Bonding Curve - ELI5

Jargon warning:

  • Bonding Curve is often used as an umbrella term to mean Augmented Bonding Curve or anything based on the concepts laid by the first Bonding Curves
  • Smart Tokens is also a term often used to mean Bonding Curves

A few short definitions about Bonding Curves:

(i) “a special type of ERC20 token that allows users to buy and sell directly to and from the token’s contract”

(ii) “A bonding curve is a hardcoded token minting scheme. Anyone can mint tokens with the chosen collateral token, but the bonding curve token becomes more and more expensive to mint as the supply increases. You can sell on that same curve to retrieve collateral.” https://twitter.com/crypt0glitter/status/1097248991438204929

(iii) “Curved Token Bonding works by staking a token of value (say ether) in return for a new set of tokens (say: #savewater), costed according to a curve. As more tokens are minted, the more costly it is to mint new tokens. At any time, participants can sell back their tokens on this curve and exit (reducing supply and thus reducing subsequent cost to buy in again).” - Simon de la Rouviere

(iv) A bonding curve contract is an automatic market maker (a smart contract that enables users to buy and sell tokens) with the following properties:

  • A token can be minted (bought) at any time according to a price set by a smart contract.
  • This price increases as token supply grows.
  • The money (like ETH or DAI) paid for tokens is kept in the smart contract (reserve pool).
  • At any point in time, a token can be burned (sold) back to the contract.

source: https://blog.relevant.community/bonding-curves-in-depth-intuition-parametrization-d3905a681e0a

(v) "Token bonding curves are a novel crypto-economic mechanism that provides an alternative pricing method for tokenized assets . At their core they are smart contracts that acts as an automated market maker: the bonding curve contract emits an organization token at a price that is algorithmically determined by the smart contract according to a formula specified at it’s deployment and in function of variables such as token supply.” - https://fundraising.aragon.black/untitled-1


Read more about the “Origins of TCRs & Bonding Curves”


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