Deep dive into the Tidal LBP

Dear Tidal community,

It has been a busy few months for us to develop the product and form collaborations with multiple launch partners such as Elrond, Injective, Polygon and several others. We are excited and grateful to see a ton of interest and support which makes our team stronger and more determined to take on the challenges ahead. Our recent public sale on Polkastarter was a wild success witnessing interest from over 750,000 applicants for little more than 200 spots filling out in less than 2 minutes.

Tomorrow, we will be launching a Balancer Liquidity Bootstrapping Pool (LBP) to initiate the token generation event. The event will start at UTC 14:00:00 March 25th, 2021 and run until UTC 13:59:59 March 28th, 2021, lasting for approximately 72 hours. We hope the process will not only help us discover a fair price for the TIDAL token but also provide a permissionless distribution of tokens to bootstrap the DAO in tune with the goal of forming a decentralized network of Tidal token holders to shape the platform’s future.

This article will walk you through the parameterization of the Tidal LBP, explain the mechanics of a LBP, and finally answer some commonly asked questions we have seen across the board.

Summary

For those already familiar with the mechanics of a LBP, here are some noteworthy parameters:

• Total supply of Tidal tokens: 20 billion
• Token pair on Balancer Smart Pool: TIDAL/USDC
• Initial TIDAL balance: 1 billion (5% of total supply)
• Initial USDC balance: USD 1,200,000
• Starting weight: 96:4
• Ending weight: 30:70
• Starting price: $0.029
• Swap fee: 0.9%
• Tidal contract address: 0x29cbd0510eec0327992cd6006e63f9fa8e7f33b7

If the above information is all Greek to you, fret not! Read below to gain an understanding of how LBPs work and memorize some often shared DOs and DONTs that are worth repeating.

Basics: How to participate

1. Head over to our sale page and click the Get TIDAL button.

2. You’ll be directed to the official Balancer exchange site. You can also use the Tidal token contract address: 0x29cbd0510eec0327992cd6006e63f9fa8e7f33b7 if the pair doesn’t automatically appear.

3. If your wallet isn’t connected, click the Connect Wallet button which will be visible instead of ‘Enter amount’ above and connect to your wallet.

4. Enter the amount of USDC you would like to swap. Note that you can change USDC to any other token you hold, for example, DAI or ETH. However, if you hold USDC, swapping from USDC should provide the best price.

5. Click the Swap button. Note that two on-chain transactions, one to approve and another to swap might be required and thus your wallet might ask you for two confirmations.

6. Once the transaction(s) is (are) confirmed, TIDAL will be immediately available in your wallet.

How does a Balancer LBP work?

As described by Balancer, “An LBP allows projects to create meaningful liquidity and distribution at launch”. In simple language, unlike Uniswap equally-weighted pools, Balancer pools allow for different weights for the assets in a pool. An LBP usually features a newly launched asset (TIDAL in our case) on one side of the pool and a liquid asset (USDC in our case) on the other. The pool is instantiated with a certain quantity of both the tokens (1b TIDAL and 1.2m USDC here).

Like in any AMM, swapping USDC for the token increases the quantity of USDC and reduces the number of tokens, thus increasing the price of TIDAL. A unique feature of LBPs, however, is that during the course of the LBP (72 hours in this case) the weights assigned to TIDAL and USDC keep changing (from 96/4 to 30/70). These changes reduce the price of TIDAL if no purchases are made. Think of it as a reverse auction where the price keeps falling until all tokens are sold out. However, being an AMM, every purchase pushes the price up again, hardly ever allowing all of the tokens in the pool to be swapped. In such a case where tokens remain unsold, it would be at the discretion of the Company to use such tokens for future sales.

Such a process of rapidly reducing prices allows everyone to purchase tokens at a price they consider reasonable allowing for a fair price discovery amongst participants. An important point to keep in mind is that the weights only update upon calling the Poke function. We’ll attempt to make the call to Poke once every hour but purchasers may benefit by calling it themselves too as it reduces the price of the token.

A few illustrative cases follow:

Scenario 1:

If no one buys

Yep, the price starts from a high price ($0.029) and continuously declines over 3 days. With a capped token supply of 20 billion, the initial price offers us a starting fully diluted value of around 580 million USD ($0.029 x 20 billion). The purpose of starting at a fairly high price and declining to a lower value is to have a good estimate of the market’s perception of Tidal’s valuation. This is the important first step to understand before you see other changes on the curve. Let’s call it base curve.Scenario 2:

Once again, here are our base parameters for the Balancer pool behind this base curve:

How a purchase impacts the curve

The graph below simulates a purchase after around 23 hours of the pool being open. The purchase increases the price of the token which again begins its downtrend in the absence of any further purchases.

Scenario 3:

An average of 100k purchases made each hour gives a relatively flat curve across the interval.

Scenario 4:

The following curve likely reflects the real case.

• Phase 1: Initial waiting period for the price to drop.
• Phase 2: Some buying activities with early purchasers cause the price to increase.
• Phase 3: Price falls again.
• Phase 4: Price stabilizes toward the end as people start buying around the same price.

Some critical notes

1. DO NOT FOMO in at the beginning. The way LBPs are designed, prices fall rapidly. You will have ample time to decide whether or not to make a purchase after observing the price movements for a while.
2. The default max slippage is 0.5%. Set it higher if you are buying a relatively larger quantity or split your order into multiple smaller orders.
3. Buying in a balancer pool costs gas, setting the gas fee too low will cause transactions not going through. Set it to average or an above average fee to ensure transaction going through in a short time. Consult current gas prices at https://ethgasstation.info.
4. The swap fee is set to a relatively high amount (0.9%) to deter arbitrageurs.
5. A uniswap (TIDAL-ETH) pool will be seeded after the end of the LBP. Please follow the pool address/link advertised in our official Twitter/Telegram links only.

