(If you don’t know, ORCA is Kujira’s liquidation platform for at-risk loan collateral. It gives all liquidators a chance of having their bid filled, and distributes collateral without using First In, First Out methods. It makes liquidations accessible to thousands of people, instead of a handful of bots. Now you know)
Using this mechanism empowers teams with control of the quantity of tokens and the price range they are sold for. Participants can implement strategies to manage risk and reward, and find entry points they are comfortable with. It removes the anxiety of First Come, First Served, and eliminates the randomness of lotteries for participation queues.
This post gives a bit of background on how it works, and why we think it’s going to be the gold standard of launches.
HOW THIS WORKS
The launcher sets the quantity of tokens, the “base” price, the discount range and the % intervals between them.
Once the sale starts, participants place offers (bids) to buy tokens. They specify the price they are bidding at, and the amount they are placing in the bid. At the conclusion of the sale window, bids are accepted starting with the highest price. When all tokens in the sale are allocated, outstanding bids at higher discounts are unfulfilled. Bidders cancel unsuccessful bids and withdraw the tokens they successfully bid on.
Bids must be activated by the bidder after a standard delay (this is to discourage bots) to be eligible. Unactivated bids are not included when the sale executes.
If there are not enough tokens available at a particular price point to fulfil all of the bids, the tokens are distributed proportionally based on the size of each bid relative to the total amount bid at that price. The order the bids were placed is not a factor.
AN EXAMPLE OF A SALE
In our example, there are 10,000 $DEMO in the sale. The price is USK 2.50 per DEMO, with discounts at 5% increments, up to a maximum of 50% off the price, or USK 1.25 per DEMO. The auction window is 48 hours. Let’s have a look at how the sale went for one participant:
This individual had three bids. Two were successful, at 5% and 25%, shown by the red dots. The third bid at 40% would have been partially successful, as that’s where the tokens were allocated up until. Our bidder could have potentially bought a further 280 DEMO at a very appealing 40% discount, if they had activated the bid. They did not, which is why it’s indicated with a black dot. As it stands, they have secured 954.38 DEMO, at a discount of 17.32%.
The sale was oversubscribed by almost 280%. While the DEMO sale sold out at an average price of USK 1.76 they fell short of their raise target, despite $41k worth of bids.
The bidding process allows for participants to tailor a bidding strategy to their own risk profile based on where they think fair value of the token is and in response to market movement and sentiment.
Let’s look at another scenario for a token called BOB with a base cost of USK 0.25, and discounts from 0–50% at 1% intervals.
Our first participant is Barbara. Her research leads her to conclude BOB’s fair value is somewhere between USK 0.19–0.22. She’ll happily pay less, but 0.22 is her ceiling.
She puts up USK 1,000 at the 30% discount as soon as the auction starts. As more bids fill in at higher and higher prices, Barb keeps adding more bids of her own. She’s got a big stack of USK, and isn’t concerned by how many bids she has open. When the expected allocation reaches her ceiling of 0.22, she stops bidding. She doesn’t want to pay more than that for BOB. When the sale ends, all of her bids miss, and she cancels them and retrieves her USK. She’ll create some deals on Plasma for BOB while she waits for it to list on FIN.
On the other hand, there’s Walter. Walt doesn’t want to lock his USK up in bids. He has a maximum of USK 500 to bid with, and he wants to get as much BOB as he can.
Walt’s strategic options are:
Fire and Forget: Bid the full USK 500 in at 0% discount. No matter what happens, he’s gonna get some BOB.
Last Minute to Win It: Walt needs to watch the dying minutes of the auction window, and place his bid as low as he can to get the best possible price, taking a chance he may not get any at all. High risk, high reward.
Split the Difference: Place a safety bid at 0% to ensure getting something, and scatter other bids around to bring down his average price.
Walt goes for option 3. He puts USK 150 at 0% when the sale starts. Then he waits until the last hour to place his next bid. At that point, it looks like bids past 10% won’t hit, so he puts another USK 100 at 8%.
When the auction nears the end, Walt thinks all BOB will be fully allocated by the 11% bracket. He puts his remaining USK 250 in at that discount. The raise does indeed get all the way to 11% and Walt gets 90% of his bid at that price filled before all the BOB is allocated. It’s not quite the $500 he was hoping for, but he’s pretty happy with the outcome.
Dynamic Pricing. The token price moves within a predefined range, giving launchers an easier time of predicting their results, and backers the opportunity to decide on, and optimise, their price point. Market sentiment decides the average value of the token; and bid distribution indicates demand and interest.
Backers choose their risk level. Develop and execute complex strategies to maximise ROI, or participate in a simple and straightforward manner. The buyer decides what suits their risk tolerance and comfort levels. Those with time constraints can place a bid any time during the sale without worrying about missing out, while those inclined to clock watch can wait until the dying seconds, with all the risk (and reward) that entails. It’s flexible and allows for multiple approaches and strategies.
Raise Amounts Reflect Sentiment. Protocol teams define how much they need to raise but market sentiment ultimately decides the token value. Projects with strong support convert high demand into bigger funds.
Low Technical Threshold. It is easily explained to newcomers. Using this requires very little technical understanding, and uses the most basic concepts of price movement. Anyone can understand how it works.
Adaptable and Scalable. This format allows for multiple strategies on the part of the bidder, and can be augmented with additional features over time, allowing launchers to bring greater customisation to their launch strategy.
This a big step toward launching tokens in a fair and equitable manner that benefits and gives equal access to all, and we’re beyond excited to see it come to life.