Trading & AMMs
Bonding Curve
Rule linking token issuance or redemption prices to supply
Definition
A bonding curve sets a token’s marginal issuance or redemption price as a function of supply or another state variable. Buyers pay the integral of the curve across newly issued units, not simply the last displayed marginal price. Designs may be one-way or use different buy and sell curves.
Example
For a hypothetical linear curve p(s) = $1 + $0.01 × s, buying 10 tokens from supply 100 to 110 costs the integral: $20.50. The average price is $2.05 while the final marginal price is $2.10, before fees.
How it works
A purchase increases supply and deposits backing according to the curve’s area. Redemption, where supported, burns supply and returns backing according to its own rule; the curve does not create external demand.
Risks to Consider
- A thin reserve may not honor the advertised redemption curve
- Early holders can sell into later buyers’ demand
- Different buy and sell curves or fees create a hidden spread
Common Questions
Is a bonding curve the same as an AMM?
They overlap but are not interchangeable. A bonding curve often prices issuance against a reserve; a secondary-market AMM prices swaps between existing assets.
