TL;DR Onchain liquidity is getting more and more complex. This has made shipping a successful token launch and managing Protocol Owned Liquidity much more difficult. Arrakis Pro helped 50+ projects successfully bring their tokens to the market and manage their onchain liquidity in 2024. In this feature, we offer eight key tips for token issuers to navigate the upcoming TGE season and beyond.

Onchain liquidity provision is getting more complex. Today, liquidity providers have to navigate concentrated liquidity, intents, interoperability, modular offerings like Uniswap V4’s Hooks, and more besides. In this new era, token issuers deploying Protocol Owned Liquidity (POL) face several key challenges. Perhaps the biggest challenge of all is the need to strike a balance between servicing the community (with liquidity) and risk management of the assets of the team (or foundation) in the most prudent manner.

As the leading onchain market maker, Arrakis Pro has helped over 50 projects navigate these challenges that are unique to Protocol (or foundation) Owned Liquidity. We’ve helped projects like EtherFi, Stargate, and Spectral deliver strong depths onchain while protecting the team’s (or foundation’s) assets. Our team of market making experts offers decades of combined experience to help token issuers prepare pools across chains, bootstrap liquidity, and manage their inventory in the most capital-efficient, MEV-aware manner. This guide offers some of the most essential tips we’ve picked up from helping these projects bring their tokens to market over the last year.

Table of Contents

1. Consider your options for acquiring your base asset.

2. Consider which DEXs you’ll deploy on.

3. Ensure there are smooth rails for price parity on and offchain (a cautionary tale that led to major CEX-DEX arb).

4. Execute transactions atomically.

5. Consider the impact of whale-sized trades.

6. Be aware of the unique pitfalls associated with initializing a new pool.

7. Know when to change your concentration (range) strategy.

8. Understand the benefits and challenges of UniV4 Hooks.

1. Consider your options for acquiring your base asset.

Before reading this section, it’s worth familiarizing yourself with the terms “quote asset” and “base asset”:

• Quote asset = your project’s token.

• Base asset = the asset you pair with your token in the liquidity pool, such as ETH or USDC.

When launching a token, you must think carefully about the way you deploy liquidity to onchain pools. Your inventory should be one of the first things you think about—you need it in place before you deploy onchain.

You’re not going to be short on your quote asset (i.e. your project’s token) but you ideally want a good supply of the base asset too. Acquiring an ample supply of ETH or USDC isn’t such an issue for teams that boast large treasuries acquired through fundraising or OTC deals, but for others, it can be a significant hurdle. The good news is there are options.

One of them is to use a liquidity bootstrapping pool (LBP), a type of pool designed to help token issuers deploy their liquidity onchain with minimal startup capital. Balancer is an example of a DEX that supports LBPs; it lets token issuers weigh the pool more heavily towards the quote asset than the base asset and adjust the ratio to a more even split over time. As the asset ratios change, LBPs prevent whales and sophisticated actors from frontrunning orders ahead of smaller players while lowering the entry barrier for teams with limited resources.

An alternative approach is to leverage the flexibility of concentrated liquidity to bootstrap liquidity. This feature offers teams a way to rebalance pools and add the base asset over time. We frequently recommend that teams supply their quote asset and base asset in an 80:20 ratio for bootstrapping but the more of the base asset you can supply, the better.

“Soft Bootstrapping” is one specific strategy that can help token issuers if they have a large imbalance between their quote asset and base asset. Developed by Arrakis, this strategy works by leveraging concentrated liquidity to set several range positions. To recreate it, a token issuer would need to set the following positions:

🔵 The full range for the quote asset

🔴 Three short ranges for the base asset

🟢 The price discovery range for the quote asset

Setting these positions creates a way to capture the base asset when someone buys the quote asset because rebalances get triggered when the price moves. Once the price has moved to a new price, positions can be reopened to bootstrap continuously until the ratio is evenly balanced. The strategy is known as “Soft Bootstrapping” because it aims to improve the UX for traders by softening price movements during the launch phase.

With that said, while it’s possible for a token to succeed with limited sell side liquidity, launches tend to be smoother when teams have a decent supply of ETH or USDC. This is because it’s harder to catch sell pressure if you don’t provide enough of the base asset, which means your token could suffer straight out of the gate. The risk here is greater if projects attract mercenaries that are more likely to dump on day one.

