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Bonding Curve
A mathematical formula that automatically sets a token's price based on its current supply, rather than relying on an order book.
A bonding curve is a mathematical formula that automatically determines a token's price based on its current circulating supply, typically increasing in price as more tokens are minted and decreasing as tokens are burned or sold back.
This lets a token have continuous, algorithmically-determined liquidity without relying on a traditional order book or a separate market maker, and is a common underlying mechanism for automated market makers and certain token-launch designs.
Examples
- A simple bonding curve might set a token's price to rise predictably with each unit minted, giving early buyers a lower average price than later ones.
- Automated market makers use a form of bonding curve to price trades directly from a liquidity pool's reserves, rather than matching buy and sell orders.