On the decentralized Zap marketplace, a revolutionary new type of market has replaced the regular orderbooks normally filled with “buy” and “sell” orders, which, combined, make up the markets’ liquidity (crypto exchanges work this way. In fact, basically every market in the past worked this way). Zap uses a so-called “tokenized bonding curve curation market” instead (Zap invented the term “bonding curve”, which they based off the work of Simon De La Rouviere who invented the concept). This might sound intimidating, but it’s actually not as hard as you might expect. Bonding curves are vizualized like this:
Buy tokens, and the price goes up according to the curve. Sell, and the price goes down the other way around. As you can see: The higher up in the curve, the higher the price. So it pays to ‘be early’ and sell higher up. Like with crypto, except here, there are no hidden “over-the-counter” trades messing with your results and the prices are pre-defined and public for everyone to see.
In Zaps’ case, this incentivizes investors/traders/speculators to find the best oracles the earliest and bond Zap to them. If your investment/trade was succesful, you’ll sell back your tokens with a profit in Zap. Note you actually buy and sell into the bonding curve itself, which is nothing more than a smart contract that processes everything autonomously, instead of to another person.
The Zap you initially bought your tokens with are held by the bonding curve, untill you sell your tokens back either for a profit, a loss, or none of both. As the bonding curve does this all autonomously and according to pre-defined rules publicly visible to everyone, there is no price manipulation and there is always enough Zap in the pool to sell back to you; It is always ‘liquid’.
With Zap, the tokens you buy and sell are called ‘dots’. These are used to make calls to the oracle to retrieve data (which is what oracles do; feeding data into smart contracts used in decentralized applications). One dot equals one call. A popular oracle would be more expensive to use, according to the curve. As an investor/trader/speculator, you will not have anything to do with this as you are merely ‘trading oracles’ for profit. For actual oracle users, this could be an easy way to spot oracles the market deems (not) valuable. Likewise, it also works as an incentive to launch high-quality, honest oracles, as inferior examples will likely have less bonded to them. This makes them publicly less desirable and results in less profit for the operator, who takes a cut.
Note: The top illustration shows just one potential curve. Countless variations are possible to suit different goals/usecases. Even ‘negative’ curves, with prices becoming cheaper as utility grows. On top, these are completely optional. A flat price can be set just as easily.
In short, bonding curves are an entirely new, transparant and automated market mechanism that has unique features and advantages, but also combine multiple elements into one market:
- An incentive to innovate
- An inventive to remain honest
- An entire speculation market (like crypto today)
- A curation market
You buy and sell tokens (dots) by bonding Zap to interesting oracles according to prices set by the bonding curve. Accordingly, the market automatically ‘curates’ the value of them this way. Hence “tokenized bonding curve curation market”.
See? That wasn’t so hard, was it?
Note: Oracles and tokenized bonding curves combined unleash an array of new, unprecedented possibilities. Especially when these tokens become more than just dots. We will dive deeper into these other usecases at a future date.