Bonding Curve

The relationship between the supply of an asset with its price can be expressed with the help of a mathematical concept known as the Bonding Curve. The main idea behind the bonding curve is that whenever a person buys an asset that comes at a limited supply, the next buyers will have to pay slightly more for the same quanitity of the asset. The basis of this ideology is that since the asset is available in limited supply, with every decrease in a unit of the asset, the price increases. This mechanism brings profits to the early investors.

Crypto space also saw the creation of bonding curve contracts. These are smart contracts creating a market for the tokens which does not have any dependency on the crypto exchanges. These bonding curve contracts sell tokens to the traders by computing the token price in ETH and issuing them once the payment is complete. These contracts also buy them and pay the user in Ether. The rates are based on the average price calculated by these smart contracts.

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