The DeFi Context of a Bonding Curve Offering

by | Nov 17, 2020 | Industry | 1 comment

In decentralized finance (DeFi), a bonding curve refers to a math formula applied to create a correlation between a token’s price and its supply. In 2020, we have seen several DeFi projects turning to bond curves to distribute their offerings to the ecosystem virtually.  

Launching a token through this strategy involves building a bonding curve smart contract, which leverages a custom formula to a smart contract with mint and burn functions. Once this contract is functional, users can trade into the curve. Purchasing drives the token price up along the curve, while selling pulls the price down the curve. 

The distribution model, also referred to as a Bonding Curve Offering (BCO), offers several benefits beyond merely being automated and highly customizable. First, BCOs (like ICOs) give early investors a rare opportunity for significant gains upside, a dynamic that can cause a surging positive marketing impact over time. Besides, they provide instant marketplaces for offerings and can be set up through DAOs for efficiently decentralized distributions. 

Examples of Bond Curve Offering Projects 

DXdao

DXdao is a non-profit decentralized collective that works in partnership on owning and running DeFi projects and protocols. For instance, in 2020 the collective unveiled Mesa.eth.link, a front-end UI for Gnosis Protocol DEX, and Omen, a decentralized predictions market. This is how the group generates its revenue. 

In mid-2020, DXdao unveiled a “continuous token offering via a bonded curve” for the collective’s native DXD token, which gives holders rights on future DXdao profits. Leveraging Alchemy, a resource management tool built on DAOstack, the DXdao users had participated in the token’s “configuration parameters, including pre-mint, curve slope, dividend split, and Kickstarter threshold.”    

During the sale, DXdao formed a “linear and positive” curve for its bonding curve smart contract. The smart contract curve was designed in a way that “$300,000 worth of ETH would be invested once 12,000 DXD was minted.” The figure represented about 11% of the token’s total supply, and the distribution was accomplished within a few months. Since then, more than 48,000 DXD have been minted and distributed via the BCO. 

Perpetual Protocol 

In September this year, decentralized perpetual contracts exchange Perpetual Protocol launched the distribution of its PERP token via the Balancer Liquidity Bootstrapping Pool (LBP). Such pools can be built according to arbitrary logic, giving projects greater flexibility regarding crafting a bonding curve and creating liquidity and supply for a new offering. 

The Perpetual Protocol team specially designed their LBP curve to mitigate manipulation and speculation. “The starting price will be very high to disincentivize front running and price speculation. We understand the desire to obtain PERP tokens to participate in governance and staking, but trying to rush into the pool will not have any benefits,” reads a statement from the Perpetual Protocol developers. 

The team reserved 7.5 million PERP for its Balancer LBP or 5% of the token’s 150 million total supply regarding specifics. 

Generally, bond curve offerings are a more flexible and customizable advancement of the ICO phenomenon that took the crypto space by a storm during the 2017 bull run. It demonstrates that DeFi projects are now approaching token distributions with more concern and control. This new strategy will undoubtedly create more revolutionary IBCO releases soon.    

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1 Comment

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