2. Consider which DEXs you’ll deploy on.

Before deciding which DEX you need to deploy your liquidity on, it’s worth getting up to speed on how the onchain liquidity landscape looks today.

Uniswap

As Flashbot’s Orderflow.art visual shows, the vast majority of order flow for mainnet either starts directly on Uniswap or on an aggregator or Intents Protocol like CoW Swap that can settle trades with any onchain liquidity source.

Uniswap liquidity is accessible to leading intent-based protocols like CoW Swap and aggregators such as 1inch plug into it. For these reasons, it’s a natural choice for token issuers that want to capture flows.

Token issuers may choose to deploy liquidity on UniV2 or UniV3 (and in the near future, UniV4). On UniV2, liquidity is spread across the pool’s whole price range, which is ideal for handling extreme volatility but is far from optimal when it comes to creating deep markets or running customized strategies

UniV3 has greater market depth than UniV2 today and its concentrated liquidity feature offers enhanced capital efficiency and customization. This allows token issuers to create deeper markets with fewer assets.

Balancer

Other liquidity solutions for token launches include early-generation DEXs like Balancer and Curve. Balancer pioneered multi-token pools, which allow token issuers to add tokens at different weightings. Token issuers can use this feature to minimize the price impact for their token by using a higher weight relative to the other assets in the pool. This design is particularly advantageous for smaller tokens in the bootstrapping phase but Balancer offers much less customization than UniV3 or UniV4. Additionally, LPs can choose the price curve when the pool is created, however the curve is static and cannot be further customized after launching like is possible on UniV3. While Balancer focuses on stablecoins and longtail assets, it offers similar features to other solutions with its most recent updates. Balancer V3 introduced Uniswap-style Hooks (which enable customizable pools) and it also hosts some concentrated liquidity pools with preconfigured ranges (which optimize returns for LPs, albeit with less flexibility than Uniswap).

Curve

Curve specializes in stablecoin swaps while allowing liquidity providers (LPs) to customize the price curve, similar to Balancer. It minimizes price impact for correlated assets and, with its V2 upgrade, also supports volatile assets alongside stablecoins. However, like Balancer, all LPs in a Curve pool share the same pricing structure, lacking the full customization options available on Uniswap.

Aerodrome/Velodrome

Uniswap is less dominant on Base and Optimism due to competition from the veToken model DEX projects Aerodrome (on Base) and Velodrome (on Optimism). Both solutions offer concentrated liquidity and V2-style pools and have successfully grown their TVLs by offering LPs token incentives. Token issuers deploying POL may opt for such solutions as they offer similar capital efficiency benefits to UniV3 while boasting strong communities. But they should also be aware that aggregators facilitate most token swaps today and they can route flow to any solution. Arrakis Pro will launch an Aerodrome module in Q1 2025.

Hyperliquid

Another liquidity solution to gain traction in the current crypto cycle is Hyperliquid. One of the most talked-about projects of 2024, Hyperliquid started out as a spot and perp DEX and will transition into its own L1 based on the “HyperEVM” (offering compatibility with the EVM).

One of Hyperliquid’s unique design decisions is its listing fee Dutch auction mechanism, which requires projects to bid to secure a spot listing for their asset on Hyperliquid as an HIP-1, the project’s fungible token standard. Any token issuer listing on Hyperliquid could benefit from heightened exposure, liquidity depth, and improved accessibility given the tailwinds surrounding the project. However, token issuers should also be aware that there is a capped supply of HIP-1s and competition is fierce; many early auctions closed in the six-figure range for a ticker, with GOD fetching almost $1 million.

In short, token issuers are not short of options for DEXs to deploy on. But as Uniswap is the starting point for order flows, we think it’s a strong option for teams looking for a venue to deploy liquidity.

3. Ensure there are smooth rails for price parity on and offchain (a cautionary tale that led to major CEX-DEX arb).

You will face problems if you leave your liquidity siloed. The Arrakis Pro team experienced this issue first hand following a team’s TGE in 2024. For a 12-hour period after the launch, the price variance for the token between DEX and CEX exceeded 50%.

Why did this happen?

