What Is a “Bonding Curve” and How Does It Relate to AMM Price Discovery?
A bonding curve is a mathematical function that defines the relationship between the supply of a token and its price. In an AMM, the constant product formula x · y = k is a specific type of bonding curve.
The curve dictates that as more tokens are bought (increasing y and decreasing x), the price of the token increases, and vice-versa. This function is the core of the AMM's automated price discovery.
Glossar
Initial Token Distribution
Allocation ⎊ Initial Token Distribution describes the primary event where the first batch of tokens is dispersed to the founding team, private investors, and the public, setting the initial supply structure and decentralization level.
Bonding Curves
Mechanism ⎊ Bonding Curves represent a specific pricing mechanism, often utilized in token issuance or initial liquidity provision, where the price of an asset is determined algorithmically based on the quantity of the asset already purchased or supplied to the curve.
Bonding Curve
Mechanism ⎊ Bonding Curve describes a mathematical function that algorithmically determines the price of a token based on its supply.
Bonding
Collateral ⎊ The process of bonding involves the temporary immobilization of an asset, typically cryptocurrency, to serve as economic collateral against the execution of a specific function or adherence to a set of operational mandates.
Constant Product Formula
Formula ⎊ The Constant Product Formula, a cornerstone of Automated Market Makers (AMMs) like Uniswap, dictates the relationship between the reserves of two tokens within a liquidity pool.