The Exponential Bonding Curves Explained
In the Web 3.0 environment, sustaining the value of projects over time remains a critical challenge. To date, only a few have achieved this, with most losing a significant part of their initial value, if not their entire worth, within months of launch.
Therefore, a fair pricing mechanism is essential for a sustainable token economy, eXponential Bonding Curves provide a mathematical framework to address this challenge. This enables users to provide liquidity for project growth while generating profits.
eXponential Bonding Curves (XBC) can be considered as the decentralized equivalent of traditional bonds, suitably made for blockchain.
The eXponential Bonding Curves (XBC) mechanism relies on mathematical principles to dynamically adjust the token price based on user actions. To achieve this, two functions are used as the basis; one for tokens that are bought and one for tokens that are sold.
Below, we explain the operation of the smart contract for each of these actions.
Providing Liquidity to the Decentralized Treasury
When a user purchases tokens, the smart contract initiates a series of computations and transactions. It first evaluates the tokens available in the Decentralized Treasury’s Liquidity Pool and those listed for sale. Then, the smart contract calculates the new token price from the available liquidity, ensuring that the price increases appropriately as new tokens are purchased.
Removing Liquidity from the Decentralized Treasury
The sale function is called when a user removes his liquidity or, in other words, exchanges the tokens received during the liquidity provision process for stablecoins.
This function evaluates the current liquidity and the number of tokens being sold. It uses the pre-defined curve to calculate the new token price, ensuring it decreases more sharply than it would rise for the same number of tokens bought. Ultimately, the goal is to prevent large sell-offs, encouraging market stability and investor confidence.
Introducing the Liquidity and the Development Funds
The system allocates the user’s deposits into two distinct wallets: the Liquidity Fund and the Development Fund. In addition, this structure ensures security for liquidity providers and sustains the project’s long-term development needs.
The Liquidity Fund
Most of user’s deposit (e.g., 70%) is allocated to the Liquidity Fund. This ensures enough value is available for users to withdraw their liquidity from the Treasury. As more users purchase tokens, the Liquidity Fund grows, benefiting all contributors by allowing easier token sales at fair prices and potential profits. This gives users the flexibility to exit their positions at any time.
The Development Fund
The remaining portion of each purchase (e.g., 30%) is allocated to the Development Fund, which supports innovation and platform improvements. This fund enables the exploration of new ideas, ensures smooth operations, and helps the ecosystem stay competitive by financing fresh projects.
Moreover, liquidity providers benefit by receiving airdropped tokens from these new projects, giving them a direct stake in the ecosystem’s growth and success. In essence, the Development Fund turns every user into both a stakeholder and a beneficiary, strengthening the community as a whole.
eXponential Bonding Curves: The Paths Forward
The eXponential Bonding Curves establish a fair and stable token economy for decentralized networks, addressing liquidity challenges and mitigating market manipulation risks.
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