Candao – personal and brand tokens bonding curve

bonding curve

In today’s article, we will analyze the topic of the bonding curve. At first, we will introduce you to the whole concept and then explain how it works in Candao. We invite you to the fresh dose of technical information that you will find in the text below!

What is the bonding curve?

In the traditional view, the price of a token comes from the relation of the total monetary market behind the asset called market cap and the total supply. The bonding curve introduces a quite different mechanism. The price is divided by the total supply, which results in price increases, and then the supply is also rising. How is that possible? Mathematically, increasing the number you divide will make the result smaller, but not in this case. The explanation is that bonding curve smart contracts are not using market cap when determining asset price. Instead, bonding curve smart contracts monitor the number of tokens already sold and increase their price along with it, based on predefined increase logic.

We can distinguish two main models of bonding curve:

  • scarcity-based – there is a fixed number of an asset. Each new sell increases the deficit, which results in a price increase. It is often seen in selling NFT collections, rare items on games, Lands (NFT used to define the ownership of land parcels representing the digital real estate), or generally assets that are valuable and limited on the market; 
  • demand-based – there is an unlimited supply of an asset. Every transaction is minting new tokens on demand. Prices will keep increasing to the level which is no longer attractive from a purchase perspective.

Another breakdown criterion in the smart contracts (SC) bonding curve is whether they allow open market trade of the assets sold through it.

  • Open-market bonding curve SC regulate can regulate the sell and rebuy price of assets. However, they don’t disallow buying and selling them elsewhere. That would be right for the scarcity-based model selling of NFT or Lands but would be impractical for the fungible tokens, which sooner or later would have been added to DEX liquidity pools and create arbitrage between bonding SC and open market price. 
  • Isolated bonding curve SC doesn’t allow for any open trade of the sold asset. It can only be bought and resold through the SC itself for the current price provided by it. The isolated bonding curve market can also be classified as a “two-direction” SC – it has to allow both buying and selling transactions. The opposition is “one-direction” SC which is only used to sell the asset and does buy it back.

The additional breakdown of two-direction bonding curves is:

  • balance – buy price and sell of the asset at a specific time point are equal;
  • imbalance – the buy price is higher than the selling price. The imbalanced model can be achieved by differentiating buy and sell fees or by applying price impact logic.

Candao’s bonding curve smart contract

We always want to be transparent and show you precisely what mechanism stays behind our operations. When you have already learned about the bonding curves differentiation, let’s get familiar with the following bonding curve smart contract specifications and key features overview: 

  • Demand-based model (infinite supply of sold assets) 
  • Operation on fungible tokens 
  • Isolated market
  • Two-direction transactions (buy & sell) 
  • Imbalanced (price for selling tokens includes sale-price impact).

The personal/brand token owner triggers a pool activation event. Function needs to mint 1 PT/BT token and permanently lock it away. The first buy transaction (initial mint) is reserved for the PT/BT pool owner. Preemption should cover it – the owner has a right to perform the first buy transaction (5% of the liquidity pool). Every buy/sell transaction has a 0,3% CDO fee. The commission is split between PT vault (to be managed by PT/BT sub-DAO) and Candao vault (Candao revenue stream). The smallest PT/BT token purchase unit allowed is kept constant and set by the managing team.

Summarizing

We have introduced you to all the bonding curve smart contract rules in our platform. We hope you enjoy reading about technical aspects because there is a massive mathematical background behind the front side of our idea. If you want to get more information we invite you to our Whitepaper. We want you to be informed about everything that can be important for you as a system user. Access to knowledge is your right, which we will always respect in Candao.

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