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Crowdpooling

Crowdfunding, a portmanteau of the phrases "crowdfunding" and "liquidity pool", is a way to distribute tokens and initiate liquid markets that's available to everyone. Inspired by the call auction mechanism common in securities markets, Crowdpooling ensures that there is no rush of experts or bot interference, like with other liquidity offering methods available today on DEXs. With the additional security provided by the liquidity protection period, users can participate in the liquidity offering campaign with peace of mind and support their favorite projects.

The Crowdpooling Process

  1. 1.
    The project owner supplies a number of tokens and sets the initial offering price and token cap. A portion of the tokens supplied will be used for crowdfunding and the rest will be used for ask-side liquidity in the pool. The owner also specifies a start and end time for the Crowdpooling campaign. After that, anyone can participate in the offering by staking their capital.
  2. 2.
    Once the Crowdpooling campaign ends, participants can claim the tokens based on their stakes at the pre-defined initial offering price. If there is more capital in the pool than the token cap, all participants will be able to claim the tokens proportional to their shares of the pool, at the initial offering price. Any difference between the amount the participants staked and the actual cost of the tokens is then refunded back to the participants.
  3. 3.
    After the Crowdpooling phase ends, new public liquidity pools for the token will be automatically set up on DODO. These pools will function using the tokens reserved for ask-side liquidity from Step 1. The starting market price is the initial offering price, allowing the pool to be open to spot trading immediately.
At the same time, we have introduced a pre-deposit settlement mechanism for the project side of the Crowdpooling campaign, added a liquidity protection mechanism for the public pool, and supported a flexible fee allocation.

Pre-deposited Settlement Fees

We know that smart contracts can be passively triggered, and that paying the gas cost is necessary for their execution. An on-chain transaction is required to conclude a Crowdpooling campaign and create a public pool. To make sure that this transaction executes successfully, we have introduced pre-deposited settlement fees to cover the cost of this transaction.
  1. 1.
    When a project owner launches a Crowdpooling campaign, they need to pre-deposit the settlement fee into the smart contract (currently 0.2 ETH).
  2. 2.
    At the end of the Crowdpooling campaign, anyone (including the project owner) can send a transaction to end the process and create a public pool. The person who executes this transaction will receive the pre-deposited settlement fee as payment.

Liquidity Protection

In addition to the equal opportunity for traders during the Crowdpooling campaign, it is also important to maintain a balanced and fair relationship between traders and project parties. The more balanced it is, the more it contributes to the healthy development of the market. That is why we have designed the liquidity protection mechanism. There is also a liquidity protection period to prevent the project team from "rug-pulling", i.e. draining pool liquidity, immediately.
  1. 1.
    The bid-side liquidity is established by proceeds from Crowdpooling participants, and the ask-side liquidity is established by tokens reserved for the pool when the campaign was first set up.
  2. 2.
    This initial liquidity belongs to creator of this Crowdpooling campaign, but the creator cannot remove this liquidity during the liquidity protection period.
  3. 3.
    Anyone is able to provide liquidity to these pools, as with a AMM, with the added benefit of higher capital efficiency thanks to the Proactive Market Making (PMM) algorithm unique to DODO.
  4. 4.
    This resulting spot market follows the bonding curve method: when a trader buys tokens, the token price goes up; when a trade sells tokens, the token price goes down.

Crowdfunding Quota

We have set up the participation quota for the crowdfunding pools, so that pools can be set up with different user quotas. Some use cases are:
  1. 1.
    The Crowdpooling campaign sets a quota for privileged users and 0 for common users - this allows for the implementation of a whitelist feature.
  2. 2.
    A quota could also be set according to users' vDODO balances, with the Crowdpooling campaign being set to have different quota tiers based on how much vDODO someone holds.
DODO crowdfunding pools support configuring whitelists and only allowing whitelisted users to participate in crowdfunding activities, but this feature is not the default option in front-end. To implement this feature, you need to contact DODO Support.

Bonding Curve vs Fixed-Price Crowdpooling

DODO V2 currently supports both Bonding Curve Crowdpooling and Fixed-Price Crowdpooling. These forms of Crowdpooling have their differences, as well as some similarities.

Similarities

  • At the end of the Crowdpooling campaign, the token price is the same for all participants.
  • After the Crowdpooling period ends, a liquidity pool will be established immediately for token swaps. The price of the token when the Crowdpooling period ends will be its initial price.
  • Token caps can be set for both types of Crowdpooling.
  • The amount staked by participants that exceeds the token cap set by the campaign creator will be refunded back to participants after the Crowdpooling period ends.

Differences

  • Token Price:
    • For Bonding Curve Crowdpooling, the token price will increase along the upward-trending bonding curve as the amount staked by participants increases. The bonding curve is defined by DODO’s Proactive Market Maker (PMM) algorithm and can be customized by the Crowdpooling campaign creator prior to the start of the campaign.
    • For Fixed-Price Crowdpooling, the token price is fixed and does not fluctuate as the staked amount increases or decreases. Technicallu, Fixed-Price Crowdpooling is a special kind of Bonding Curve Crowdpooling, in which the slippage coefficient parameter (k) of the bonding curve is set to 0, turning the curve into a horizontal line and thus fixing the token price.
  • How the token cap is set:
    • For Bonding Curve Crowdpooling, the token cap can be set when configuring the curve parameters. The token price will stop increasing along the curve once the token cap is reached. The amount staked by participants that exceeds the hard cap will be refunded back to the participants once the Crowdpooling period ends. It is also possible to launch a Crowdpooling campaign without a hard cap.
    • For Fixed-Price Crowdpooling, the token cap is, by default, set to 50% of the number of base tokens supplied by the project owner. Since the token price and the total amount of tokens to be issued by the campaign creator are both fixed, the maximum proceeds a Fixed Price Crowdpooling can receive is predetermined. By setting the cap to 50% of the maximum proceeds, it means that half of the tokens supplied by the Crowdpool creator will be used for Crowdpooling, while the remaining half will be used to provide liquidity once the Crowdpooling period ends.

Cooling-off Period

For Bonding Curve Crowdpooling, the token price often increases significantly over the Crowdpooling period, therefore the participants who enter the pool early are often faced with token prices much higher than they originally anticipated. In order to protect participants, a cooling-off period has been instituted, which takes place immediately after the Crowdpooling period. During this period, participants who have staked can choose to withdraw from the campaign if they wish.

Oversubscription

If the total staked amount by participants is over the Crowdpooling token cap, then all participants will receive tokens proportional to their shares of the pool, at the final price. The excess part of the token cap will be returned proportionally to participants.

Why Crowdpooling?

  1. 1.
    Unlike bonding curves, there is no frontrunning on Crowdpooling.
  2. 2.
    Compared to AMM + pool 2 yield farming, with Crowdpooling there is no need to inflate the token supply in circulation to bootstrap temporary liquidity. Token assets are more likely to go into the hands of genuine investors rather than speculators or “dumping farmers”.
  3. 3.
    Compared to simple auctions, Crowdpooling is much more than mere fundraising. The immediate end result of a Crowdpooling campaign is a trading pair with sufficient liquidity.
  4. 4.
    Proceeds raised from Crowdpooling participants are not misused, and are instead used to create a liquidity market.
  5. 5.
    For new assets, Crowdpooling is a one-stop token distribution solution. It builds a solid foundation for a future influx of interest and capital, even if the bid size is small.
  6. 6.
    For token assets that are already available for trading elsewhere but with limited liquidity, Crowdpooling provides an avenue for these assets to release significant ask-side liquidity and can act as a price source and guidance for external markets.