Token Bonding Curves: Understanding the Basics

We try to explains the basics of token bonding curves, including how they represent the relationship between token supply and price, and explores their various use cases and implications

February 24, 2023

If you have been following the crypto space for a while, then you must have heard of token bonding curves. While they may sound complex and technical, they are actually quite simple to understand. In this two-part series, we will dive deep into what token bonding curves are, the different incentives they represent, and how they can be used in your projects.

What are Token Bonding Curves?

Token bonding curves are simply mathematical functions that show the relationship between the token supply and the token price. They are usually plotted on a two-dimensional graph, with the X-axis representing the total supply and the Y-axis representing the total price. This means that when the supply changes, the curve shows how it affects the price.

It is important to note that there are different types of bonding curves, and they can range from a simple linear curve to a more complex one. However, the basic principle remains the same - the curve represents the relationship between the token supply and the token price.

The Beauty of Token Bonding Curves

One of the beauties of token bonding curves is that they help to reduce speculation to some extent. Unlike in the traditional market where supply and demand determine the price, token bonding curves are designed to limit the secondary market's participation. This means that the price of the tokens is determined solely by the supply in the market, making it more predictable and stable.

Another beauty of token bonding curves is that they can be used in different forms and functions, and can be embedded with various governance and mechanism designs. This makes them highly versatile and can be used based on the systems you are building or the concepts you want to create.

Automatic Market Maker

One of the biggest use cases of token bonding curves is the Automatic Market Maker (AMM). With AMM, instead of having market makers and market takers providing liquidity and determining the price, it is done automatically in the code, function, and mathematical curve. The curve corresponds to the supply and price, and the minting or burning of tokens is done automatically based on the demand and supply.

Buy and Sell Curves

Another use case of token bonding curves is having two curves to determine the price - the buy curve and the sell curve. This can get more complicated, depending on the incentive you are looking at. For instance, if you have a sell curve that is different from the buy curve, you can limit the amount of people selling until a specific point in time to prevent them from losing money.

If you want to find out more about AMMs and how to create and use them contact us

inspired by: Token Valuation with Token Bonding Curve