We look forward to your continuous support!

Tidal Team

Follow our Tidal public channels for future updates:

☂️ Official Website: https://tidal.finance/

☂️ Medium: https://medium.com/tidal-finance

☂️ Twitter: https://twitter.com/tidaldefi

☂️ Telegram: https://t.me/TidalGlobal

☂️ Announcements Channel: https://t.me/tidalann

📗 Whitepaper: https://docs.tidal.finance/whitepaper

Risks

You acknowledge and agree that there are numerous risks associated with purchasing TIDAL, holding TIDAL, and using TIDAL for participation in the Tidal network. In the worst scenario, this could lead to the loss of all or part of the TIDAL which had been purchased. IF YOU DECIDE TO PURCHASE TIDAL, YOU EXPRESSLY ACKNOWLEDGE, ACCEPT AND ASSUME THE FOLLOWING RISKS:

Uncertain Regulations and Enforcement Actions: The regulatory status of TIDAL and distributed ledger technology is unclear or unsettled in many jurisdictions. The regulation of virtual currencies has become a primary target of regulation in all major countries in the world. It is impossible to predict how, when or whether regulatory agencies may apply existing regulations or create new regulations with respect to such technology and its applications, including TIDAL and/or the Tidal network. Regulatory actions could negatively impact TIDAL and/or the Tidal network in various ways. Tidal Labs (the “Company”), the Distributor (or its affiliates) may cease operations in a jurisdiction in the event that regulatory actions, or changes to law or regulation, make it illegal to operate in such jurisdiction, or commercially undesirable to obtain the necessary regulatory approval(s) to operate in such jurisdiction. After consulting with a wide range of legal advisors and continuous analysis of the development and legal structure of virtual currencies, a cautious approach will be applied towards the sale of TIDAL. Therefore, for the token sale, the sale strategy may be constantly adjusted in order to avoid relevant legal risks as much as possible.

Security Laws: While the Company intends that TIDAL is not a security under any securities laws, regulators in some countries may treat the TIDALs as securities for their security law purposes, therefore any (re)sale may be subject to restrictions under the laws of applicable jurisdictions. You acknowledge that the only purpose and use of the TIDAL is to participate in the governance of the Tidal protocol and it has no other use. The Company makes no assurances that a public market will ever exist for the TIDALs and the Company is under no obligation to register or qualify the TIDAL under the laws of any governmental authority.

You acknowledge (i) that offer or issue of TIDAL has not been registered in any country, (ii) the TIDAL may be construed as a “security” in some jurisdictions and it may not be legal to issue TIDAL to residents of such jurisdictions. You represent and warrant to the Company that no such restriction applies to the issue of TIDAL to you.

Inadequate disclosure of information: As at the date hereof, the Tidal network is still under development and its design concepts, consensus mechanisms, algorithms, codes, and other technical details and parameters (including, but not limited to, that of the Balancer Liquidity Bootstrapping Pool) may be constantly and frequently updated and changed. Although this white paper contains the most current information relating to the Tidal network, it is not absolutely complete and may still be adjusted and updated by the Tidal team from time to time. The Tidal team has no ability and obligation to keep holders of TIDAL informed of every detail (including development progress and expected milestones) regarding the project or the Balancer Pool to develop the Tidal network and distribute Tokens, hence insufficient information disclosure is inevitable and reasonable.

Competitors: Various types of decentralised applications and networks are emerging at a rapid rate, and the industry is increasingly competitive. It is possible that alternative networks could be established that utilise the same or similar code and protocol underlying TIDAL and/or the Tidal network and attempt to re-create similar facilities. The Tidal network may be required to compete with these alternative networks, which could negatively impact TIDAL and/or the Tidal network.

Loss of Talent: The development of the Tidal network greatly depends on the continued co-operation of the existing technical team and expert consultants, who are highly knowledgeable and experienced in their respective sectors. The loss of any member may adversely affect the Tidal network or its future development. Further, stability and cohesion within the team is critical to the overall development of the Tidal network. There is the possibility that conflict within the team and/or departure of core personnel may occur, resulting in negative influence on the project in the future.

Failure to develop: There is the risk that the development of the Tidal network will not be executed or implemented as planned, for a variety of reasons, including without limitation the event of a decline in the prices of any digital asset, virtual currency or TIDAL, unforeseen technical difficulties, and shortage of development funds for activities.

Security weaknesses: Hackers or other malicious groups or organisations may attempt to interfere with TIDAL and/or the Tidal network in a variety of ways, including, but not limited to, malware attacks, denial of service attacks, consensus-based attacks, Sybil attacks, smurfing and spoofing. Furthermore, there is a risk that a third party or a member of the Company, the Distributor or its affiliates may intentionally or unintentionally introduce weaknesses into the core infrastructure of TIDAL and/or the Tidal network, which could negatively affect TIDAL and/or the Tidal network. Further, the future of cryptography and security innovations are highly unpredictable and advances in cryptography, or technical advances (including without limitation development of quantum computing), could present unknown risks to TIDAL and/or the Tidal network by rendering ineffective the cryptographic consensus mechanism that underpins that blockchain protocol.

Other risks: In addition, the potential risks briefly mentioned above are not exhaustive and there are other risks (as more particularly set out in the Terms and Conditions) associated with your purchase, holding and use of TIDAL, including those that the Company or the Distributor cannot anticipate. Such risks may further materialise as unanticipated variations or combinations of the aforementioned risks. You should conduct full due diligence on the Company, the Distributor, its affiliates and the Tidal team, as well as understand the overall framework, mission and vision for the Tidal network prior to purchasing TIDAL.