What Is Bonding Curve?
A bonding curve is a mathematical function embedded in a smart contract that automatically determines a token's price based on its current supply. As more tokens are minted (bought), the price increases along the curve; as tokens are burned (sold), the price decreases. This creates a deterministic, transparent pricing mechanism without the need for an order book or market maker.
How Bonding Curve Works
Common bonding curve shapes include linear (price increases proportionally), exponential (price accelerates), and sigmoid (S-curve with slow initial growth, rapid middle growth, and a plateau). The choice of curve shape significantly impacts the economic dynamics: exponential curves reward early buyers more aggressively, while linear curves provide more gradual price discovery.
Why It Matters for Traders
Bonding curves are used in various DeFi applications: continuous token offerings, curation markets, and as the pricing mechanism in some AMM designs. Understanding the curve shape helps traders predict price impact and liquidity depth. Projects using bonding curves provide perfect price transparency — you can calculate exactly what price you'll pay for any purchase size before executing.
