Gavel is a token distribution and liquidity bootstrapping platform designed to move the token distribution process on-chain to avoid paying centralized exchange rents, while facilitating on-chain price discovery without exposing users to toxic MEV.
Today, teams issuing tokens are forced to wade through an opaque labyrinth of centralized exchanges and market makers, which sometimes charge teams over 10% of total supply in listing fees and liquidity fees. Or they can launch on-chain while giving up value to snipers and toxic MEV.
Gavel provides:
- Fair, transparent, and efficient ways to raise capital and distribute tokens, fully on-chain
- On-chain liquidity that is safe for users to interact with and easy to manage
- Full transparency and auditability throughout the lifecycle of the token
In this piece, we discuss Gavel’s core mechanisms that allow for sniper-resistant capital formation and sandwich-resistant liquidity bootstrapping.
What is token sniping?
Many coins on Solana today are launched on a bonding curve. The core property of bonding curves is the price starts very low and increases as more tokens are bought. The starting price is an arbitrary starting point; it does not necessarily represent what is likely to be the fair market value of the token.
The bonding curve creates a speed race for bots to land their buy transactions ahead of real retail users, “sniping” the tokens at cheap prices and then later re-selling the tokens back to retail. This is similar to Taylor Swift concert tickets selling at $200 initially, but instantly getting resold for over $1000 by scalpers.
Bonding curves do facilitate initial price discovery but in a lossy way. The negative effects of sniping include:
- Less capital raised by the token creators; any profit extracted by a sniper is equivalent to less capital raised
- Worse average prices for retail users
What is a sandwich attack?
A sandwich attack occurs when a bot both frontruns and backruns a user transaction, effectively “sandwiching” the user trade between its own trades. Sandwich attacks give real users worse prices and negatively impact token prices, as every dollar made by a sandwich attack is taken directly from retail when it would otherwise be in the liquidity pool.
Most AMMs expose their swappers to sandwich attacks, with ~$130,000 being extracted daily from Solana traders. Gavel uses a sandwich-resistant AMM. The sandwich-resistant AMM retains the always-on two-sided liquidity of traditional AMMs, while protecting users from sandwich attacks. The mechanism is described in detail at Umbra Research.
Why Gavel?
Teams launching tokens need to raise capital, distribute tokens, and facilitate price discovery. Gavel enables this in a fully on-chain and transparent way.
Gavel’s Mechanism
Initial Public Sale
The first mechanism is an initial public sale. The public sale is used to collect capital that will be deployed for on-chain liquidity, and optionally for the team raising to fund operations. Teams using Gavel can choose how much of their token to allocate to the sale, as well as from a variety of distribution mechanisms (e.g. Dutch auction, fixed price FCFS, permissioned, etc.). The ideal public sale mechanism will vary based on the goals of the team, but it is important for the closing price of the public sale to equal the opening price of the two-sided liquidity.
Sandwich-resistant AMM
After the public sale has ended, liquidity is added to Gavel's AMM using the remaining token inventory, and a portion of the SOL that was collected. The amount of SOL is chosen to ensure that the opening price on the AMM matches the public sale clearing price.
Transient Liquidity
The AMM is intended to support transient liquidity, used for bootstrapping initial liquidity but not permanent backstop liquidity. If a token reaches sufficient trading volume there should no longer be a need for AMM liquidity. In addition, the locked liquidity mechanisms we see today are lossy, where they have some assets that are never retrievable.
Gavel achieves this by managing the AMM LP position. On a fixed schedule, it withdraws a portion of the liquidity, swaps it for the coin, and burns the coin. The schedule is configurable.
Parameter Selection
Teams using Gavel for token distribution and liquidity bootstrapping can mix-and-match components, based on the goals of the distribution, amount allocated to Gavel’s mechanisms, etc.
IBRL
IBRL is a test token that exists solely to demonstrate the Gavel protocol in production. The token has no present or future utility. 100% of the funds collected and 100% of the token supply are allocated to the Gavel mechanism, as described below.
Initial Public Sale
Of the total 1,000,000,000 IBRL token supply, 700,000,000 is distributed through a 24-hour public sale. The sale is a period where the only action is for users to deposit SOL; at the end of the period, the public sale allocation is fully distributed in proportion to each user’s deposit.
This sale mechanism has the following properties:
- Fixed window: the sale runs for a set duration, finishing at a pre-set slot
- Fixed supply: a pre-set amount of the total supply is up for sale
- Fair distribution: participants receive token allotment proportional to their share of the total funds collected, with no limit on how much they can deposit
For example, if a participant deposits 1% of the total funds collected and 700M tokens are up for sale, they will receive 7M tokens.
This mechanism trades off the ability for users to know what price they will get at the time of deposit, but the liquidity is set such that buyers have the opportunity to exit at a similar price post-migration.
For other types of tokens, other distribution mechanisms may make more sense, such as an auction.
Sandwich-resistant AMM
The remaining 300M tokens are deposited into the Gavel AMM, paired with 3/7 of the SOL collected during the public sale.
For example, if 700M tokens are sold in the public sale for a total of 700 SOL, the remaining 300M tokens are put into the AMM with 300 SOL, leaving 400 SOL behind.
This guarantees no arbitrage or sniping opportunities are created in the migration from the public sale to the beginning of trading on the AMM.
Transient Liquidity and Remaining Funds
Because the AMM is meant to support transient liquidity, not permanent liquidity, the LP is withdrawn at a rate of 1 bp per 2000 slots, up to 20,000 times, beginning 7 days after trading goes live on the AMM. When liquidity is withdrawn, the SOL is swapped for IBRL, and the IBRL is burned.
In addition, the remaining SOL treasury is spent at a rate of 1 bp per 1000 slots, beginning immediately after trading goes live on the AMM. When the SOL is spent, it is immediately swapped for IBRL which is then burned.
Both of these processes are governed autonomously by on-chain smart contracts, and executed through a permissionless crank.
Conclusion
Gavel is a full-service platform for on-chain capital formation and liquidity bootstrapping. Teams issuing tokens on Gavel can raise capital in a fair and efficient way, and deploy the capital to support sandwich-resistant liquidity. Gavel removes losses to sniping and frontrunning which plague on-chain token launches today, while allowing teams to avoid dealing with the expensive process of centralized exchange listings.
Long-term teams launching tokens on Solana can reach out to us directly on Twitter.
