Liquid Auctions

What is a Liquid Auction?

Liquid Auctions are an auction mechanism designed to enable continuous trading. Their primary goal is to support accurate price discovery and generate substantial liquidity at the established price. Liquid Auctions often serve as the second or third phase in a multi-stage modular launch, following an initial distribution through an airdrop, lockdrop, or both.

V2 of our Liquid Auctions is coming soon - details will be shared shortly.

How do Liquid Auctions Work?

During a Liquid Auction, participants deposit tokens into a liquidity pool, typically paired with a stablecoin. The auction consists of two main phases:

1. Deposit Phase (Day 1–5): Participants - either from the previous distribution phase or new buyers - can add tokens or stablecoins to the pool. Adding tokens decreases the token price, while adding stablecoins increases it, enabling efficient price discovery. During this phase, participants can only withdraw stablecoins, improving predictability.

2. Limited Withdrawals Phase (Day 6–7): Stablecoin withdrawal limits are gradually reduced, effectively locking liquidity in the pool. For example, withdrawal limits may start at 50% and decrease over time. Each participant is allowed only one withdrawal to prevent manipulation.

Why Launch Using a Liquid Auction?

Launching through a Liquid Auction provides several advantages. The balance between supply and demand during the auction establishes a fair token price, promoting a stable and transparent price discovery process. Its two-phase structure also prevents large players, or “whales,” from abruptly impacting prices, preserving market integrity.

Moreover, because participants trade directly with each other rather than purchasing tokens from the protocol, the model supports regulatory compliance. Additional measures, such as incentives and proportional rewards, help mitigate the risk of impermanent loss for liquidity providers based on the risks they take.