The Bonding Curve Economy by Zap Protocol
In our previous article, we broke down the history and basics of bonding curves. This article will further the discussion by looking at a few different types of curves and how they function. With the coming Q1 Public Beta release of the new Zap Protocol interface, there will be drag and drop functionality when designing and deploying bonding curves.
The many pricing models that service and product providers can create with Zap Protocol allows the market to decide which works best for them and their situation. The bonding curve smart contract templates developed and made available on our protocol are fully customizable.
Here are a few example bonding curve pricing indexes. Keep in mind these all are powered by smart contracts that use algorithmic market making to create a decentralized exchange (DEX) able to provide full liquidity at all times.
Static Pricing Index
With a static pricing index, the amount of ZAP bonded to a providers’ curve has no effect on the price of the secondary token. This means there is not a speculative side to this model.
A business owner can set a flat rate price for any product or service they want to make available to the blockchain market. This allows them to avoid price fluctuations as the secondary token’s value remains static. Some use-cases might include: A recording artist can sell their new song at a flat rate, a company can sell access to an exclusive event at a flat cost, or a product designer who wants to issue exclusive crypto gear at different price points.
No matter the use-case, with a basic website widget and a few clicks, anyone in the blockchain space can purchase what is being offered.
Inverse Bonding Curve
Some data markets need pricing models that adopt a downward-facing curve as the data becomes less expensive as more people purchase it. A simple example would be a list of high valued leads where more accessibility over time means the list becomes less valuable. Those who paid more to get the list early have an early mover advantage allowing them to pitch and make sales calls before anyone else.
If you are not an already known data provider, it may be more difficult to use this model as you would need to find a price point in a market that does not yet know you. Those data providers who are known to provide valuable and useful data are much more likely to know where an initial price point might be. Should no buyers strike, a provider can always redeploy a new curve at a lower price point.
Positive Sloped Bonding Curves
The upward sloping curve creates speculation which is a driving force for new markets. Those who are able to bond to the best providers early will benefit by trading or redeeming the secondary token when it is at a higher price than when they originally received it. The provider can choose a number of curves ranging from an exponential to gradual increase in price in order to balance the level of speculation in the market.
These types of bonding curves also act as a decentralized reputation tool where one can assess the reliability of a provider based on a number of factors over time like the amount of ZAP bonded or the number of times the secondary token was redeemed. These curves can be used for a number of use-cases. Many business owners would use this model to incentivise consumers to be decisive. An example of this would be a ticketed event such as a music festival where tickets become more expensive as the event approaches. Additionally these curves can reward early position takers in activities such as a decentralized competition or futures market.
So What’s it all Mean
There is no project in this space which gives as much power to businesses/individuals and consumers than Zap Protocol. The different smart contract templates available on the protocol allow these different bonding curves to be applied across different industries and use-cases.
There is no telling what type of bonding curves will ultimately get adopted but that is for the market to decide as they have the tools to do so.
With the coming 2021 Q1 release of the Public Beta interface, it will be easier than ever for the common person to create, integrate, or interact with decentralized services using the Zap Protocol.