The project in question had a successful airdrop that was claimable on a major L2. The primary CEX listing was with a prominent Asian exchange but the exchange only accepted deposits from the mainnet version of the token. Though users could transfer the token between mainnet and L2 via a native bridge, this solution was not well publicized or fast enough. Cue the chaos.

This backdrop created a tale of two markets: Wild speculation and hype on the CEX. Mass airdrop dumping on the DEX. As a result, the CEX-DEX arb offered an instant 2x return at its peak. Manual arbitrageurs fared well (systematic MEV actors aren’t present immediately when a token launches) but onchain and offchain swappers got terrible day one liquidity UX.

This incident highlights the importance of working with your CEX to ensure it accepts all the important versions of your token. Furthermore, projects should work with their CEX market maker to ensure early arbitrage will be taken care of.

4. Execute transactions atomically.

Crypto suffered one of its biggest meltdowns ever in May 2022 when Terra entered a stunning death spiral. Terra’s $60 billion wipeout kicked off when the Luna Foundation Guard withdrew 150 million UST from Curve’s 3pool, prompting a pod of whales to swap large clips of UST for USDC. Though LFG and other entities tried to rebalance the pool to defend UST’s peg, their efforts failed. Once confidence in UST was lost, holders rushed to exit their positions in Anchor Protocol and a death spiral ensued.

LFG’s initial withdrawal prompted the collapse by making the pool’s liquidity more shallow. LFG effectively created a vulnerability in the Curve pool then had to react to rebalance it.

Moving liquidity can create volatility because it can temporarily make pools very shallow. When the pool is less liquid, it’s more vulnerable to market manipulation, large price swings, and other negative outcomes.

The Terra saga illustrates why it’s important for token issuers to execute atomic transactions. This is especially true in cases where the issuer’s POL represents a large portion of the market.

5. Consider the impact of whale-sized trades.

Anyone can trade your token once you add liquidity to the pool. This means it’s a good idea to design your onchain liquidity to settle large trades at prices and price impacts that you find appropriate.

LPing in pools differs from centralized venues—when you provide liquidity to a pool, you’re creating space for whales to withdraw huge liquidity if they so desire. If the liquidity is too shallow, the price impact can be significant. Projects should understand that they are always at risk of a major dump from an adversarial whale once their liquidity is deployed onchain. This means it’s worth considering the impact of large trades when deciding your liquidity ranges.

Token issuers should think about liquidity backstops in the context of whales looking to dump. When a large user wants to exit, they get a certain price for the trade. A token issuer may consider the price provided by onchain liquidity versus an OTC deal. If they think that onchain liquidity should not provide better pricing than an OTC deal, their liquidity should be appropriately ranged to the downside.

Taking such measures ensures that the project can protect their POL. After a whale dump, their token price may need to be arbed back to a certain level, but this is generally less costly than providing exit liquidity with minimal price impact.

If liquidity is overconcentrated on the sell side, a whale can dump at a price that benefits them and leaves the token issuer rekt. Token issuers must be aware that they face a constant trade-off: Liquidity depth and inventory risk are always at odds with one another. When liquidity is spread across a wider range, it’s harder to achieve depth, which means large trades have a larger price impact. Narrower ranges can minimize price impact but they add inventory risk.

As the launch phase usually sees more market volatility, the most market-neutral approach is to spread liquidity wider.

6. Be aware of the unique pitfalls associated with initializing a new pool.

Creating or initializing a new pool onchain is a tedious process with extremely poor UX today. Many problems can arise during the pool setup and liquidity seeding process that are unique to this stage of the token’s lifecycle.

Token issuers are at risk of all of the following issues once the pool is initialized:

• Price anomalies from users swapping into extremely thin liquidity.

• Extreme IL right out of the gate due to an incorrect starting price.

• An overly narrow liquidity range that doesn’t adapt fast enough to keep the market active.

• MEV attacks known as “reverse LP sandwich attacks” due to high slippage limits when adding liquidity.

While every launch is unique, in general the best practice approach when the TGE and price discovery involves a CEX listing is to initialize the pool and set the market price atomically in a single action. The price of the pool should be equal to any pricing on offchain venues like a CEX. The range should also be relatively wide (learn more about how we set 1/10 and 10x ranges for launches in section 7). The amount of assets supplied should also be less than the total sum of assets available for POL—it’s a good idea to deploy only 25% to 75% of the POL and leave a reserve in case of a black swan event that sends prices completely haywire.

