Launchpool: how to get new tokens without buying them

Since the emergence of the first public token sale format — ICO (Initial Coin Offering) — many new types of token sales have appeared, including IEO, IDO, IFO, and STO. One of these newer formats is the launchpool.

Launchpool: what is it?

A launchpool is a platform where users allocate their assets to receive new tokens from the platform's partners without having to buy them directly. Both investors and projects benefit from this token sale format: through a launchpool, users gain early access to tokens before they are listed on exchanges, while platforms gain liquidity.

The term "launchpool" is a combination of the words "launch" and "pool". A pool refers to a reserve where liquidity provided by users is concentrated. Launchpools are also called liquidity pools because they contain investors' assets.

A launchpool is also related to cryptocurrency farming due to the similarity in mechanics: users allocate their tokens to a pool and receive other digital assets as rewards.

How does a launchpool work in cryptocurrency?

To participate in a launchpool, a verified account on the exchange conducting the token sale is required.

After an exchange announces a new launchpool, access to the liquidity pool opens. Interested participants can deposit available tokens, the list of which depends on the specific platform. As a rule, funds can be placed in the liquidity pool before the launchpool starts, when new tokens have not yet begun accruing as rewards.

After the launchpool begins, tokens are credited to users proportionally to their share of the deposited assets until the event ends, as long as the funds remain in the liquidity pool. Participants can often withdraw funds from the liquidity pool at any time before the event ends, though not all platforms allow it.

As a rule, new tokens are credited only after the launchpool ends. Users can sell them without restrictions after the exchange listing, keep them in their account, or withdraw them to a non-custodial wallet.

Advantages and disadvantages of a launchpool

The first advantage of a launchpool is the opportunity to earn additional income without additional risk if the user already owns a token that can be used to participate in the event.

In addition, a launchpool is an alternative to staking and is considered a way to earn passive income from cryptocurrency. However, in a launchpool, tokens are not locked, except in rare cases, unlike in traditional staking. They can be withdrawn at any time for sale in case of unforeseen circumstances.

The second advantage of a launchpool is access to tokens of liquid projects. Exchanges carefully select projects whose tokens will later be listed for trading.

However, a launchpool also has several disadvantages. The first drawback may arise from the volatility of the token used for participation. Typically, only a limited number of digital assets are available for launchpool deposits. For example, Binance allows deposits only in its native tokens BNB and FDUSD.

It is often observed that after the announcement of a new launchpool, the price of BNB rises, and after the token distribution period ends, many investors and traders sell off BNB, which leads to a price decline. As a result, launchpool participants risk incurring losses related to purchasing BNB, which in some cases may not even be offset by the income received from the distribution of new tokens.

The second disadvantage of a launchpool is closely related to the first: the profitability of a launchpool directly depends on the size of the liquidity pool. The more participants there are, the lower the individual return, since tokens are distributed proportionally to all investors based on their share.

Finally, the third disadvantage may be related to the specifics of the platforms themselves. Users may face difficulties withdrawing funds from the launchpool and from the exchange in general if they encounter an unreliable platform.

Popular platforms that conduct launchpools

• OKX Jumpstart;
• KuCoin Earn;
• Gate.io and MEXC Launchpool.

It is also worth noting that a launchpool is an event conducted not only on centralized exchanges but also on decentralized exchanges and specialized IDO platforms, such as, for example:

• PancakeSwap;
• TronPad;
• Gems.