The core of the Doppler protocol's operating model is the Dutch Auction Dynamic Bonding Curve, which is a harmonious combination of the Dutch Auction model and the traditional Bonding Curve, aiming to bring a fairer token deployment model.
Exploring Doppler - A token deployment protocol that combines Dutch Auction and Bonding Curve
Introduction
The development of the AMM (automated market maker) model has created a DeFi boom and completely changed the way markets are created for digital assets in the blockchain space.
Instead of relying on centralized exchanges and waiting for order matching in the order book model, AMMs use mathematical formulas to perform automatic transactions without the intervention or trust of any third party.
Due to the permissionless, trustless nature, millions of crypto assets have been operating on this model for many years, especially in the recent "pumpfun" movement that has erupted on many networks.
Common formula of AMMs
However, the AMM model is still facing significant challenges. First, this model requires an initial Capital to create the market.
As we know, the creators need to provide two-sided liquidity, in addition to the project's self-minted token, a significant amount of recognized value-based platform tokens such as ETH, USDT, USDC or other native tokens depending on the network, which can create a barrier for developers with limited financial resources.
Although later AMM versions like Uniswap v3's CLMM or Meteora's DLMM allow for single-sided Liquidation, it still requires the creators to have an initial price view, or in other words, to self-price the project.
This leads to another challenge for both the project and the users, which is the issue of initial price discovery.
If the price is set too high, users will refuse to trade, causing a failed listing event. If the price is set too low, the token will be exploited by sniper bots, which will immediately buy at the low price and resell at a higher price to subsequent buyers, causing unnecessary losses for the project.
Investors who are interested in the product and the depth of the project and want to hold it for the long term will immediately suffer losses, while the sniper bots who are only interested in short-term profits by the minute will make huge profits.
A bot may have earned ~27,000 $SOL($6.8M) by sniping #memecoins on https://t.co/C909I8882s over the past month!
— Lookonchain (@lookonchain) November 25, 2024
2 days ago, the bot spent just 2 $SOL to snipe 57M $FATHA and sold it all for 4,456 $SOL, netting 4,454 $SOL($1.12M)—a staggering 2,227x return!
Today, it spent 1.75… pic.twitter.com/BQf15VpClQ
The recent pumpfun movement has shown the reality that the Bonding Curve game is always in the hands of bots, and no real user can compete. There are even projects where bots buy the entire token supply in the Bonding Curve and then quickly Dump it on the subsequent buyers.
Charts like 1-minute millionaires, 1-hour market cap of hundreds of millions, and then Rugpull to a few thousand dollars in less than a minute are common occurrences in pumpfun. Because the manipulating team uses bots to buy the entire token supply underneath to drive up the market cap, no one can buy at a lower position, so if necessary, the bots will Dump the entire token supply to recoup the Capital with only a very small transaction fee loss.
Clearly, the issue of initial price discovery for the project is very important to make the game fair.
Chart model commonly controlled by sniper bots in pumpfun
These realities show that the crypto environment needs a fair token deployment model that benefits both the project and the investors.
Developers at Whetstone Research have introduced a new token deployment model that combines Dutch Auction and Bonding Curve with great potential for application. Let's explore the Dutch Auction Dynamic Bonding Curve and the Doppler protocol in the following sections.
Dutch Auction Dynamic Bonding Curve Model
The core of the Doppler protocol's operating model is the Dutch Auction Dynamic Bonding Curve, which is a harmonious combination of the Dutch Auction model and the traditional Bonding Curve. First, let's review these two models.
Dutch Auction
Dutch Auction, also known as a descending-price auction, is a type of auction where the price of the asset being sold starts very high and is gradually lowered until someone is willing to buy.
Similarly, in the cryptocurrency market, Dutch Auction is usually implemented through a smart contract with pre-determined decreasing price steps over time, and when someone is willing to accept the price, the transaction will be executed.
Dutch Auction has been proven to completely eliminate bot manipulation and various MEV (Miner Extractable Value) attacks. Since the price is gradually decreasing from high to low, the use of sniper bots is completely meaningless, the game is not for the "faster hands than brain" but for those who research the project's valuation. Participants must determine for themselves at what range they should start buying, thereby shifting the initial price discovery from the creators to the investors.
In addition, through the implementation of tokens in this form, the creators also do not need to provide 2-sided liquidity, but only need to allow the price to gradually decrease over time until the investors accept it. This model is truly useful for projects with good ideas but limited financial resources.
Bonding Curve
Bonding curve is a mathematical model applied in the cryptocurrency economy, which determines the relationship between supply and token price. This formula is defined and automatically implemented through smart contracts.
Basically, the formula of a bonding curve is: P = f(S), where P is the token price, S is the circulating supply, and f is a defined calculation function. The function f may differ for the same token, leading to different curve shapes.
