Powering Liquidity Generation Events with NFTs!
Where We Started
Uniswap’s surprise airdrop of UNI tokens this year was an interesting reminder of how many projects tried to get a footing in the DeFi space half a decade ago. Back then we saw Initial Coin Offerings or ICOs every week — many were cash grabs and did not involve much KYC or governance. Some did not even have a proper white paper.
As the distrust in ICOs mounted and the number of projects still continued to explode, project creators started trying other techniques such as the airdrop — some like Omisego performed an airdrop to all ETH addresses that held some ETH, others worked off-chain and collected addresses through other means.
These efforts spurred token adoption and holding while spreading it across a wide potential userbase with the hope that these holders will eventually become users of their platform. However, the motivation was very absent. Some users forgot about the projects altogether, others sold off their tokens as soon as they became listed. There were some who even decided to hold onto the said tokens with the hope that they would one day appreciate — without contributing anything themselves to the said projects — that left very few passionate and dedicated members who were willing to keep some of these projects alive.
Combined with the glut of DeFi projects that did not have a robust roadmap or plan, many of these projects did not achieve the active userbase they hoped for. Many of them fizzled out, leaving a trail of dead tokens in their wake.
Where We Are Now
In the earlier days, many projects were clamoring for attention in an already crowded space. In hindsight, it was quite a myopic target to try to meet. Project leaders were chasing a short-term goal made worse by how unattainable it proved to be and even when the adoption was good — struggling to stay afloat was the next hurdle.
The DeFi space was akin to a shark tank at that time and while this is still the case today, many projects devoted so much time and energy to surviving in the unforgiving environment that they had little to no resources left for growth and development.
Furthermore, many projects struggled to have their tokens listed on major exchanges, reaching only as far as some decentralized exchanges where the competition for visibility was even more fierce.
Gone With The Flow
After a rough start, DeFi projects began to wisen up to the real name of the game in this crowded space. The struggle to have a token listed on a popular exchange has often been the pinnacle goal of a project — a significant milestone that many aim for but few actually are able to achieve.
Listing on an exchange provided many perks. It became a place where interested traders can go to buy their first tokens. It also provided a metric of what the market price of a token is and its historical performance. However, above all — exchanges provide liquidity.
The concept of decentralizing liquidity is something that decentralized exchanges have provided for a while — but more often than so that liquidity was not incentivised.
More lately in the DeFi world, incentivized liquidity became highly popular with yield farming — where liquidity providers offer tokens as a reward for providing liquidity to a trading pair. This reward is often collected from the fees that the platform provides in exchange for an instant exchange between two tokens. Investors and token holders could lock up tokens they have to start earning this yield and later collect on it.
With this new trend booming, projects have begun to change their channel for their tokens. Liquidity, when done right, can keep a token economy healthy with sustained trading and activity. There are also risks involved, however. Liquidity risk can happen when there is insufficient liquidity to continue offering safe swaps for interested investors and traders.
The Calculated Risk
This has prompted some newer projects to opt for a better way to introduce their tokens to the world. Many call this new method a Liquidity Generation Event (LGE) — somewhat a late spiritual successor to the ICO.
Instead of heading headfirst into the deep end of the liquidity pool, LGE’s are a calculated approach that takes time to execute. The purpose of this is to lock liquidity for a certain amount of time to build more of it. With locked liquidity, a token can be generated in custody that will be released to investors after the locking period — ensuring that the project can kick off with a healthy amount of liquidity and prevent excess liquidity risk while mitigating attacks from those who prey on poor liquidity.
Projects can even attach rules to their LGEs to make them run smoothly — rules such as a funding cap per address, a looking period that releases only when a threshold is met and even a hard cap that closes the LGE once the amount is met.
Prepare For Takeoff
To launch an LGE, a liquidity pool, secondary token, and smart contract would need to be involved. It’s almost DeFi-upon-DeFi — smart contracts interacting with another smart contract.
However, pushing out a new token can sometimes be confusing for investors, especially if both tokens are ERC-20 tokens. The gas involved would also stack up quickly with the amount of blockchain transactions that need to be involved just so an investor can buy into the offering.
For this purpose, a Non-Fungible Token or NFT fits the bill better — a token that can be issued to investors, each one corresponding to their entitlement for when the LGE locking period is released.
With this, projects can keep better tabs on those who are buying into their LGE and set limits such as maximum investment amounts to prevent disproportionate purchases. This also helps project creators to decide on the liquidity pool they want and concentrate their LGE on one or more liquidity pools. This would prevent investors from spreading their liquidity across too many pools which may lead to unnecessary liquidity risk.
That said, where will this NFT come from?
NFTs Made Easy With Sonce
Sonce is a NFT minting platform that provides a dApp to interface with its smart contract on the Ethereum blockchain.
With Sonce, one can easily mint NFTs with little knowledge of code. Filling up a simple form on the dApp will generate a transaction (or series of transactions) to deploy a smart contract that controls your desired NFTs on the blockchain.
The prevailing benefit of Sonce is that it is a purpose-built dApp and system that takes care of much of the work needed to craft an NFT for deployment. It also provides a sense of security to investors that a known platform is minting their NFTs to assure them of their entitlement to the tokens they should receive once the LGE locking is lifted.
Since Sonce is able to mint a wide variety of NFTs, the NFTs awarded for participation in a LGE can bring some perks with them such as bonus tokens and even recognition privileges for early investors.
As Sonce is a dApp in itself, Sonce does not participate in the LGE but rather merely facilitates it, making it an ideal platform for launching anything NFT-related. With Sonce taking care of the NFT deployment, project members and developers will have more time on their hands to commit to the project rather than its deployment.
Life After Death
A dying project can sometimes be revived by a token reissue. This has been done by several projects before to correct mistakes in their smart contract code, to move projects to another blockchain, and also to breathe new life into a dying token by changing the tokenomics significantly among other reasons.
Although we say that one can launch their project on Sonce with an LGE, the same can also be done to initiate a re-launch. With Sonce, an LGE can breathe new life into a token that is lacking participation and liquidity on platforms. It is a viable and less frustrating alternative to battling to have a token listed on a major exchange and provides interested investors with an easy way to participate in the LGE.
Looking to reboot your token? Since LGEs are flexible and liquidity pools can be created between any token pairs that are both on the same blockchain, different NFTs can be issued for different trading pairs and some can also be allocated automatically to existing token holders which could potentially make them automatically entitled to the new tokens after the locking period ends.
Adding NFTs to your project brings with it a plethora of new functionality that the fungible tokens of the ERC20 era simply did not have. The role that NFTs can play within your project also does not necessarily end after an LGE. There is much more that Sonce can offer when you have anything in mind that would require the deployment of an NFT. Furthermore, these NFTs coexist peacefully with the other tokens you may be holding and in the case of an LGE, you will be able to have a clear distinction between your investment reward and the NFT that allowed you to procure it.
About RiveX Foundation
RiveX is a chain agnostic interoperable layer-2 solution across different blockchain protocols. RiveX aims to empower the next generation of decentralized applications, decentralized finance, and enterprise solutions. RiveX has comprehensive interoperable DeFi solutions such as RX Wallet which aims to integrate DAPPS from different blockchain protocols to enable an interoperable DeFi ecosystem within RX Wallet itself.
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