Minswap Liquidity Bootstrapping for DAOs

[GENERAL] Name and surname of main applicant

[GENERAL] Email address of main applicant

Additional applicants

None

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.” .

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

[GENERAL] If NO, please describe which outputs are not going to be open source. If YES, please write “Project will be fully open source.”

Project will be fully open source.

[METADATA] Category of proposal

[IMPACT] Please describe your proposed solution.

Liquidity is of paramount importance for any project looking to launch a token on Cardano, as more liquidity leads to more efficient prices. That being said, new projects who are starting most often do not have large treasuries to seed and create their own liquidity. That is how the idea behind the Minswap Liquidity Bootstrapping Event (LBE) was born. 

LBEs work the following way: any project looking to launch their token sets aside a % of their supply for the LBE. LBE participants interested in the new token being launched supply $ADA to the LBE. At the end, a Liquidity Pool is created with the token from the project and the $ADA from participants. Both participants and the project get their proportionate share of the Liquidity Pool. You can read more details about the LBE in the following article: https://bit.ly/3JLX32U)

Launched on March 5th 2022, the Minswap LBE was a success, as it enabled a fair and transparent price discovery of the token, with little backlog pressure on the DEX and completely avoiding front-running. Given this success, the LBE service was opened to other protocols. As such, Minswap Labs previously collaborated with two protocols, Indigo DAO (https://indigoprotocol.io/) and Mocossi Planet (https://mocossi.com/) in two “Liquidity Bootstrapping Events” (LBE) in order to assist those protocols in the liquidity bootstrapping and fair price discovery of their token. 

However, in its current offering, the LBE process is not an open-source, decentralized Smart Contract, as it is managed mostly off-chain and requires active monitoring of the process by Minswap Labs. The proposed solution is to build and open-source a Smart Contract for the Version 2 of the LBE (LBE V2) that will be available for any DAO or project wanting to launch a token on Cardano in a fair, transparent, efficient and decentralized manner without the need for interaction with Minswap Labs.

[IMPACT] How does your proposed solution address the challenge and what benefits will this bring to the Cardano ecosystem?

Opening up the LBE mechanism to any project building on Cardano brings the following benefits: 

• 1. Avoid front-running when launching a token: recent market events demonstrated the difficulty of launching a token on a Cardano DEX during times when the chain load is very high. Through an LBE, the price of the token is determined only at the end, and all participants obtain the token for the same price. Therefore, it’s not possible for a user with better technological means to submit an order before the launch of the token in order to benefit.

• 2. Improve ecosystem Liquidity: the LBE is an ideal method for any DAO wanting to launch a token and to bootstrap significant liquidity. By making the LBE a permissionless, decentralized Smart Contract, it will mean any project will be able to utilize it, just as easily as any project can create a Liquidity Pool on any Cardano DEX.

• 3. Reduce chain load during hype periods: as seen recently during the “memecoin season”, launching a token in the conventional Liquidity Pool during a period of high activity on Cardano leads to large queues, congestion and a poor user experience for all the users on the chain. The LBE mechanism avoids long queues as users have between 10 to 14 days to deposit $ADA into the Smart Contract.

• 4. Greater auditability and transparency: open sourcing a major DeFi Smart Contract based on Aiken (a programming language and framework based on Rust that allows rapid development of Plutus v2 smart contracts with optimal performance and gas cost) and audited by TxPipe (which developed the Aiken language) will majorly benefit the Cardano developer community. It will also enable projects themselves to audit the code prior to deploying the Smart Contract for greater transparency and security.

• 5. Fair Price Discovery: projects do not need to decide on the price of their token themselves, but rather it is the community that sets a fair price by how much ADA they provide. 

• 6. Equitable and Wide Token Distributions: participation in an LBE is permissionless and the barriers of entry to partake are very low, participants just need to own ADA! Everyone, regardless of their capital size, is able to join LBEs on equal terms, which will result in broader token distribution for DAO

• 7. Remove the need for significant capital to bootstrap Liqudity on Cardano: by making the LBE available to any project, it will also enable any project to bootstrap significant Liqudity without the need for large amounts of capital.

[IMPACT] How do you intend to measure the success of your project?

Two types of measures will be used to measure the success: 

Quantitative Measures:

• Liquidity raised: how much liquidity have projects raised through the open source LBE V2 contract?
• Number of projects using the LBE V2 contract: how many projects are deciding to use the LBE V2 contract?
• Wallet participation: how many active wallets are participating in the LBEs from different projects?
• TVL, Volume and Token performance post-LBE: how do tokens perform after the LBE has been conducted? How much Liquidity remains after the event?

