A - Why Use a Fixed Swap Pool
The advantages of using a fixed pool
- 1.Lack of control mechanisms: Unfair token distribution and liquidity rug pulls
- 2.Prevent token dumps by private investors
- 3.Reduce token offering costs
As we can see, each time we swap with the liquidity pool, the rate changes. As projects try to launch their token via AMM liquidity pools, a popular token’s price can rapidly increase when plenty of investors buy it. This price increase is caused by the bonding curve model that liquidity pools implement.
For that reason, a fixed swap pool sets a fixed price for token swaps. Projects who want to use the Initial DEX Offering (IDO) model know precisely how much money they’ve raised and how many tokens they’ve sold. They know that their fresh community of token holders has paid a fair price. Conversely, the new token holders can be confident that the value they have contributed will go directly to the development of the project.
Furthermore, projects that pursue the IDO model with fixed swap pools can set additional parameters to gain more control over their fundraising, like controlling the maximum investment per user or the number of investors allowed in the pool. Soft caps and hard caps can be hard coded into the smart contract. Many elements can be crafted to make sure that the new set of token holders is taken care of as equitably and transparently as possible.