When it comes to securing funding for your tech startup, the struggle is real. Even the most promising companies showing strong growth and high profit margins will need to endure a months-long marathon process that involves wooing investors, negotiating with banks, endless powerpoint presentations and masses of paperwork.
And in the vast majority of cases, these efforts prove fruitless, even if you have a viable business plan and impressive numbers to show. As this article from Harvard Business Review reveals, the competition for venture capital is so intense that less than 1% of companies actually manage to obtain any.
Going to the bank for a traditional business loan is not much easier. Companies working with intangible software-based assets will find that very few banks are willing to back them with reasonable terms.
Democratized Funding Changes The Game
Raising money used to be extremely hard, but the advent of Web3 and decentralization is transforming that reality, breaking down barriers to capital access by connecting entrepreneurs to the masses.
Blockchain-based funding leverages transparent, decentralized mechanisms that bypass the complexities of traditional fundraising, giving companies the opportunity to pitch their ideas directly to a global pool of retail investors looking to back the next big thing.
We’re talking about crypto fundraising, which usually comes via token sales. The basic concept involves Web3 startups issuing digital tokens to investors that represent a stake in their project or provide some kind of utility, in return for their financial backing.
Token sales have had an enormous impact on the Web3 industry, enabling hundreds of startups to secure the capital they need to build on their ideas. The process is especially appealing to retail investors who are otherwise barred from investing in startups. Projects can source capital from a diverse array of investors, without any interference from intermediaries.
The Role Of Launchpads
Most crypto projects opt to launch their ICOs or IDOs via a specialist “crypto launchpad”. These are decentralized platforms that aim to help startups make themselves known to investors, while attempting to perform due diligence to protect users from scams. They allow projects to pitch their ideas and business models and sell their tokens to early adopters at discounted rates.
Launchpads help to facilitate token sales by providing the essential liquidity needed, and they provide additional services to startups, such as community building, compliance and marketing, helping to improve their chances of succeeding. They rely on the IDO and ICO fundraising models, as well as “token generation events” to attract investor funds. They also perform a degree of due diligence, checking out each project’s founders and team members, assessing their technology and market potential, and examining the legal implications of their technology and tokens.
By going through a launchpad, crypto projects will ensure they have the necessary liquidity to support the trade of their native tokens, and they earn a considerable degree of trust thanks to the due diligence performed by the platform. This is crucial in an industry that has seen an overwhelming number of scams over the years.
Some of the best known launchpads include Trustpad, which is focused on identifying trustworthy Ethereum-based projects; Polkastarter, a decentralized platform for cross-chain token offerings; BSCPad, which is focused on IDOs native to the Binance Smart Chain; Cardstarter, which attracts funding for Cardano-based projects; and Seedify, which is an Ethereum-based launchpad focused specifically on DeFi projects.
A Risky Venture
Crypto launchpads support popular fundraising models that have democratized access to capital in the Web3 ecosystem, and they are responsible for helping hundreds of successful projects get off the ground.
However, the model is still fraught with risk for investors, with numerous projects suffering as a result of investors dumping their tokens on the market, crashing their values in a sudden and spectacular way.
According to Qonetum Finance CEO Yoda Regev, a significant number of crypto startups that raised capital via launchpads have ultimately failed due to the lack of liquidity required to scale their projects.
Protecting Investors With Liquidity Bootstrapping Pools
The large number of failures shows that decentralized crypto funding mechanisms can benefit from a more focused model that ensures projects have access to the necessary liquidity to scale as they grow, and one promising idea is the concept of Liquidity Bootstrapping Pools or LBPs that help to prevent token price manipulation.
One company looking at using LBPs is Thena, which sees itself as the “liquidity layer” of the BNB Chain ecosystem, aiming to fix inefficiencies in DEX platforms by better aligning incentives among liquidity providers, projects and token holders.
While it’s primarily focused on DEX platforms, it’s also hoping to extend this concept to its WARP launchpad accelerator, which intends to leverage Thena’s liquidity layer as a growth catalyst for new projects on the BNB Chain.
WARP is not just a platform for new projects to pitch themselves to investors. It also hosts the liquidity of new projects in order to support growing trading volumes as they scale. Through its LBPs, Thena enables efficient price discovery and on-chain capital raising via IDOs and other models. In addition, it supports projects with a number of liquidity scaling strategies ranging from bribe top-ups to LST pairing to supercharge asset’s liquidity pools.
The advantage of LBPs is that they increase trust in new tokens by eliminating bot manipulation to create a fair launch for every investor, regardless of the size of their portfolio. Through LBPs, WARP aims to protect the reputation of new projects by gaining a competitive edge over bots, which are often used by whales to engineer manipulation strategies.
How do LBPs work?
LBPs work by adjusting the weight of the token pair in each liquidity pool, enabling more control. Traditional liquidity pools maintain a ratio of 50:50, but by weighting the token pair, projects can set a higher initial price with minimal upfront capital. The LBP controller simply provides the new tokens along with a small amount of the second asset, usually a stablecoin, to start the pool and initiate distribution. Then, by programmatically adjusting the weight of the liquidity pool over time, it’s possible to lower the price slowly, elongating the price discovery period so investors can wait it out and buy when they think it has reached a fair price.
By constantly adjusting the liquidity pool weight over time, it’s possible to maintain downward pressure on the market to overcome problems that arise from unequal token distributions. The downward selling pressure and gradual shift in pool weight is offset by the inflow of the second asset, discouraging price spikes that result from early speculation. In addition, it motivates investors to wait until the price falls to what they consider to be a fair level. Starting with a high price and declining gradually ensures that the value of the tokens is ultimately established by the market.
As such, buyers should take note that the token will initially be listed at its maximum auction price and that this value will decline over a period of time, until the liquidity pool reaches 50:50 parity, where the balance of both tokens is equal. Through this mechanism, projects can evade the malicious intrigues of whales and bots that attempt to profit by dumping their tokens to the detriment of genuine supporters.
LBPs bring the promise of fair pricing to the entire community, giving every investor the chance to gain exposure at a fair price, without any of the volatility and second guessing of traditional token launches.
Fairer Prices For Investors
Thena’s LBPs provide a compelling alternative to crypto startups looking to distribute their project’s tokens to a broad base of investors in a capital-efficient way, while avoiding the risks associated with fast-growing price curves. They look to be an especially promising tool for new projects looking for a minimum capital investment.
THENA’s commitment to DeFi innovation and improved capital efficiency extends beyond LBPs alone. The platform has proposed a strategic soft merger with Venus Protocol, aiming to create a “DeFAI SuperApp” on BNB Chain. By integrating deep liquidity infrastructure with lending and borrowing capabilities, THENA and Venus are giving investors on BNB a comprehensive DeFi hub, enhancing capital efficiency and streamlining decentralized finance services.
By launching on Thena’s WARP launchpad, projects can customize their token distribution mechanics and gain more flexibility over their token launches. Through some experimentation, it should be possible to achieve much better results and prevent whales and others from manipulating the market at the expense of normal investors.
This article was originally Posted on Coinpaper.com