In edge cases, it may not be possible to set the price when the pool launches. For instance, an eager onchain community member may create a pool ahead of you without adding sufficient liquidity. In these situations, the best approach is to add liquidity when the market is at a price in line with the established price on other venues (i.e. CEXs). If the token has no price on other venues, token issuers need to estimate the FDV. In such situations, it’s better to estimate to the lower bound and give buyers a good price than estimate to the upper bound because this gives sellers a good price to dump at.

If the pool already exists and you can’t set the price, you want to avoid adding liquidity at the wrong price. One approach here is to leverage atomicity and create a swap transaction that sets the price to the CEX price and an addLiquidity transaction that brings in the wide range of POL. Such a transaction would fail if both transactions couldn’t execute in the way the team anticipates them to.

While most concentrated liquidity DEX frontends—including Uniswap and Aerodrome—are not optimized for LPs, teams can circumvent this obstacle by calling contracts directly to create atomicity and configure slippage and revert settings.

How MEV Attacks Can Leave Token Issuers Rekt

In the worst cases, adding liquidity in an inattentive manner can make you more prone to MEV attacks. The reverse LP sandwich attack is a popular form of MEV extraction that targets careless LPs. The vigilantes behind them target addLiquidity transactions with high slippage limits to generate risk-free profit. When the LP makes a deposit, the attacker frontruns and backruns the transaction with swaps at a rate that leaves the LP rekt. The reverse LP sandwich attack can be thought of as an instant serving of IL.

As an example, let’s say you allow liquidity to be added to a GOVTOKEN/USDC pool without setting any limits (i.e. parameters that state the transaction must execute with a particular range of state price or else it fails). You want liquidity to be added at $40, but as there are no limits, MEV searchers can move the price to $1,000. This means when you add USDC to the pool, they rush to dump GOVTOKEN at the $1,000 price. They get all of your USDC and you get rekt.

When adding liquidity to a pool, you must take precautions to ensure MEV attackers can not buy your token at an artificially low price or sell it at an artificially high price to sap away your base asset. Initializing pools and adding liquidity atomically minimizes the risk of such attacks.

To sum up, your liquidity is at risk once it’s onchain and UniV3’s concentrated liquidity feature makes creating pools extremely complex. Exercise caution if you want to avoid getting rekt.

7. Know when to change your concentration (range) strategy.

Setting Ranges for Price Discovery (The Launch)

Price volatility tends to be higher during token launches. It’s important to consider the range your liquidity will sit in, especially during the period when the true market price is yet to be discovered.

Neutral strategies are optimal for launches due to the heightened probability of volatility. This mitigates the risk of depleting inventory too quickly. While there is no prescriptive formula and every launch differs, one risk-averse strategy to consider is to set the initial liquidity range at 10x the launch spot price on the upper bound and 1/10 on the lower bound. Following the price discovery period, you can more safely concentrate liquidity in more aggressive ranges, i.e. 2x to the upper bound and 1/2 to the lower bound (as the most aggressive option).

Advanced Strategies

To further level up, a liquidity provisioning strategy could take account of multiple variables and dynamically adjust positions based on a matrix of triggers. Price, volatility, and inventory are some of the key variables for token issuers to consider (but in an AI Agent-dominated future it’s easy to imagine any number of other signals becoming relevant, such as social sentiment or offchain pricing).

• Volatility Triggers: a risk mode is determined here according to a volatility index. Ranges can then be widened if volatility is low or tightened if volatility is high.

• Inventory Triggers: these can be used to adjust ranges based on the composition of your inventory rather than trading activity. If you have more ETH or USDC than desired, you could automatically adjust your ranges to more easily acquire more governance tokens.

• Price Triggers: these work in a similar way to Inventory Triggers, except they track when the price moves beyond predefined ranges rather than the ratio. Liquidity is then rebalanced at a set price threshold.

These triggers are used to set positions based on the risk level (i.e. volatility), calculate the amount of liquidity to allocate to each range, and set position parameters. Maintaining a concentrated liquidity strategy requires constant monitoring and it’s particularly important to consider the market volatility and risk mode when adjusting positions.

