LBSP. A Novel ISPO Mechanism for Bootstrapping Liquidity | by Spectrum Finance | July 2023

The idea of ​​LBSP comes from the ISPO mechanism, which is used multiple times by several Cardano projects. If you are new to Cardano, here is a brief explanation of what ISPO is:

ISPO is a method of distributing tokens and raising funds using the Cardano staking protocol. In order to participate in ISPO, users must delegate their ADA to a specific stake pool. Therefore, they usually receive the project’s native token as a reward. The specific reward approach may vary and is generally announced prior to the start of an ISPO. The two main classifications of ISPOs are community building ISPOs and fundraising ISPOs.
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The LBSP approach goes beyond just using the Cardano staking protocol and harnesses its potential to turn a smart contract into a delegator. This presents an opportunity to use the aforementioned ISPO methodology not only for distribution and fundraising, but also for liquidity bootstrapping in a specific protocol. The following figure illustrates the actual flow of the LBSP:

(1) Liquidity providers make a deposit into an ADA/X liquidity pool;

(2) The Liquidity Pool delegates ADA to the Liquidity Bootstrapping Stake Pool (LBSP);

(3) LBSP generates rewards for the project fund;

(4) Users are rewarded for providing liquidity to a log.

Now we have an overview of how LBSP works. Let’s dive into the details.

High-level details

Allocation: 80,000,000 SPF (8% of total supply)
Minimum delegation: 10ADA
Maximum delegation: N / A
Duration in the epoch: 36
Stage start: 428
end of stage: 464
Rewards per Epoch per 1 Delegated ADA for Standard ISP: 0.006 sun protection factor
Rewards per epoch per 1 delegated ADA for LBSP: 0.012 sun protection factor
Rewards per epoch per 1 delegated ADA for ADA/SPF LBSP: 0.018 sun protection factor
SP fee: 99%

mechanics

The first stake pool with ticker SPF0 is a standard ISP that accepts direct delegation. This stake pool is aimed at users who wish to participate in token distribution but do not want to take on temporary downside risks that come with liquidity provision. However, compared to LBSPs, it has the lowest reward rate. So the reward formula looks like this:

SPF per epoch = 1 delegated ADA * 0.006

The next two stake pools serve as LBSPs. The stake pool with ticker lSPF0 accepts all ADA from all liquidity pools listed in the LBSP Liquidity Pools section. The remuneration for the provision of liquidity is calculated using the following formula:

SPF per epoch = 1 delegated ADA * 0.006 * 2

In the interface, these liquidity pools are identified with a “LBSP” tag like this:

The lSPF1 accepts all ADA from a liquidity pool – ADA/SPF. The reward formula for providing liquidity to the ADA/SPF pool is as follows:

SPF per epoch = 1 delegated ADA * 0.006 * 3

It is important to note that this liquidity pool starts in the 438th epoch and will start generating rewards from the 440th epoch of the event. At the same time, another important event will occur at this time – Unlock all rewards collected in the last 10 Epochs. This means that those users who have participated in the LBSP event over the past 10 epochs can now start providing liquidity to the ADA/SPF liquidity pool and earn more rewards by supporting the protocol with liquidity. Starting from this point, Further reward distribution will be epochal.

If we assume that all stake pools will be saturated from the day of their launch, the distribution chart looks like this:

The figure below shows a detailed overview of the different opportunities offered by the Spectrum Finance protocol as part of the LBSP event. Choose the option that best suits your needs:

Reward calculation for LPs

The basic reward formula for those who provide liquidity to liquidity pools, denoted “LBSP”, is:

spf_reward_per_epoch = delegated_ada * 0.006 * 2

However, this is a simple formula for basic understanding. The amount of ADA provided as liquidity will constantly change over time, hence delegated_ADA varies in each epoch. This value is recalculated each time an epoch n transitions to epoch n + 1 as a derivation of the number of LP tokens you own. That is, if your LP tokens equaled 1000 ADA at the beginning of an epoch and 1050 ADA at the end, the reward for that epoch will be 1050 ADA. Note that the ADA value can be either higher or lower than originally stated. It all depends on the ratio in the liquidity pool at the end of each epoch.

Example

Suppose we have, among others, two participants, the well-known Alice and Bob. Alice is a conservative DeFi user. She only wants to participate in the standard stake pool. In contrast, Bob fully understands that with high risk comes high reward and wants to participate in the LBSP to add liquidity to the protocol.

Alice has 1000 ADA and delegates them again to SPF0 from the beginning (in epoch 426). This means that she will start collecting rewards from epoch 428 onwards. Let’s say Alice plans to keep her ADA in the bet pool for 10 epochs. In this case, their final reward is 10 * 1000 * 0.006 = 60 SPF tokens.

