LBP is a good business, but not necessarily a good investment

Author: NingNing

From the perspective of market level, the LBP platform is a 1.5-level market between the primary venture capital market and the secondary trading market.

Its mechanism is to use smart contracts to implement the Dutch auction to sell primary market project tokens. The Dutch auction is different from the common auction method. Its IDO price will start from a high level and automatically drop, and stop dropping when there is a transaction. If there is no new transaction after a period of time after the transaction, it will continue to drop.

LBP allows the introduction of secondary trading market mechanisms into the primary market token issuance process, thereby more effectively discovering the market price of new projects.

LBP achieves relative fairness in the sale of new coins through smart contracts and market games, which can prevent the phenomenon of whales booking a new coin and then dumping it in the secondary market.

However, LBP cannot guarantee absolute fairness (no technology or mechanism can achieve it). Under the LBP game rules, whales still have asymmetric advantages such as financial advantages and information advantages.

When the market entered the bull cycle, the primary market gradually became lively, and there was a strong demand for new assets. The LBP platform became a good business.

Taking Fjord Foundry, the current leader of the LBP platform, as an example, the total financing is $954,788,833, the transaction volume during the LBP period is $1,474,431,124, and the total protocol fee income (excluding curation fees, etc.) is $26,922,859.

But for retail investors, is participating in LBP a good investment option?

Let’s take Fjord Foundry as an example. According to coincarp’s statistics, the average current ROI (return rate, 100% is equivalent to capital preservation) of the latest 36 IDOs is 304.78%, and the average highest ROI (return rate) is 1872.69%.

It seems good, but this is a common data statistics trick, which only counts the mean value but not the variance.

According to coincarp's statistics, there are 20 valid ROI data with a variance value of 29.50, and the yield rate distribution is extremely unbalanced.

After removing the two highest values, 18.86 times of Lyve Finance and 17.36 times of Unibit, the average current ROI is 127.55% and the variance value is 1.425.

In other words, under normal circumstances, participating in Fjord Foundry LBP during this period can earn a relatively stable 27.55%. This rate of return did not outperform the increase in Bitcoin during the same period.

LBP is essentially a pink sheet market. When considering transaction costs, gas fees, and opportunity costs, it may already be a negative EV game. If you participate in LBP, it is recommended to have a dog-hunting mentality. The operating principle is to do it in small quantities and multiple times. What if you encounter a golden dog, right?

PS. I participated in the LBP of the new LBP platform 1intro of the Solana ecosystem. Although participating in LBP is not a good investment, the LBP platform is a good business 🤣