LBP is a good business but is it a good investment?

Author: NingNing, independent researcher Source: X, @0xNing0x

From the 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 our common auction method. Its IDO price will start from a high level and automatically drop, and stop dropping if there is a transaction. After the transaction, if there is no new transaction for a period of time, it will continue to drop.

LBP allows the secondary trading market mechanism to be introduced into the primary market token issuance process, so that the market price of new projects can be discovered more effectively.

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 rules of the LBP game, whales still have asymmetric advantages such as financial advantages and information advantages.

When the market enters a bull market cycle, the primary market gradually becomes lively, and everyone has a strong demand for new assets, and the LBP platform becomes a good business.

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

But for retail investors, is participating in LBP a good way to invest?

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

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

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

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

That is to say, 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. In the case of calculating 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 a small amount and multiple times. What if you encounter a golden dog, right?