Bob also has 1000 ADA. He decides to make his entire ADA available to the ADA/WMT liquidity pool (assuming he has 1000 ADA worth of WMT tokens). After holding his position in the liquidity pool for the same time of 10 epochs, we are entitled to 10 * 1000 * 0.012 = 120 SPF tokens. This example is rather crude as it does not take into account changes in the liquidity pool ratio over time.

❗️Important notice

Please note that LBSPs (ticker lSPF0 and lSPF1) WILL NOT act as default ISPs. That is, if you delegate your ADA directly to LBSPs, you will not receive any SPF rewards in return. The ADA reward will be returned to you at the end of the event.

What happens when we reach full saturation?

Based on the current statistics of the Cardano DeFi ecosystem, it would be difficult to reach full saturation of the LBSPs. However, even if saturation occurs, it does not affect the liquidity provider reward rate.

In the event that the default stake pool reaches full saturation, we plan to introduce an additional stake pool with a cap of five.

To go early

You can revoke your ADA or remove liquidity at any time. In this scenario, you are only eligible to receive the number of tokens proportional to the number of epochs in which you deployed ADA or provided liquidity. Remember that at the start of epoch N+3 you will receive an epoch N reward.

All unreleased tokens will be burned.

The observant reader may notice that liquidity pools have built-in staking functionality and therefore there is someone in control. During the LBSP event, delegation control over the below liquidity pool is in the hands of the Spectrum Finance team. However, once the event is over, we will transfer control to a voting contract, allowing the community to decide which stake pool will be delegated to the ADA.

During the Spectrum Finance LBSP event, 20 highly tradable Cardano token pairs will be involved. The Spectrum Finance team will initially set up these liquidity pools with a small starting amount of liquidity. The initial token ratio reflects the average across the ecosystem on the day of deployment. Once the last liquidity pool has started, swaps will be disabled at the smart contract level for 72 hours. This is a precautionary measure to prevent major changes in the token ratios of recently created low liquidity pools and to ensure that bad actors are not able to manipulate the ratios and make the pools unattractive to early liquidity providers.

Here is a list of the ADA liquidity pools that will be participating in the LBSP event:

1. ADA/WMT
2. ADA/AGIX
3. ADA/ADA
4. YES/INDY
5. ADA/iUSD
6. ADA/iETH
7. ADA/iBTC
8. ADA/PAVIA
9. ADA/DJED
10. ADA/SHEN
11. ADA/HOSKY
12. AVAILABLE / SNACKS
13. AVAILABLE/REPORT
14. ADA/LQ
15. ADA/NTX
16. ADA/COPI
17. ADA/TON
18. ADA/C3
19. ADA/IAG
20. ADA/cNETA

The list can be extended in the course of the event. We will promptly announce these changes on Twitter and other social networks. If you are a known project in the Cardano space and we forgot to include the pair with your token in this list, please contact us using THIS form.

For ethical reasons, we have decided not to list tokens from other Cardano DEXes. However, if you are a DEX project and wish to have your token included and your community is ok with that, you are more than welcome to join.

30% is used as protocol native liquidity to launch the ADA/SPF liquidity pool.

70% is used to accelerate research and development of the Spectrum Network cross-chain messaging protocol.

Let’s briefly summarize how you can participate in the LBSP event.

Default Stakes Pool

To participate in a standard stake pool, you must use any Cardano wallet that supports stakes, such as B. Eternl, Lace, Flint, Yoroi or Daedalus. All you have to do is find the stake pool with ticker SPF0 and click the delegate button.

Liquidity bootstrapping stake pool

To participate in LBSP, provide liquidity to each liquidity pool marked with “LBSP” via the interface.

To achieve the x3 reward multiplier, provide liquidity to the ADA/SPF liquidity pool that will be available in Epoch 438

This event is the main distribution of SPF tokens on the Cardano blockchain. If you’re new here, you might not know that Spectrum Finance is migrating to internal cross-chain messaging protocol Spectrum Network, whose consensus is secured by SPF deployment. Spectrum Network makes it possible to create native cross-chain dApps (e.g. swap native ADA for native ETH). This event offers an opportunity to become one of the first node operators once Spectrum Network’s mainline launches.

You can read more about Spectrum Network here.

Open source code from Spectrum Network – repo.

The publication of the V1 whitepaper is planned for July 2023.

After the release of the Spectrum Finance Cardano AMM protocol, liquidity providers can start depositing into LBSP liquidity pools. The aim of this significant event is to engage Cardano users, liquidity providers and the entire ecosystem, promoting unity and active participation. With multiple projects involved, it promises to be a fun experience!

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