UniV3’s concentrated liquidity feature offers token issuers massive capital efficiency improvements on UniV2. But making liquidity more concentrated also introduces greater risk if the price moves out of range. It’s crucial to understand this and set ranges accordingly, not least during the launch period.

8. Understand the benefits and challenges of UniV4 Hooks.

The impact Uniswap V4’s Hooks will have on onchain liquidity cannot be overstated. UniV3 introduced an added layer of customization and complexity to LPing and Hooks will elevate both the customization and complexity to an entirely new level.

Hooks will give token issuers more options on where to deploy capital. But they create questions around how token issuers should leverage their POL to suit their project’s needs. Hooks will usher in an explosion in new pools and token issuers will need to choose the right ones to deploy on. This is a challenge because it’s still unclear which Hooks will succeed in their design mechanisms and ability to attract order flow.

Some early Hook designs include features like liquidity locking (which could let LPs receive additional token rewards), KYC verification (which could let verified traders access specialized pools), and automated liquidity management (which could let LPs passively add liquidity and automatically rebalance their positions). But this is just the beginning and Hooks can be extremely varied in scope.

For token issuers looking to deploy their POL, Hooks focused on MEV awareness and yield generation could be particularly interesting. Austin Adams’ Doppler Hook, which uses a Dutch auction and dynamic bonding curve to help with price discovery, is also a promising design for projects planning their TGEs.

Arrakis will build on UniV4, starting with the launch of an MEV-aware Hook that adopts a dynamic fee model similar to HOT AMM. This Hook is designed to protect LPs from MEV by minimizing arbitrage opportunities. We expect it to be an even more profitable version of the strategies we run today.

But it’s crucial to note that Uniswap will not route liquidity to Hooks by default—Hooks will require a filler to receive order flow. This means projects must be sure that they deploy to Hooks that will capture flow. With the arrival of Hooks, token issuers will have to choose between many more liquidity solutions to manage their resources effectively.

We anticipate that UniV4 will take some time to mature before any best practices or “winning” Hooks emerge. In UniV4’s early lifetime, we expect to see simple designs succeed, with more complex iterations likely to emerge and win out over time.

Although UniV4 will introduce more complexity, it will offer more opportunities to the teams that manage their liquidity effectively across Hooks. We are here to help teams level up.

What Next?

That covers some of our top insights from helping teams bring their tokens to the market this year. Before we wrap, it’s worth taking a moment to consider the state of crypto today. With Bitcoin trading at highs, the stage is set for an industry-wide expansion and TGE season is approaching.

This matters to you if you’re preparing to launch a token because competition is fierce and many other teams have the same idea. As the market heats up, attention will become harder to capture and CEXs will become more extractive.

In this guide, we offer the most essential tips for teams preparing to partake in TGE season and deploy liquidity onchain. While there are many considerations to make, if we could offer one takeaway, it’s that bootstrapping and managing your liquidity properly should be one of your top priorities. We are here to guide you.

Arrakis Pro is crypto’s only onchain market maker, built to help teams create deep markets onchain, manage liquidity, and capture revenue in a capital-efficient manner. Learn more about how our solution helps token issuers via our blog post or fill out our contact form to reach out about onboarding.

With thanks to the Arrakis team for their invaluable contributions and editing suggestions on this piece.

References

• Aerodrome Docs [Aerodrome]

• Arrakis Pro: The Onchain Market Maker for Token Issuers [@dreamsofdefi for Arrakis Finance]

• Balancer Docs [Balancer]

• Curve Technical Docs [Curve Finance]

• Doppler: A liquidity bootstrapping ecosystem [Austin Adams/Whetstone Research]

• HOT, the MEV-Aware AMM Built to Empower LPs, Is Live [@dreamsofdefi for Arrakis Finance]

• Hyperliquid Docs [Hyperliquid]

• On-Chain Forensics: Demystifying TerraUSD De-peg [Nansen]

• Orderflow.art [Flashbots]

• The Trades That Triggered TerraUSD’s Collapse [Chainalysis]

• Uniswap Docs [Uniswap]

• Velodrome Finance Docs [Velodrome Finance]

• Why We Need to Fix DeFi: Addressing the CVMM Problem [@dreamsofdefi for Arrakis Finance]