⚔️ The Challenge:

In the early days of crypto and ICOs, many projects and DAOs launched static supply tokens which struggled to expand and contract with bull and bear market swings, and are not adaptive enough for the dynamic nature of these nascent economies.

This has also been a huge challenge for token valuations, with many DAOs and organizations seeing massive selloffs and price drops in the 90%+ range. When token price is a primary driver of the capacity to carry out work in a DAO ecosystem, volatile token prices are a hindrance to production in Web3 organizations.

Many DAOs and organizations are looking to move from static supply to dynamic issuance models and reduce volatility, however, many of these economic mechanisms and markets remain untested, and the designs need to be further studied and validated, in order to deploy safe and sustainable economies.

⤴️ Overview of Bonding Curves:

Bonding curves are an interesting new tool in the Web3 space that tie two or more elements of a system together through mathematical relationships encoded into smart contracts. Bonding Curves are a ‘supply discovery’ mechanism that allows new tokens to be minted (or burned) by the deposit (or withdrawal) of reserve assets when the demand for new tokens is greater (or less) than the available supply. Also called automated market makers (AMMs), there are different types of bonding curves, including but not limited to constant product, constant function, concentrated liquidity, variable product, time-weighted, and even order book-based bonding curves.

Bonding curves have also been ‘augmented’ with the addition of common pool treasuries or even prediction markets, in order to improve the collective signaling capacity of these new tools for social and ecosystemic benefit.

This is just the beginning of their utility, and current tools have only taken the first steps to explore this design space. Bonding Curves are a gateway for engineered control systems to facilitate and improve the economic management and value accrual systems of Web3.

Read more: https://mirror.xyz/0x8fF6Fe58b468B1F18d2C54e2B0870b4e847C730d

🚦The Opportunity:

Bonding Curves provide an economic invariant between the supply of tokens and the reserve assets backing their value, making token price deterministic and providing guaranteed liquidity for tokens. Adjusting the circulating supply based on demand dampens the volatility and couples with the demand for the token’s utility.

Using bonding curves as a continuous token issuance mechanism, organizations or communities can leverage algorithmic reserve and liquidity management strategies to provide volatility-damped token price fluctuations. The Token Engineering Commons Augmented Bonding Curve is a prime example of this, outperforming ETH through the bear market. Other blockchain ecosystems could employ these mechanisms to support their token economies’ success.

These open source tools should be further studied, modeled and explored in order to maintain open libraries of tools and documentation and establish connections with organizations who need help designing and deploying them (which could also serve as opportunities for service groups to develop revenue streams for further work and research).