A launchpool is a format for distributing new tokens in which users receive crypto assets without directly purchasing them. A launchpool allows investors to participate in the launch of promising crypto projects at an early stage by placing the tokens they already own into a special liquidity pool and receiving rewards in the form of new coins.
In essence, a launchpool is an early-access tool for crypto projects and a way to earn additional income without the traditional purchase of tokens at the start of sales.
Launchpool as a stage in the evolution of token sales
Since the emergence of ICO (Initial Coin Offering)*, the cryptocurrency market has changed significantly. Various token distribution formats have appeared:
- IEO (Initial Exchange Offering) — a token sale format conducted through a centralized cryptocurrency exchange. The exchange acts as an intermediary, verifies the project, and lists the tokens on its platform. After the completion of an IEO, the token is typically listed for trading immediately.
- IDO (Initial DEX Offering) — a token distribution conducted through decentralized exchanges (DEX). Projects attract liquidity via smart contracts, and users receive tokens without the involvement of a centralized intermediary. IDOs usually involve a more open, faster launch process.
- IFO (Initial Farm Offering) — a token distribution format through farming. Users provide liquidity to a pool, most often on a DEX, and receive new tokens in exchange for participating in farming.
- STO (Security Token Offering) — the issuance of tokens that are legally classified as securities. The laws of a specific country regulate an STO and impose stricter requirements on both the project and investors.
* ICO (Initial Coin Offering) — an initial token offering directly from the project team to investors. Participants purchase tokens before they are listed on an exchange. ICOs became the first mass-market way to raise capital in the crypto industry. Still, they were associated with high risks due to weak regulation and a large number of fraudulent projects.
Against the background of these models, a launchpool is a more flexible and less risky tool. Unlike traditional token sales, a launchpool does not require the direct purchase of new coins — the participant places their assets in a pool and receives new tokens as a reward.
Launchpool: what is it in simple terms?
The term “launchpool” is formed from two English words:
- launch — launch,
- pool — pool, reserve.
A launchpool is a liquidity pool where users temporarily deposit their assets. These assets form the project’s liquidity*, and in return, launchpool participants receive new tokens.
* Liquidity is the volume of available funds and assets that ensures the ability to freely buy and sell a project’s token on the market without significantly affecting its price. The higher the project’s liquidity, the easier it is for investors to execute trades, the lower the spread between buying and selling prices, and the more stable the token’s price behaves during large transactions.
In other words, a launchpool is a token distribution mechanism through liquidity provision. In terms of its mechanics, a launchpool is similar to farming*: a user freezes or reserves one cryptocurrency and receives rewards in another asset.
* Farming (yield farming) is a way to earn income in cryptocurrency by providing assets to a liquidity pool or a smart contract. A user places tokens into a DeFi protocol and receives rewards — usually in the form of additional tokens.
How does a launchpool work in cryptocurrency?
The mechanics of a launchpool are fairly transparent and consist of several stages.
Registration and verification
To participate in a launchpool, you must have a verified account on the exchange that conducts the launchpool.
Launchpool announcement
The exchange announces the launch of a new launchpool and publishes its terms:
- which tokens can be placed in the liquidity pool,
- the duration of the launchpool,
- the total amount of distributed rewards,
- the rules for distributing new tokens.
3. Placing assets in the launchpool
Users deposit available tokens into the launchpool. Usually, this is a limited list of assets — most often the exchange’s native tokens. Before the official start of the launch pool, rewards may not accrue, but the funds are already counted in the pool.
4. Reward distribution
After the launchpool begins, new tokens are distributed proportionally to the participant’s share in the liquidity pool. The larger the contribution to the launchpool, the greater the reward received. In most cases, a launchpool allows users to withdraw their deposited funds at any time, but this depends on the rules of the specific platform.
5. Completion of the launchpool
After the launchpool ends:
- participants receive the accrued new tokens,
- the tokens are listed on the exchange,
- they can be sold, held, or withdrawn to a non-custodial wallet*.
* A non-custodial wallet is a cryptocurrency wallet in which the user independently stores private keys and fully controls access to their funds. Unlike custodial wallets, non-custodial wallets do not transfer asset management to a third party. Responsibility for the security of the cryptocurrency and the safekeeping of keys lies entirely with the owner.
Advantages of a launchpool
Income without direct purchase
The main advantage of a launchpool is the ability to receive new tokens without buying them. If an investor already owns a suitable asset, participation in a launchpool allows them to earn additional income.
Alternative to staking
A launchpool is often considered a type of passive income similar to staking*. However, unlike traditional staking, a launchpool usually does not involve strict fund lockups.
* Staking is a way to earn income in cryptocurrency by placing tokens in a blockchain network to support its operation and validate transactions. The user temporarily locks their assets and receives rewards in the form of additional tokens. In most cases, staked funds are locked for a set period and cannot be withdrawn until the lock-up period ends.
3. Early access to promising crypto projects
Exchanges carefully select crypto projects for launchpools, as tokens are listed for trading after the event concludes. This reduces the risk of participating in questionable initiatives.
4. Flexibility in asset management
In many launchpools, users can withdraw funds early, increasing the liquidity of their investments.
Disadvantages of a launchpool
Despite its attractiveness, a launchpool is not without risks.
- Volatility of the base token
Participation in a launchpool often requires a specific exchange token. For example, some platforms use a limited list of assets. After a launchpool announcement, the price of such a token may rise, and after the event ends, it may fall. As a result, income from the launchpool may be partially or completely offset by a decrease in the value of the base asset.
2.Reduced yield with a large number of participants
Launchpool's profitability directly depends on the amount of liquidity. The more participants deposit funds into the launchpool, the smaller each investor’s share of the reward.
3.Platform risks
Launchpools are conducted on both centralized and decentralized platforms. If an exchange proves unreliable, there may be issues with withdrawing funds.
Where is a launchpool conducted?
A launchpool is available on various crypto platforms.
Centralized exchanges:
- OKX (Jumpstart section)
- KuCoin (Earn program)
- Gate.io
- MEXC
Decentralized platforms and IDO platforms:
- PancakeSwap
- TronPad
- Gems