Bonding Curve
In short: A bonding curve is a mathematical curve that describes the relationship between the price and the supply of an asset, usually a token.
A bonding curve is a mathematical curve that describes the relationship between the price and the supply of an asset, usually a token. A smart contract uses the curve to set the price automatically: buyers mint new tokens at the current point on the curve, and sellers can return tokens to the contract, which burns them and pays out from a reserve.
Why it matters
Bonding curves let a token be bought and sold at any time without an order book or a separate market maker, because the contract is always ready to trade. They are used for token launches and community tokens, and similar formulas power many automated market makers. The shape of the curve decides how fast the price changes as supply grows, and steep curves give early buyers a much lower entry price than later ones. The price reflects only the formula and the reserve, not any underlying value, and the contract code carries its own risks.
Example
Imagine a contract with a linear curve, where the price rises by a small fixed step for every token minted. The first buyer pays a low price, and each later purchase costs a little more because the supply has grown. All payments are held in the contract's reserve. If holders later sell tokens back, the contract burns them, the supply shrinks, and the price moves back down the same curve.