Bonding Curve Design
Last updated
Last updated
Mint Club’s Bonding Curve Wizard provides comprehensive customization for your curve design, ensuring maximum flexibility in designing your token economics. For an in-depth understanding of the bonding curve mechanism in the Mint Club protocol, please refer to the detailed documentation provided below.
A bonding curve is a mathematical model used in the issuance of digital assets, where a token's price is linked to its supply through a predefined price-supply relationship. Transactions, whether buying or selling, are managed by a smart contract that automatically calculates the required amount of base asset (payment tokens). For buyers, new tokens are minted with payment tokens added to the bonding curve pool, whereas for sellers, tokens are burned, and the base asset is returned from the pool.
Mint Club utilizes the Discrete Bonding Curve (DBC) model, segmenting the curve into distinct price intervals. Unlike a continuous linear curve (y = x), the DBC model implements stepped intervals under the curve, offering enhanced customization and solving technical challenges associated with smart contract implementation of bonding curves.
The Bonding Curve Wizard offers four preset curve types, each providing a unique price evolution pattern:
1) Exponential: Price increases at a constant rate for each price range. This is the most commonly used bonding curve for most liquidity.
2) Linear: Price increases by a constant value for each price range. It has steeper increases in early supply compared to exponential but is more stable in the later range.
3) Logarithmic: Price increases at a decreasing rate for each price range. Has the steepest increase in early supply but is more stable in the later range.
4) Flat Price: A constant price model in which the token price stays the same across the entire range.
As you can see, a higher number of price intervals results in a smoother curve, resembling a more continuous graph, while a lower number of intervals leads to a more step-like appearance in the curve.
The four token specifications you determine are crucial in defining the overall TVL (Total Value Locked) in the base asset of the bonding curve pool. When you opt for a higher max minting supply, keeping other specs constant, each interval area in the curve requires a larger TVL to be realized. This is due to the interval area being a rectangle, calculated by length * width. A higher max minting supply increases the width of each interval area, subsequently requiring more TVL.
Also, when you set higher initial/final minting price, the TVL amount will also be larger to achieve because the length size gets increased for the area calculations.
