Bonding Curves are algorithmic token pricing mechanisms where a mathematical function governs the relationship between token supply and its cost. When someone buys a token, the price goes up; when they sell, the price goes down. This enables continuous, self-regulating token issuance without intermediaries, creating perpetual liquidity for any token.
How It Works
Bonding Curves replace traditional market-making with deterministic, smart-contract-enforced pricing.
- Deploy a bonding curve contract with a defined pricing formula (linear, exponential, sigmoid, etc.) and backing assets (ETH, stablecoins)
- Buyers mint tokens by sending backing assets to the contract — the curve determines the price based on current supply
- Price increases with supply — each new token costs more than the last, rewarding early participants
- Sellers burn tokens by returning them to the contract — the curve determines the redemption price
- Reserve ratio determines how much of the backing asset is held in reserve vs. distributed
Advantages
- Creates real-time market mechanisms reflecting actual demand
- Provides early supporter upside potential with shared risk
- Enables organic community ownership development
- Offers continuous price discovery based on genuine belief and usage
Limitations
- Less suited for fixed-price or grant-based funding models
- Can attract speculation in environments without genuine utility
- Requires sustained user/community engagement to maintain healthy dynamics
- Supply predictability depends on curve design — some curves create volatile price action
Best Used When
- Token-engineered DAOs want dynamic capital flows tied to genuine usage
- Public goods builders want to create economic alignment between funders and users
- Projects need perpetual liquidity without relying on centralized exchanges
- Communities want to bootstrap shared ownership with transparent, deterministic pricing
Examples and Use Cases
Public Goods Token Launch
A public goods project launches a bonding curve selling governance tokens — early backers fund development at lower prices and gain exposure to future appreciation as adoption increases.
Reputation and Access Tokens
Bonding curve logic manages staking and access rights — the cost to join a community or access a service increases as more participants join, creating natural scarcity.
Augmented Bonding Curves
Augmented bonding curves add a funding pool that captures a percentage of each purchase — this pool funds the project directly, creating a built-in revenue stream alongside the token market.
