Bonding Curves

Basics

From Token Tuesdays (4-12-2019):

"Continuous token models (are) also known as bonding curves. In essence, bonding curves issue new tokens each time capital (in Nexus Mutual's case ETH) is sent to the token contract. Similarly, existing tokens are burned (or destroyed) each time they are redeemed for capital (like ETH) back from the token contract. In practice, bonding curves allow for the price of tokens to increase when new tokens are purchased, and decreased when existing tokens are redeemed. This is where the concept of continuous pricing comes from.

It’s important to note that the shape of a bonding curve can be altered in various ways to accomplish different economic incentives. The core tenant here is that tokens always maintain a fair value relative to the amount of collateral (like ETH) stored within a contract as a reserve as any given time. For more information on bonding curves and different interpretations on how they *could* work, we recommend checking out resources here, here and here."

From Messari (27-5-2020):

"Bonding curves are cryptoeconomic token models that automate the relationship between price and supply. The tokens in this model are referred to as Continuous Tokens because their price is continuously calculated. Continuous Tokens have other properties such as limitless supply, instant liquidity, and deterministic price.

Unlike prior Initial Coin Offering (ICO) models, bonding curves act as an automated market maker. In other words, bonding curve models don’t have central authorities responsible for issuing the tokens. Instead, users can buy a project’s token through a smart contract platform (i.e. Ethereum). The cost to buy these tokens is determined by the supply of those tokens. Unlike traditional models, the cost of these tokens increases as the supply increases. This price is determined by a pre-existing algorithm. Users can then sell their tokens back to the bonding curve smart contract at any time.

In a bonding curve model, the growth of the project accelerates over time to a stage of maturity until finally decelerating and stabilizing. This incentivizes founders and early adopters to make the token popular and useful before selling it in the future for a profit. Another benefit of this model is that token buyers and sellers have an instant market, so they don’t need to rely on exchange listings to access liquidity."

Bonding Curve Sales

From this Fuse blog (5-10-2020):

"A bonding curve distribution is an innovative way to price and allocate tokens. The bonding curve is a predefined price curve. The price for each token incrementally increases as more tokens are bought, and decreases as they are sold back. A bonding curve serves the determination of the price equilibrium. Bonding curves have mostly been implemented on decentralized exchanges and their popularity has recently experienced significant growth.

Early attempts at using decentralized exchanges and bonding curves for new token distributions have not fulfilled their full potential as decentralized exchanges usually offer a one-size-fits-all curve for trading tokens."

From this blog by DIA (22-7-2020):

"A bonding curve distribution is an innovative way to price and allocate tokens. The bonding curve is a predefined price curve. The price for each token increases as tokens are bought and decreases as they are sold back. Investors can sell back tokens at any time, as the contract is 100% collateralised at all times and the contract autonomously creates an instant market. A bonding curve serves the determination of a price equilibrium. Bonding curves have mostly been implemented using custom smart contracts. DIA decided to build replicate a bonding curve on Gnosis Protocol. Please refer to this article for further explanations of bonding curves."

Usage