Liquidity Vaults (LVs) by Finceptor is an on-chain initial liquidity bootstrapping tool to build protocol-owned liquidity for pre-launch tokens.
Seeding and bootstrapping initial liquidity and community members are still some of the hardest problems of any Web3 initiative — Games, DeFi protocols, and DAOs. Tight liquidity disincentivizes DEX users to swap or provide liquidity to your tokens due to high slippage and IL risks, resulting in ever-collapsing markets.
To help pre-token stage Web3 projects access initial liquid markets and community members, we’re releasing our new DeFi liquidity and community bootstrapping tool, Liquidity Vaults (LV).
LV is a DeFi liquidity financing tool natively built for Web3 tokens to enable projects to sell future governance/utility tokens by SAFT at a discounted price to raise protocol-owned liquidity (PoL) and a community of real backers.
PoL enables protocols to pay a lower cost to retain liquidity by eliminating the cost of Liquidity Mining incentives. Liquidity Mining campaigns are expensive and often attract mercenary liquidity — when incentives are gone, so is the liquidity. Moreover, PoL enables projects to capture the trading fees from their own trading pair in DEX, creating another sustainable revenue stream.
After the initial liquidity provisioning, the liquidity raised by LVs will be locked for a minimum of 6 months by the verifiable liquidity locker smart contracts so that investors can access a trustless trading environment. The AMM LP tokens will be vested to secure a deep liquid market over time.
- Sustainable community bootstrapping: Bootstrapping early token holders and community of real backers.
- Protocol-owned liquidity: Bootstrapping initial protocol-owned liquidity and deep market from day one.
- New revenue stream: Being their own decentralized MM, accessing another strong revenue stream by capturing trading fees.
LVs require pre-defined deal terms, such as the estimated token launch date (TGE), discount rate, and valuation cap, so that investors inject their capital with predictable token metrics. If there are misaligned or malicious acts on the deal terms, investors can always get 100% of their initial investment.
Similar to the SAFE note, LV is a form of a convertible note with pre-defined maturity dates and triggering events. Typically, SAFE notes convert in the first-priced financing rounds in equity financing. In LV notes, the triggering event is the public token launch date. Hence, public FDV is used as a baseline valuation.
For example, let's say protocol X is a pre-launch stage project that will launch a public token in the future, but the date and exact token metrics are not finalized. Protocol X must provide the following deal terms to ensure aligned liquidity raising.
- Latest TGE date: 10 months after the LV investment
- Discount rate: 50%
- Valuation cap: $10m
In written terms, the $X token has a maximum of ten months to launch its token publicly. The LV will be converted by either a trigger discount rate or valuation cap, depending on the FDV. If protocol X decides to launch with a $15m FDV, then the discount rate applies, and LV converts into tokens with a $7.5m valuation. The conversion is based on whichever provides a lower valuation. In this example, since the valuation cap is $10m and the discount rate provides a $7.5m valuation, LV positions are converted by the discount rate. However, suppose protocol X decides to launch with a $30m FDV. In that case, the valuation cap converts the LV as it provides more favorable deal terms and protects early backers from inflated valuations.
Hence, at the token generation event, LVs will be converted into tokens and must be distributed based on the converted amount.
If Web3 protocol fails to follow the requirements from token metrics to deal terms, investors will always get 100% of their initial investments back, as this capital is fully locked until the public token launch.
This approach by Finceptor's Liquidity Vaults reflects a novel and secure strategy in addressing liquidity challenges in the DeFi space, paving the way for new tokens to secure market presence and community support effectively.