How will InstaLiq Work?
When a new token is listed, users will be able to bid for a fixed supply of the token. For the launch of LIQ, the user will bid with ETH, for every subsequent launch, the user will bid with LIQ.
At some point in time determined by the project launcher, each listing will end with an event called the Initial Liquidity Swap. Bidders will be paid out in the proportion of their bid to the entire pool of bids.
A new pair will be created on a DEX with one side of the pair being the token used to place bids and the other side being the new token. That pair will receive instant liquidity by populating its liquidity pool with all of the tokens sent by bidders and a portion of the new token equivalent to the portion distributed to bidders. This method has the property that each bidder’s received tokens will be worth exactly what they bid at the point in time when the pair lists because of the xy=k formula used by DEXes.
This liquidity is intended to be locked permanently, but instead of burning the LP tokens, they will be given to the project and only moved upon a governance decision. This gives projects flexibility, in case they need to move DEXes or encounter other circumstances.
An example:
We begin the listing of LIQ with the following parameters (these are just example parameters): 1000 LIQ tokens distributed to bidders, 1000 LIQ tokens to be locked in liquidity, the Initial Liquidity Swap will occur in 7 days
Over the course of the 7 days, the users bid a total of 1 ETH. You (a user) bid .1 during this time.
The initial liquidity swap occurs. A new DEX pair is created with 1 ETH and 1000 LIQ in its liquidity pool so trades can take place immediately. The price of each LIQ is .001.
You can now claim 100 LIQ from InstaLiq, since you bid 1/10 of the total. That LIQ IS worth .1 ETH at the moment when the pair is listed on the DEX.
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