What is a DeversiFi Launch Market and How Does it work?

Watch DeFi Dad and Ross give a 15 minute overview of the DeversiFi Launch Market and why DLMs can be a powerful tool for projects looking to make their token launch fair, open and accessible to everyone



A DeversiFi Launch Market (DLM) is a mechanism for launching tokens in a fair way on on Ethereum Layer 2 on DeversiFi.

DeversiFi is a Layer 2 exchange, meaning that customers benefit from private, zero gas fee swapping/trading, whilst still inheriting the full security of the underlying Ethereum blockchain. Unlike a centralised exchange (eg Binance), if DeversiFi were to go offline, customers can always retrieve their funds by interacting with the Ethereum blockchain.

At its core, a DLM is a continuous liquidity reverse auction where the price starts high and moves lower over a time period following a predefined set of rules (a price decay curve) and customisable parameters. Every time a participant buys the sale token in the DLM, the market price bumps higher before the price decay sets-in again.

As participants can always re-sell their bought tokens back into the DLM market (eg if the price moves too high), the DLM results in the market price of the token settling at a fair price that is determined by all DLM participants.



A DLM consists of the following on DeversiFi:

A new isolated market listed on the matching engine for the duration of the DLM event that consists of the sale token and the quote token (eg USDt or USDC)
A DLM web page that is specific to the token launch allowing users to monitor the price, view various statistics (participation, number of tokens remaining in the DLM) and purchase DVF once they have deposited to DeversiFi
A bot which manages the market enforcing the price changes associated with the configurable & pre-set DLM rules
Rather than interacting with the launch market via usual trade or swap interfaces, users wishing to participate can only access the market through the specific DLM page.

What Are the Advantages of a DLM Compared to Other On-Chain Token Launch Mechanisms?

Wide participation due to zero gas fees (Layer 2). Insulate your token launch from periods of high gas spikes on layer 1
Privacy for DLM participants, due to DeversiFi’s Layer 2 scaling solution (off-chain data) meaning activity on DeversiFi is private
Low cost - The project launching the team does not have to pay any gas to either launch or maintain the pool/market
A smooth price decay curve - no price cliffs
No front running - at the DLM is on Layer 2, there is no opportunity for bots or advanced users to front run real participants
No fastest finger first - the initial DLM price starts high, discouraging bots who try to buy token allocations before real users
Wide visibility due to DeversiFi’s social media and community reach

The DLM Market Making Bot (The Operator)

Only a single address (associated with the market making bot) will be permitted to place orders on the market. All other participants will only be able to place (Fill or Kill) FoK orders taking the liquidity offered by the bot.

For each launch market an operator bot will place a large sell wall which is slowly moves lower according to the market making rules.

This bot is run as any other bot connecting directly to the public api, however the address associated with the bot is specially whitelisted to prevent others from using the API to manipulate the launch market conditions.

DLM Market Pricing & Sale Logic

The DLM market price is a function of time and amount of the token purchased.

The parameters of the token sale logic include a defined time period (for example, 48 hours) that the sale is conducted and number of tokens to sell, along with an initial price and minimum price.

To start, the bot will create a single sided market with the sale token priced at the specified initial price and a slippage curve akin to a Uniswap AMM pool.

As the DLM sale token is sold, the bot moves to creating a two sided market with the price shifting depending on the amount of token being bought / sold.

All liquidity available in the DLM is visible at all times

Over time, the bot will slowly reduce the price of the DVF token according to a time decal function

The price of the sale token will slowly fall if no trades occur but also change relative to trading activity

The token price should naturally settle in a relatively tight range as the battle between the constant price reduction due to time decay and sale participant's collective valuation of the network equalises. However, different strategies employed by different participants may result in interesting behaviour throughout the DLM period, particularly towards the end of the DLM period

The DLM Bot ‘AMM’ Pricing

The mid price of the DLM is dictated by the Uniswap constant price formula where the invariant (k) remains constant during a trade with no fee charged. x is the amount of token X in the pool, a is the amount being bought of token X, y is the amount of token Y initially in the pool and b is the amount being sold for a.


Constant product formula

When placing orders on the orderbook, the price for a given depth of a token can be calculated as follows.


Price for buying Y token (as a bot)


Price for selling Y token (as a bot)

For example, when placing ask orders on the DVF market orderbook, the following prices might be generated.

These assume x = 100 Token and y = 1000 USDT, creating a starting price of 10 UST per Token. Note, the USDT balance can be virtual to initialise the sale and to set the initial starting DLM price, ie there is 0 USDT available for sale at the beginning of the DLM and 100% of the Token

Time decay

The DLM price moves lower during the DLM time period (the reverse auction) as the market seeks buyers

Possible time decay functions that can be used in the DLM are shown below. A Log function is the most popular as the sale quickly reaches an ‘acceptable price’ before tapering off.


Price decay with respect to time if no trades occur

Example

In the example spreadsheet below, the price was calculated according to both the ratio of x and y tokens (Token and USDT) in the ‘pool’ but also the time decay factor which is calculated as the current time t over the final time tf.



Scenarios

In order to give you an idea of how DLMs behave, several scenarios have been put together below. You can find a link to the raw scenario spreadsheet at the bottom of this section.

The following parameters stay the same for each of the illustrative scenarios:

DLM duration: 24 hours
Decay Function: Log
Starting price: $2
Initial Token ‘pool’ balance: 2,000,000
Initial USDT ‘pool’ balance: 0
Reserve price: $0.4

Scenario 1: no Tokens sold :


Scenario 2: 75% Token bought evenly through the sale, but weighted towards the back of the sale:


Scenario 3: 90% Token bought unevenly, through the sale, with both buying & re-selling:


The above example events can be experimented with on this Google Sheet (please make a copy)

If you have any questions or would like to explore using a DLM to launch your own token, please reach out to [email protected] over Email, or join the DeversiFi Discord.
Was this article helpful?
Cancel
Thank you!