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What is a Bonding Curve?
Peer-to-Contract (P2C) and Automated Market Making (AMM)

What is a Bonding Curve?

A bonding curve is a mathematical curve that defines a relationship between the token price and token supply. For example, a bonding curve with an upward-sloping trend line means that price increases as the supply (newly minted tokens) of the token increases. This is true because an equal value of ETH or USDT, for example, is being locked into the smart contract. This means in effect the tokens are being acquired or bought via the minting process. Because of the upward-sloping bonding curve, each marginal token buyer will pay a slightly higher price, generating a potentially substantial theoretical profit for the earliest investors. As more people find out about the project and buying continues, the value of each token gradually increases along the bonding curve. In effect, this competition for profits is what will generate the market capitalization of the NFT-staked liquidity pool, while simultaneously generating attractive trading fees for liquidity miners.
Why use bonding curve technology?
  • Accesses the 'Wisdom of the Crowd' There is no limit to the number of tokens that can be minted, it is solely a function of supply and demand, especially related to the token minters' collective interest in the staked NFT.
  • Deterministic price. The price of each additional token purchase results in the minting of new tokens at a predetermined price based on the relevant area under the bonding curve. In short, this means that price slippage can be estimated fairly accurately and the smart contract always stands ready to take the other side of any buy or sell trade by minting or burning tokens at calculated prices.
  • Continuous price. The price of token n is less than token n+1 and more than token n-1, but in highly-liquid pools, the price increment is very small.
  • Instant liquidity. Tokens can be bought or sold instantaneously at any time, the bonding curve always acting as an automated market maker. A bonding curve contract acts as the counter-party of every transaction and always holds sufficient ETH or the appropriate ERC-20 reserve token in reserve to fill all orders.
Last modified 5mo ago
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