Examples of different bonding curve models
The bonding curve directly reflects the supply-demand relationship of an asset, with the price increasing as demand increases and vice versa, or in other words, continuously pricing based on supply and demand. This increase or decrease is automatically determined through a mathematical formula, thereby ensuring the continuous and transparent operation of the market without the need for a third-party trust.
Bonding curve has become widespread and the standard for token deployment over the years, with typical projects such as pump.fun, friend.tech, four.meme. Decentralized exchanges like Uniswap, Pancakeswap also operate based on this bonding curve model.
While providing many superior benefits, as mentioned in the introduction, when applied to token deployment activities, it will pose major challenges in building a fair trading environment.
These factors led the developers at Whitestone Research to the idea of combining both the Dutch auction and bonding curve models. This is the foundation for the birth of the Dutch Auction Dynamic Bonding Curve.
Dutch Auction Dynamic Bonding Curve
Dutch Auction Dynamic Bonding Curve (DADBC) is a harmonious combination of both Dutch auction and bonding curve. A token deployment round begins with a Dutch auction, where the price starts at a very high point and gradually decreases until it finds the buying zone that investors accept, after which the dynamic bonding curve will take over the price curve.
The keyword "dynamic" is added because this price curve is not fixed, but flexibly changes according to market supply and demand. If the buying pressure is too strong, the curve will shift upwards, causing the price to increase, and if the buying pressure is too low, the curve will shift downwards, allowing the buying pressure to increase. You can see the illustrative image below.
Specifically:
Dutch Auction Dynamic Bonding Curve uses the tick mechanism in Uniswap v3 to implement the price increase and decrease steps.
If you don't know, since the third version, Uniswap has used "ticks" to segment the price into small discrete levels to serve the Concentrated Liquidity Market Maker (CLMM) model. Each tick is a small price change step determined by the formula: Price=1.0001tick. Segmenting the price by ticks helps increase the efficiency of liquidity provision in the CLMM model.
In general, to avoid complexity, you just need to know that the price increase and decrease in the Dutch Auction Dynamic Bonding Curve will move step-by-step according to ticks, not arbitrary numbers.
The chart above shows that during the Dutch Auction phase, the price will be reduced from a defined maxTick to minTick over a specified time period. The time frame for each price decrease step is an epoch.
The price will continuously decrease after each epoch until the demand zone is found, after which the Dynamic Bonding Curve will take over.
Now let's move on to the Dynamic Bonding Curve phase. To understand how it works, you need to know the calculation formula for the curve in this model as follows:
Formula for determining the Dynamic Bonding Curve
Where:
- bc(t): the value of the bonding curve at time t, used to calculate the asset price at that time. 𝑝(𝑡)= 1.0001𝑏𝑐 (𝑡).
- γ: a parameter that determines the slope of the bonding curve.
- tmax: the total time for token sale.
- τt: the origin tick, the starting point of the bonding curve at time t.
So, in addition to the slope and time, the important parameter we need to focus on is τt (origin tick) - the point where the curve starts, and this is the key point in the dynamic mechanism of the dynamic bonding curve.
τt (origin tick) will determine whether the bonding curve shifts up or down at time t, thereby adjusting the buy and sell prices to suit the market demand.
τt is determined by the formula shown above. Where:
startingTick: the initial tick, a static parameter set from the beginning.
tickAccumulator(t): the cumulative tick during the continuous adjustment of the bonding curve.
tickAccumulator(t) is the cumulative sum of tickDelta.
tickDelta is the parameter representing the degree of change in the tick value after each curve adjustment. It is determined by the following 3 cases:
In the formula above, there is a new variable:
λt: the expected number of tokens to be sold in epoch t.
𝜆𝑡^: the actual number of tokens sold in epoch t.
There are 3 cases that can occur:
If: 𝜆𝑡^ ≤ 0, meaning the actual number of tokens sold is less than or equal to 0, then tickDelta will be assigned the value of maxDelta.
If: 0 < 𝜆𝑡^ < λt, meaning the actual number of tokens sold is greater than 0 but still less than expected, then tickDelta will be determined by the formula: maxDelta*(𝜆𝑡^/λt).
If 𝜆𝑡^ ≥ λt, meaning the number of tokens sold is greater than expected, then tickDelta will be determined by the formula: tickDeltau,t.
maxDelta is determined by the formula below.
The formula for calculating tickDeltau,t in the case where the sell price is higher than expected is a bit more complex as it needs to be combined with the parameter i(c), which is the current tick position of the liquidity pool.
In summary, by dividing the token launch campaign into epochs and comparing the expected sales volume with the actual sales volume, the Bonding Curve has been continuously adjusted according to market supply and demand.
After this phase is completed, the entire liquidity goes through an event called Migration to transition to free trading.
Putting aside the complex formulas, what do we see? By seamlessly combining Dutch auction and Bonding Curve, this model demonstrates a completely different approach to the deployment of new tokens.