Qualitative Measures:

• Quality of the projects using the LBE V2: given it will be a permissionless contract, any project will be able to utilize it. However, it is important to ensure high-quality Cardano projects are leveraging the LBE V2 to launch their token. 
• User Experience: DeFi and launching a token can be a daunting process for new projects (as has been our experience guiding countless projects through the process of farming or opening Liquidity Pools). The LBE V2 should be a seamless experience for both projects (looking to use the product) and participants.
• User Feedback: specifically on the incentives of using the LBE V2 for both participants and projects, and possible improvements around that. 

[IMPACT] Please describe your plans to share the outputs and results of your project?

There will be 3 stages in the project and each will require a different strategy:

• Prior to launch of the LBE V2: an article will be released covering the new LBE mechanism, its benefits and how it works. The Documents covering the LBE will be updated (currently, all information regarding initiatives to launch a token and bootstrap its liquidity on Minswap can be read at: https://bit.ly/3J14sLd). Once the audit is fully completed, an Audit Report will be released. Then, the LBE V2 Smart Contract will be open-sourced and a Bug Bounty period will commence. Once the Bug Bounty period is finalized, the first LBE V2 will be launched.

• During the launch of the LBE V2: several Cardano projects with working products have expressed interest in leveraging the Minswap LBE V2. For the first launches, Minswap Labs will work closely with the Cardano projects and DAOs looking to leverage the new product to ensure a smooth launch. During these launches best practices for launches will be developed as well as resources for projects who wish to utilize the LBE V2 in the future to learn.

• After the launch of the LBE V2: data related to the quantitative and qualitative measures mentioned above will be gathered and shared through all public channels. Tutorials and resources for projects wanting to launch future LBEs will be compiled and shared on all public channels.

[CAPABILITY/ FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability?

The Minswap Labs team is composed of several highly experienced Plutus engineers that have been working on developing Plutus-based Smart Contracts for more than 2 years. As such, Minswap Labs has established itself as a highly experienced and capable company specialized in developing DeFi tools in the Cardano Ecosystem.

The Minswap Labs team has vast experience assisting projects launch their tokens on Cardano through a fair price discovery mechanism. Not only was the first version of the LBE used to launch and bootstrap liquidity for the Minswap's $MIN token, but also for Indigo DAO ($INDY) (https://indigoprotocol.io/) and Mocossi Planet ($MCOS) (https://mocossi.com/), all with resounding success. 

To see more information on the current LBE product and the launches so far, kindly head over to https://app.minswap.org/launch-bowl

The Minswap DEX is currently the Cardano dApp with most Daily Active Users and transactions. Data available at: https://dappsoncardano.com/. It is also currently the Cardano DeFi dApp with highest Total Value Locked. Data available here: https://defillama.com/chain/Cardano?currency=USD

[CAPABILITY/ FEASIBILITY] What are the main goals for the project and how will you validate if your approach is feasible?

The feasibility of the Proposal can be evaluated due to the following:

• Lack of options when launching a token on Cardano: there is currently no other ways to launch tokens on Cardano apart from creating a Liquidity Pool and allowing trading, or opting for the Minswap LBE V1.

• High demand for the LBE V1 product: since the LBE product was opened up for other DAOs on Cardano to leverage it, we have seen a high demand for it. However, the LBE V1 requires active monitoring from the Minswap Labs team, which is not possible at all times. As such, many projects have not been able to conduct an LBE recently. Building the LBE V2 as a decentralized, permissionless Smart Contract will enable any Cardano project, no matter how small, to launch a token in this innovative, efficient and decentralized manner.

• Bad user experience to launch tokens at times with high chain load: Cardano DeFi participants have expressed their discontent with the process when prior projects launched their token in a conventional way during times of high load. This was especially patent during the last “memecoin mania”, where it was demonstrated that the ecosystem badly needs a better way to launch tokens during times of high load on the chain.

In addition, the benefit of having launched several LBE initiatives before is that we had the privilege to collect feedback regarding some of the drawbacks around the way current LBEs are conducted. The LBE V2 will address those, by for example being more adaptable to the needs of different projects. 

