Price Discovery is a novel mechanism that allows token listings with less volatility than usual.
A token getting listed on an exchange for the first time is a crucial moment in the lifecycle of any project. It naturally creates excitement amongst market participants, who want to join projects that have strong value propositions and significant potential as early as possible.
When this listing follows a highly successful public sale, where the demand far exceeds the available supply, things can become that much more interesting.
The Price Discovery Mechanism is created to help tokens find their right value in the market while aligning interests and giving everyone a fair chance of participating in the early stages of a new token economy.
Price Discovery works like this:
- Free deposits and withdrawals - Anyone who wishes to purchase the new token, may deposit EGLD in the smart contract. Anyone who wishes to sell the token for EGLD, may deposit the token in the smart contract.
- Free deposits, but withdrawals with a fee - Anyone who wishes to sell either EGLD or the token for their counterpart may still deposit funds in the smart contract. However, withdrawing funds now has a variable fee. This fee increases in small steps by the minute. When the second phase is over, the maximum fee for this stage will have been reached.
- No deposits, withdrawals with a fee - You can no longer deposit tokens into the smart contract, however you can still withdraw any deposited tokens, but only with a penalty.
- Withdrawals closed, the swap commences - Now that both deposits and withdrawals are closed, the next step is to swap the deposited funds for one another. If you deposited EGLD, you will receive the new token and vice versa. Everyone who deposited funds into the smart contract swaps at the exact same rate, which guarantees fairness. The final ratio between the new token and EGLD will determine the initial price for the listing on the xExchange and for the liquidity providers.
To learn even more about the Price Discovery mechanism, you can watch this video: https://youtu.be/0Syo8zfuZsA