Bonding Curve

A token bonding curve (TBC) is a mathematical curve that defines a relationship between price and token supply.

In a typical TBC, the price increases as the supply of the token increases, and decreases as the supply decreases. The Bike Battle Bonding Curve will be launched through a Decentralized Autonomous Initial Coin Offering (DAICO) via Juicebox, this article also discusses DAICOs.

Mechanics

MINTING / BURNING ON DEMAND

Bonding Curves use a pricing algorithm to serve as an automated market maker and provide an always-available source of liquidity. Users can interact with a bonding curve by staking tokens into the bonding curve’s reserve pool. When they do so, the bonding curve mints the corresponding tokens for the user based on the pricing algorithm. The newly minted tokens can have specific utility and even be traded among users, but can always be exchanged back through the bonding curve for tokens in the bonding curve’s reserve pool.

When a token is purchased via a TBC, each subsequent buyer will have to pay a slightly higher price for each ticket, generating a potential profit for the earliest investors. As more people find out about the project and the buying continues, the value of each token gradually increases along the bonding curve. Early investors who find promising projects early, buy the curve-bonded token, and then sell their token back can earn a profit in the future.

FORMULA

Bonding curves come in different shapes and sizes. For the Bike Battle project, the team adopted the Bancor Formula:

FORMULA EXPLANATION

The Reserve Token refers to the token that users stake into the bonding curve.

The Continuous Token refers to the token that is received from the bonding curve upon staking the Reserve Token.

In the case of Bike Battle, the Reserve, and Continuous Tokens are MEL and BBCoin, respectively.

The Connecting Weight (also known as Reserve Ratio) represents a fixed ratio (between 0 and 100%) between the Continuous Token's total value (total supply × unit price) and the value of its Reserve Token balance. This CW is constant by the Bancor Formula as both the Reserve Token balance and the Continuous Token’s total value (a.k.a. 'market cap') fluctuate with buys and sells.

Each purchase or sale of the Continuous Token (BBCoin) triggers an increase or decrease of Reserve Tokens (MEL). The price of the Continuous Token with respect to its Reserve Tokens must then continuously recalculate to maintain the configured Connecting Weight between them.

The Connecting Weight determines how sharply a Continuous Token's price needs to adjust in order to be maintained with every transaction, or in other words, its price sensitivity.

A higher reserve ratio between the Reserve Token balance and the Continuous Token will result in lower price sensitivity, meaning that each buys and sell will have a less than proportionate effect on the Continuous Token’s price movement. Conversely, a lower ratio between the Reserve Token balance and the Continuous Token will result in higher price sensitivity, meaning that each buys and sell will have a more than proportionate effect on the Continuous Token’s price movement.

Bike Battle's Reserve Ratio is 33%! This means you don't need to fear dem whales. They can't pump & dump BBCoin as the bonding curve is hardened against their huge transactions!

BikeBattle Bonding Curve

The BikeBattle Bonding Curve will be created via a bonding curve smart contract powered by Juicebox. After the conclusion of a presale for 500,000 BBCoin, the bonding curve will be immediately opened. The bonding curve is unlimited in size, has no time limit, and offers an opening price of 150 MEL per BBCoin. It has a connecting weight of 33%.

You will have to complete KYC in order to purchase straight from/sell to the curve. Compliance is important my dudes - we live in a society, and we also don't want the project to get rugged by the government. Purchases from the curve are made in MEL. The reverse also applies; you can sell your BBCoin back to the curve for MEL.

If you are unable to perform KYC because of your citizenship, don't worry! You will still be able to interact with every other part of the Bike Battle metaverse. You simply have to purchase your BBCoin off a DEX such as Uniswap, or a CEX like Gate instead. Learn how to get BBCoin tokens here.

BikeBattle DAICO

A Decentralized Autonomous Initial Coin Offering (DAICO) is a fundraising method that seeks to incorporate the best features of a Decentralized Autonomous Organization (DAO) with those of an Initial Coin Offering (ICO) in order to create a structure that provides a higher level of effectiveness to the token sale fundraising model. A DAICO is a model whereby investors have control over the funds collected once the fundraising is over. The investors could influence how developers have access to the funds and at what frequency through a "tap" mechanism. In addition, investors can also vote to do away with the project and have their funds returned.

The BikeBattle project will launch the token bonding curve through a DAICO on JuiceBox. It prevents investors from getting rugged as they ultimately have control over the funds within the DAICO/bonding curve!

The first iteration of MELX DAO will be launched in tandem with the BBCoin distribution on the bonding curve.

Bike Battle Token Supply Dynamics

In our discussion of the token bonding curve/DAICO above, we learned that the total supply of the BBCoin token is dynamic. When investors purchase BBCoin using MEL from the bonding curve, new MEL tokens are minted and the total supply of circulating BBCoin would increase. When BBCoin tokens are sold back into the bonding curve, the BBCoin tokens would be burnt, the seller would receive an equivalent amount in MEL based on the prevailing BBCoin price on the bonding curve, and the circulating supply of BBCoin tokens would decrease.

The inflation of BBCoin tokens through net purchases on the bonding curve is positively correlated to the BBCoin price. The bonding curve will be mathematically programmed to increase the price of BBCoin as the circulating supply of BBCoin increases.

Arbitrage

Users who have completed KYC will be able to arbitrage the BBCoin price differences between the token bonding curve and other DEXes such as Uniswap. According to Investopedia, "Arbitrage is the purchase and sale of an asset in order to profit from a difference in the asset's price between markets. It is a trade that profits by exploiting the price differences of identical or similar financial instruments in different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient." This is possible as DEXes come equipped with their own Automated Market Maker (AMM) formula and the net purchase/sale actions of BBCoin tokens on these DEXes would result in prices that are different from the token bonding curve. A savvy investor might consider exploiting such inefficiencies in the market.