In order to ensure feasibility, the LBE V2 is designed with customizability from the get go. Minswap Labs is already in the process of talking to one Cardano DeFi DAO aiming to launch their token and one NFT project aiming to launch their token soon as well, to ensure the LBE V2 adapts to the particular needs of projects wanting to launch new tokens on Cardano.

[CAPABILITY/ FEASIBILITY] Please provide a detailed breakdown of your project’s milestones and each of the main tasks or activities to reach the milestone plus the expected timeline for the delivery.

Month 1 - list and analyze possible improvements that can be made from LBE V1. Collaborate with the 2 projects already interested in leveraging the LBE V2 to understand their needs and design the new, improved Version. Commence development of the Aiken Smart Contract.

Month 2 - finalize development of the Aiken-based Smart Contract according to the new LBE V2 design. Conduct several tests with the interested projects to ensure smooth functioning. Commence audit of the Aiken Smart Contract. 

Month 3 - prior to launch, an Audit Report will be published, the contract will be open-sourced, and a Bug Bounty program will commence. Once the 2-week Bug Bounty has concluded, the LBE V2 will be ready for the first launch. 

After - the first project will utilize the LBE V2 smart contract, in a completely permissionless, decentralized manner.

[CAPABILITY/ FEASIBILITY] Please describe the deliverables, outputs and intended outcomes of each milestone.

Month 1 - finalize LBE V2 Smart Contract architecture. Commence development efforts.

Month 2 - finalize the LBE V2 Smart Contract. Commence testing on the testnet environment with interested projects. Commence the Audit process.

Month 3 - the Audit Report will be published, the Smart Contract will be open-sourced, and a Bug Bounty program will commence.

After - the first projects will start to utilize the LBE V2 Smart Contract, in a completely permissionless, decentralized manner.

[RESOURCES & VALUE FOR MONEY] Please provide a detailed budget breakdown of the proposed work and resources.

Audit

The audit will be performed by a third party audit firm. Given no contract has been signed as of yet, we cannot reveal which one. 

Audit Budget: $25,000 (this is an estimation, figure will be updated after documents are signed)

Development

There will be 3 engineers for around 180 hours (1.5 months) working on developing the Smart Contract, building a UI for it and integrating the LBE V2 Smart Contract into the current Minswap DEX UI: 

1 Full-time Frontend engineer working for 1.5 months

1 Full-time Backend engineer working for 1.5 months

1 Full-time Senior Blockchain engineer working for 1.5 months

Hourly rate: $80

Development Budget: $43,200

Bug Bounty

$5,000

Total Budget in USD: $73,200

Total Budget in ADA: 206,000 $ADA (converted on July 7th 2023)

It is important to note that Minswap Labs the company does not seek to generate revenue from this product. Rather, it will be the Minswap DAO Treasury that takes a Fee from projects launching through the LBE V2.

[RESOURCES & VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

The cost of the project represents value for money for the Cardano ecosystem for the following:

1. Enable DAOs to launch tokens fairly, with no front-running by smart whales or bots: as the LBE mechanism is designed to prevent unfair advantages resulting from front-running practices. By ensuring equal pricing for all participants, the LBE V2 will level the playing field and eliminate any advantage that bots or whales might have by submitting orders before the token appears on the DEX UI maintained by Minswap Labs or by using the CLI.
2. Increased security in the Cardano DeFi ecosystem: the LBE V2 eliminates the need for projects to hold custody of participants' funds. The funds will be deposited in an open-source, auditable Smart Contract. This approach enhances security and trust by giving participants transparency and confidence, reducing the risks of fund misuse or mishandling.
3. Promote a fair and transparent price discovery mechanism to be the standard on Cardano: the LBE V2 contract will be designed to facilitate a transparent and open price discovery process for tokens. Cardano will distinguish itself from other crypto ecosystems where there are no such options and token launches are plagued with issues. All participants will have equal access to information, ensuring a leveled playing field and fostering trust within the community. By promoting fair pricing mechanisms, the aim is to enhance market integrity and participant confidence.
4. Cardano ecosystem reputation and adoption: by actively addressing congestion concerns and negative PR during hyped token launches, improving liquidity and capital in the ecosystem, and promoting fairness, the LBE V2 will bolster the reputation and adoption of the Cardano ecosystem. We believe that these efforts will attract more projects, fostering a thriving and inclusive ecosystem where innovation can flourish.

[IMPORTANT NOTE] The Applicant agreed to Fund10 rules and also that data in the Submission Form and other data provided by the project team during the course of the project will be publicly available.