Bonding curve

In a bonding curve the price is defined as a function of supply: the more tokens issued or bought, the higher the price, and the reverse on selling. The functional form can be linear, polynomial, exponential or stepwise. The concept was popularized in decentralized finance by Bancor, whose 2017 whitepaper introduced curves with a reserve weight, and the constant-product market maker used by many exchanges can in fact be seen as a particular case of a curve. The contract acts as the market maker and sets the price automatically.

The mechanism matters because it allows instant issuance and liquidity without an initial pool or a listing, offers automatic price discovery and makes bootstrapping new tokens easier. Its uses span launchpads, continuous token models, fundraising mechanisms and access-token pricing. The slope of the curve determines the price impact or slippage of each trade.

One example is pump.fun, a launchpad on Solana that places tokens on a curve and, once a certain market-cap threshold is reached, migrates liquidity to a decentralized exchange such as Raydium to graduate the token. Its specific parameters change over time, so they should be verified before citing figures. Bancor pioneered the concept and Friend.tech applied curves to its shares. In the European Union, the public offering of tokens through these mechanisms can trigger the white paper and authorization obligations set out in MiCA.