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Initial Liquidity Offering

Overview​

The Initial Liquidity Offering is a bootstrapping procedure for L2 (RollApps) deployed on KIRA. It is designed to ensure that dApp tokens have sufficient liquidity, and that developers, users, Verifiers, and Executors are commonly aligned towards their RollApp’s success.

The ILO procedure is as follows:

  1. RollApp deployer (Controller) creates a governance proposal for RollApp submission.
  2. The minimum RollApp bond must be committed within the proposal duration, set to 7 days by default. This value is set to 1,000,000 KEX by default.
  3. For the proposal to pass, 1% of the minimum RollApp bond must be committed by the Controllers before 7 days have elapsed. The remaining 99% of the bond can be supplied by any other users similar to Polkadot auctions.
  4. RollApps gain approval to launch once this minimum bonding requirement is met. If the minimum bonding is not satisfied, all participants receive a full refund.
  5. After a RollApp launches, and a Consensus node is running its execution container, tokens representing stakeholder ownership of the RollApp are minted according to the token supply specified by Controllers in the submission proposal. These tokens are then paired with all bonded KEX tokens in a Uniswap-style automated market maker (AMM) pool governed by a constant product (x*y=k) bonding curve model.
  6. A Spending Pool is created for users who have bonded KEX. They are eligible to claim LP tokens from the Spending Pool, proportional to their respective bonded amounts. Depending on the dApp proposal, these LP tokens may be immediately claimable or progressively unlocked over time.

Flexible Rollapps’ Economics​

KIRA allows Controllers to define in their RollApp submission proposal whether additional tokens may be issued during and/or after the launch. These are referred to as premint and postmint. The unlock rate of the Spending Pool is also defined within the proposal.

Here are a few examples of how these configurable parameters can be used:

  • Fair Launch - No extra tokens may be issued and all LP coins are immediately unlocked. A lone developer creating a public good RollApp might employ this configuration, as the application will not need future emissions to incentivize users. RollApps funded by the KIRA treasury could also use this.
  • User-Assisted Launch - The LP Spending Pool is configured to slowly distribute LP tokens. The premint allowance is set to a small reasonable amount while the postmint function is not used. A small team needing to hire developers could configure emissions this way, allowing them to establish a token treasury and sell stake to users locked in the LP.
  • Investor-Assisted Launch - The LP Spending Pool slowly distributes LP tokens; premint and postmint have allowances. A large, complex project could configure emissions like this. Premint and postmint enable treasury creation and sale of SAFT agreements. Controllers can define when postminted tokens are issued and set up vesting/drip mechanisms to distribute tokens gradually without damaging investor confidence.

Aligned Incentives​

To align ILO participants' incentives with the RollApp's success, a minimum 100,000 KEX collateral threshold is set for the RollApp’s liquidity pool. If the pool's KEX collateral falls below this, the RollApp enters a 28-day default depreciation phase, after which execution halts.

The RollApp's liquidity pool incentivizes Consensus nodes to execute the application container. Swaps, deposits, and redemptions incur a configurable governance fee, split as follows: 50% burned, 25% rewarded to liquidity providers, and 25% rewarded to the active Executors and Verifiers (Fishermen). This provides immediate incentives to operators and liquidity providers.

Additionally, preminted and postminted tokens can incentivize operators before the RollApp generates revenue. This creates an incentive structure aligned with the RollApp's long-term success.