Offering Type

Liquidity Notes can be sold to users through two primary mechanisms:

1. Fixed Price Sale

   In a fixed price sale, Liquidity Notes are offered at a predetermined price. This method is suitable when the project has a clear understanding of the token's price, as it requires setting an explicit price for the notes. It is also effective when there is confidence in the demand for the Liquidity Notes, reducing the need to allocate additional resources to generate interest through the sale process itself.

2. Auction

   Alternatively, Liquidity Notes can be sold via an auction. This approach allows the market to determine the price based on current supply and demand dynamics. Auctions are beneficial when the token's price is uncertain or when the project aims to stimulate demand and engage participants through competitive bidding and speculation.

Considerations for Determining Whether to Use a Fixed Size or an Auction to Issue a Liquidity Note

Each approach has distinct advantages and considerations that can significantly impact the success of the offering. This section outlines the key factors to consider when choosing between a fixed size sale and an auction for selling Liquidity Notes, supported by numerical examples.

1. Market Demand and Investor Behavior

   • Assessment: Understand the current demand for Liquidity Notes and the investment behavior of your target audience.

   • Impact:

     • High Demand: An auction can capitalize on strong investor interest by allowing prices to adjust based on real-time bidding.

     • Steady or Uncertain Demand: A fixed size sale provides predictability and simplicity, which can be more appealing to a broader range of investors.

2. Price Discovery Needs

   • Assessment: Determine whether the project requires a flexible pricing mechanism that reflects market sentiment.

   • Impact:

     • Dynamic Pricing: Auctions facilitate natural price discovery, ensuring that the price of Liquidity Notes aligns with current market conditions and investor willingness to pay.

     • Stable Pricing: Fixed size sales offer a set price, which can simplify the investment process but may not fully capture the asset's market value.

3. Liquidity Pool Goals

   • Assessment: Evaluate how the chosen sale mechanism aligns with the goals for the liquidity pool’s size and composition.

   • Impact:

     • Targeted Liquidity Levels: Fixed size sales help maintain controlled liquidity levels by limiting the number of Liquidity Notes issued.

     • Scalable Liquidity: Auctions can dynamically adjust the liquidity pool size based on real-time investor participation, fostering scalability.

Pros and Cons

Fixed Size Sale

Pros	Cons
Predictable capital raising	Potential for underselling if demand is high
Simplicity and ease of participation	Fixed price may not reflect true market value
Clear offering parameters	Limited flexibility in response to market changes

Auction

Pros	Cons
Market-driven pricing and higher potential returns	Increased complexity
Ability to capture higher demand	Uncertainty in total capital raised
Flexibility to adjust based on investor interest	Potential for volatility in final pricing
Enhanced price discovery	More complex for investors to participate