Continuous price adjustment based on supply and demand helps eliminate the manipulation of sniper bots, creating a healthy competitive environment for investors. For the project, they also don't need to provide a large initial liquidity pool to create a market. This model can be considered a win-win situation.
In addition to the advantages, the Dutch Auction Dynamic Bonding Curve also has some limitations, such as the implementation of the reverse auction from high to low will create pressure in terms of waiting time, and the fear of missing out (FOMO) psychology may cause investors to make decisions to buy at a higher price than desired.
Additionally, since there is no FOMO price effect, this method forces the project to build trust before the sales process. If they fail to attract investors, the price may drop to a very low level with no one buying.
Finally, there is still the possibility of manipulation in this model. If a manipulative group intentionally sets a high initial buy price and starts pushing it up, outside investors may be FOMO'd and decide to buy in early. However, this model will still limit it, because if investors are persistent with their valuation and refuse to buy, at some point the manipulative group will not have enough money to continue buying at the high valuation, and the price will gradually decrease according to the adjustment of the dynamic Bonding Curve, and the manipulators themselves will be the ones who suffer the loss.
Doppler Protocol
Doppler is the first protocol to use the Dutch Auction Dynamic Bonding Curve model for token deployment and liquidity on the EVM (Ethereum Virtual Machine) ecosystem.
Doppler is designed with a modular architecture consisting of several components that allow users to seamlessly deploy projects from token to liquidity. The modular architecture also helps projects easily customize and assemble individual modules as needed.
Doppler has 5 main modules: Token Factory, Liquidity Factory, Migration Factory, Timelock Factory, and Vesting Module. These modules are coordinated by a central module called Airlock.
The lifecycle of a token deployed on Doppler includes:
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Token generation: Tokens are newly created through the Token Factory with defined security standards.
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Liquidity bootstrapping: Using the Dutch Auction Dynamic Bonding Curve to create initial liquidity.
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AMM migration: Automatically transfer the created liquidity to traditional AMMs.
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Liquidity protection: Protect liquidity if requested through the Timelock Factory and Vesting Module.
Token Factory
Token Factory is a module that creates tokens according to a pre-defined standard. This is quite important because in the web3 space, users are always faced with the risks of fraud and rugpull. Without programming knowledge, it is very difficult for regular users to know if a token is malicious or not. By building recognized security standards, tokens deployed from Doppler's Token Factory will help users avoid these risks.
This is similar to when you only need to check if a token on the Solana network is issued by pumpfun or not, if it is produced by pumpfun, you can be sure that there will be no sell lock, high tax, or the ability to mint new tokens. Doppler's Token Factory does the same thing, but with the ERC-20 standard on EVM.
Liquidity Factory
Liquidity Factory is the module that uses the Dutch Auction Dynamic Bonding Curve to create liquidity, as we analyzed above. It is responsible for finding the initial price range, coordinating the price according to supply and demand to bootstrap liquidity for the token.
Liquidity Factory is built based on Uniswap v4 thanks to the hook mechanism in the recent update. However, the project also mentions that Liquidity Factory is compatible with Uniswap v3 and other popular AMMs.
If the created liquidity meets the requirements, Airlock will coordinate to transfer the task to the Migration module. In the opposite case, Airlock will proceed to refund the users who have participated.
Migration Factory
Migration Factory is responsible for transferring the liquidity created initially from the Liquidity Factory to other AMM protocols, from which the token can be freely traded on the market.
Timelock Factory
Timelock Factory focuses on creating Timelock contracts to protect and stabilize the token's liquidity after the listing phase. Automatic liquidity locking helps users avoid sudden rugpull situations.
Vesting Module
Vesting Module is a module that allows setting up token distributions according to a vesting schedule. It provides the ability to protect users from the risk of dump, while also creating long-term incentives for the project development team.
The Doppler protocol has deployed the official and open-source version, which you can refer to on this Github address. In addition, the project has also built a pumpfun version using the Dutch Auction Dynamic Bonding Curve called Pure.st, which you can experience here.
Conclusion
Doppler and Dutch Auction Dynamic Bonding Curve are notable innovations in the cryptocurrency market, especially in the context of the rampant sniper bots across blockchains. Creating a fairer environment for all participants will drive the growth of serious capital.
Doppler and Dutch Auction Dynamic Bonding Curve may be more suitable for projects that emphasize value and have a long-term vision. In this case, developers can use them to initiate fair liquidity, along with long-term engagement incentives through the feature of automatic vesting.
However, it is difficult to determine whether this model will become the new standard of the crypto market. The harsh reality is that most crypto projects aim to control the supply, fomo the price curve, and dump tokens. Profiting through this method is a thousand times faster and easier than building product features and creating long-term surplus value. Therefore, tokens often tend to be manipulated by the projects themselves, so a fair and transparent token deployment model may not be what they desire.
The above is all the information about Doppler and the Dutch Auction Dynamic Bonding Curve model, and I hope the article is helpful in your research.
Kudō
