A bonding curve is a mathematical formula that determines the price of a token based on its supply. As more tokens are bought, the price increases, and as more tokens are sold, the price decreases. This creates a curve on a graph that shows the relationship between the price and supply of the token.
The bonding curve is typically used in decentralized finance (DeFi) projects to create a continuous token sale mechanism. It allows users to buy and sell tokens directly from a smart contract, without the need for an intermediary like a centralized exchange. This helps to establish a fair market price based on supply and demand.
One key feature of a bonding curve is its ability to provide liquidity to the token economy. By adjusting the parameters of the curve, project developers can ensure that there is always a market for the token, which can help increase its value and utility.
Overall, bonding curves provide a unique way to issue and distribute tokens in a decentralized manner, while also creating a market-driven price mechanism.
