What Is a Bonding Curve Offering (BCO)?
Onomy’s Bonding Curve is launching on the 6th of December.
Trading will be enabled at 3pm UTC.
Be mindful that the ONLY OFFICIAL LINK AND CONTRACT ADDRESS ARE:
Bonding Curve Contract: 0x264C13cfEd981e3137Fb43B198D14D8D5D64977E
Cryptocurrency is constantly innovating on the framework of general finance that was its precursor. Distributed trustless ledgers and auditable smart contracts allow for mathematical models — previously guided behind the curtain by a hand on the lever — to be enacted accurately and transparently.
One such example is a Bonding Curve Offering (BCO). Rather than a singular starting gun on a coin’s entry into the market, BCOs seek to introduce a coin into the market gradually and defined by a tight set of parameters to fairly maximise value to those seeking to support the project.
This article will explore the advantages of the BCO model and its benefits to project participants, before diving into how Onomy Protocol plans to utilize the model to bring the NOM utility token to market.
Bonding Curve Offerings Explained
A BCO is a prime example of cryptoeconomic parameters that when enacted, reward all participants by incentivising them towards the shared growth of project adoption. A bonding curve is a mathematically defined relationship between price and supply. In short, as the supply increases, so does the price. This is somewhat counter-intuitive to traditional models, but the method is for each subsequent buyer of a token to pay a slightly higher price than the previous buyer and a lower price than any subsequent buyer, whilst providing tokens with sufficient liquidity to freely trade within the bonding curve’s public automated market maker (AMM) contract.
How Do Bonding Curve Offerings Work?
In a bonding curve contract, the tokens within it are referred to as “continuous tokens”. New tokens are created by the contract when demand is there, escalating in price each time.
Bonding curves are generally backed by token reserves collected in exchange for the token being minted, with the contract acting as the counterparty of the transaction. This provides the liquidity to buy tokens back from the user if they wish to sell, creating an instant market with liquidity that allows the token’s price to be set deterministically rather than arbitrarily decided. Bonding curves can work on the basis of both unlimited or limited supply of the given token.
What are the Advantages of a BCO?
BCOs support sustained organic growth. As more people join the fray, impelled by the products of a particular project, the higher the price rises. Rather than an initial token dump that opens the door to vertiginous upswings on release or downswings on realization by vested interests, tokens being minted on a bonded curve means there is an incentive for the project to realize its ambition and early participants to utilize the protocol in order to substantiate their involvement.
It stops the all-too-common event in nascent crypto markets of obscene hype and waiting for the “big moment” that then goes on to make or break a project before it has time to prove itself. It also mitigates the sharp practice of project heads suddenly dumping a huge flow of coins into the market and cutting the knees from the project to realize their own profits at the expense of those backing them. The ICO boom of 2018 was replete with such events that not only damaged the projects that launched with the model, but faith in the crypto space as a whole.
In the case of Bonding Curve Offerings, an instant market is created that is deterministic in price and has its own liquidity. The smart contract governing it is unalterable, and the project itself must drive demand for the token in order to increase its supply on the market and the price — and therefore overall value — of the token and the protocol. This continuous sale allows for a steady stream of finance and collateral to flow into the project in lockstep with the development of the protocol and the products within it.
By sidestepping the requirement of setting the initial price, it stops vast swathes of a token being picked up at a particular price point and then subsequently dumped as interest gathers pace, but still allows for those participating early to remain motivated by supporting the project.
Finally, as a bonding curve offering can be deployed on the blockchain directly, rather than being listed on either an exchange off the bat, it helps overcome additional obstacles like user registration or prolonged listing procedures. Users can directly interact with the smart contract with no intermediaries governing their purchase of the token or their participation in the project — completely decentralized.
How Will Onomy Protocol’s BCO Operate?
NOM, our collateral, governance, and staking token will be publicly distributed via the Bonding Curve Offering model.
Onomy Protocol’s BCO will see the launch of an Ethereum-based AMM platform, where bNOM will be purchasable via ETH. Participation is simple and only entails basic knowledge on how decentralized exchanges operate — thus, users will have to connect their wallet to our AMM via Web3-enabled wallets like MetaMask, Ledger, Wallet Connect, or Coinbase Wallet. Then, trading bNOM becomes as simple as clicking buy or sell, whilst retaining the many benefits of BCOs.
When launched, a maximum of 100 million bNOM will be mintable by the BCO contract. bNOM tokens will only be minted as they are bought using ETH. If a user wishes to sell, the amount of ETH returned to the purchaser is set by the amount of bNOM issued by the contract up to that point.
The bNOM price will move up and down the bonding curve depending on buys and sells, with price floors enacted as bNOM is bridged from Ethereum to Onomy. The maximum price is reached when the 100 millionth token is sold for 1 ETH.
Bridging bNOM to Onomy’s Mainnet
bNOM may be bridged on a 1:1 basis to NOM deployed on our native blockchain network, the ONET. Upon bridging, the AMM’s smart contract automatically burns the Ethereum-based bNOM, and mints ONET-native NOM to the user’s specified Onomy Wallet address.
bNOM available on the Ethereum blockchain is for convenience of access to the Onomy ecosystem. It must be bridged for NOM to gain utility as collateral to the minting of stablecoins, validator staking, and governance purposes. Moreover, it is NOM rather than its bNOM counterpart which will be listed on centralized and decentralized exchanges, with sufficient incentives offered to bridge and gain utility from the token.
The Future of Bonding Curve Offerings
Rather than sharkish investors gobbling up and dumping the token, project leaders setting absurd initial prices that collapse in the face of market forces or their own malfeasance, or roadblocks to participation stopping involvement from community members, BCOs are fair launch models that incentivise long-term commitment, whilst reducing the likelihood of sudden dumps or liquidity being drained.
It is therefore expected that a larger spectrum of the crypto economy will slowly shift to BCOs, as these models begin entering the mainstream.