM EST. The Maple founders will give an update on the progress to launch and we'll open the floor to questions. Add the event to your calendar here: https://calndr.link/event/Ur9xJ5D141

Important Disclaimers:

Prohibited from participating in the distribution: Any citizen of, or a person domiciled in Cuba, Iran, Syria, North Korea, and the Crimea region of Ukraine, Afghanistan, Ethiopia, Guyana, Iraq, Sudan, or Yemen.

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