Bonding Curves

Written by George Adams

Introduction

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.

Suggested Reading

Tokens 2.0: Curved Token Bonding in Curation Markets by Simon de la Rouviere

Token Bonding Curves Explained by Justin Goro

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