Bonding Curve

Definition ∞ A Bonding Curve is a mathematical function that algorithmically determines the price of a token based on its supply. This mechanism allows for continuous token issuance and price discovery without relying on traditional order books. As more tokens are purchased, the price increases according to the curve, and conversely, selling tokens reduces the price. It establishes a direct relationship between token supply and its market value, often employed in decentralized autonomous organizations or novel token designs.
Context ∞ The utility of bonding curves is a frequent topic in decentralized finance (DeFi) and new token economic models. Discussions revolve around optimizing curve parameters to balance liquidity, price stability, and fair distribution. A critical future development involves exploring more dynamic and adaptive bonding curve designs that respond to external market conditions or specific protocol needs.