Bonding Curves Explained

Primer on Bonding Curves

Why Do Bonding Curves Exist

To make sure people can easily buy and sell your token, you need liquidity. With old ways of launching tokens, you'd have to put a lot of your own money into a special pot so people can start trading. This meant that if you don't already have money to put into a liquidity pool - nobody can trade your tokens. Bonding curves solve this problem. They are basically a set of rules built into your token that automatically handle buying and selling. This means you don't need to put in a big sum of your own money to start, because the bonding curve itself collects funds as people buy, creating that needed liquidity.

How They Work

Here's how it works: the bonding curve decides how your token's price moves. For example, every time someone buys your token, its price for the next buyer goes up a little bit. If someone sells, the price goes down a little. Forge lets you choose some of these rules, like how quickly the price changes with each buy or sell. This process continues, with the bonding curve building up funds inside the system. When the total value of your token reaches a certain point you choose, called the "bonding market cap," your token then moves to a bigger, open market called a Decentralized Exchange (DEX). At that point, the funds collected by the bonding curve are used to create a trading pool on the DEX, and the token's price is then decided by what everyone on the open market is willing to buy and sell it for.