(Source)

# Bootstrap Parameters & Process

One can bootstrap a liquidity pool with the following parameters

• Not Before: pool cannot be started before a particular block number

• Target Provision for Token A: minimum requirement of liquidity for Token A

• Target Provision for Token B: minimum requirement of liquidity for Token B

• Minimum contribution for Token A: each contribution requires a minimum amount of Token A

• Minimum contribution for Token B: each contribution requires a minimum amount of Token B

A liquidity pool can only be started once the following criteria are met:

• The Not Before block has passed AND

• Either Target Provision for Token A OR Target Provision for Token B has been met AND

• Both Token A and Token has >0 liquidity

# During Bootstrap

During the Bootstrap period:

• NO trading is allowed, therefore the exchange rate can be consolidated

• You can contribute liquidity for Token A, or Token B, or Token A and B at the same time. The actual exchange rate of Token A and B can only be known once the Bootstrap is completed.

• At the time of your contribution, you are allocated a number of LP tokens, and indicative LP shares of the pool, which are subject to change as more liquidity is added.

• You should only participate if you want to become a liquidity provider for the pool. Please be aware of various risks associated with being a liquidity provider.

## LP Token & LP Shares

LP tokens are receipts of liquidity contributed to a pool. LP Shares (= LP Tokens / Total LP Tokens) are pro-rata representations of the liquidity contribution of a particular pool e.g. Token A-Token B pool.

The following formula is used to calculate LP Tokens after a contribution for Token A-Token B pool:

$LP Tokens = Token A Contribution * 1 + Token B Contribution * Exchange Rate$

Below is a simulation of how a user’s LP Shares of the pool might change as more liquidity is added to the pool during the Bootstrap period:

• User 1 only contributes 1000 Token B. LP Tokens can only be calculated once both sides of the pool have some liquidity.

• After User 2 added his/her liquidity (User 2 only contributes 50 Token A),

• The exchange rate of Token A-Token B is 0.05 (=50/1000 based on constant product)

• User 2's LP Token is 50 (=50*1 + 0 * 0.05)

• User 1's LP Token is also 50 (=1*0 + 1000 * 0.05)

• User 2 LP Share is 50% (=50/(50+50))

• User 1's LP Shares is also 50%

• After User 4 added his/her liquidity (User 4 contributes both Token A & B)

• The exchange rate of Token A-Token B is 2 (=2200/1100)

• User 4's LP Share is 52.27%

• User 2's LP Shares drop to 1.14%.

• User 1's LP Shares drop to 45.45%.

• If Bootstrap completes at this point

• User 1 can redeem 1000 Token A (= 2200*45.45%) and 500 Token B (= 1100*45.45%).

• User 2 can redeem 25 Token A and 12.5 Token B

• User 4 can redeem 1,150 Token A and 575 Token B

• LPs may or may not redeem right after Bootstrap, as most returns come from trading fees. Read more here.

So if you are contributing only one side of the pool (say Token A), you are effectively converting 50% Token A into Token B based on the exchange rate when Bootstrap ends (and the pool opens for trading).

# After Bootstrap

Let's assume the pool Bootstrap completes after the 4th user's contribution (as illustrated above), then the LP tokens are allocated to each liquidity provider. LP Shares (= LP Tokens / Total LP Tokens) is a pro-rata representation of LP's contribution to the overall liquidity of a given pool. LP Tokens can then be redeemed for underlying assets (Token A and B) at any time. As an example, User 1 can redeem 45.45% of Token A (1000 Token A = 2200*45.45%) and 45.45% of Token B (500 Token B = 1100*45.45%).

• You need to claim your LP tokens after Bootstrap completes

• The Token A-Token B pool will be enabled for trading

Here is an example to illustrate this:

## Claim LP Tokens

LP tokens are allocated once Bootstrap ends, and are claimable via

• dex.claimDexShare directly on Polkadot Web App - Karura parachain

# Submit a Proposal to Bootstrap a Pool

This is the preimage of proposing to bootstrap a pool. Read more on how to submit a proposal here.