Zap Components #4: Bonding Curves
Below are graphical representations of the variable pricing mechanisms users bond and un-bond money to. As you can see, each model carries its own implications on buyer stimulus and therefore usecase-fit, and there is a whole world of possibilities left to discover and experiment with in this regard. Before Zap Protocol introduced Bonding Curves, this new field of possibilities didn’t exist.
Bonding Curves are the backbone of the protocol. They are what users bond and un-bond money to. A new user joins and bonds, more tokens are minted and the price moves higher up the curve. The same holds true in reverse: A user leaves and un-bonds, tokens are burned and exchanged back for $ZAP, and the price drops back lower down the curve.
Of any liquid ERC20 token that is created on Zap Protocol, Bonding Curves control the minting and burning process. They auto-adjust the supply. Zap Bonding Curves are nothing more but a host of smart contracts programmed to perform these complex tasks. They are an integral part of Zaps Protocols’ powerful concept and are in essence the ‘engines’ driving the platform.
Essentially, Zap Bonding Curves can be seen as autonomous, token-issuing DEX’es that mint and burn the tokens users buy and sell
So far, we’ve discussed how:
- Zap oracles capture the immense data usecase for smart contracts
- Bonding and variable pricing facilitate speculation, curation, reputation, incentivization and price discovery
- ERC20 token capabilities realize all tokenization usecases for the protocol, incuding for oracles
- Zap ERC20 tokens are superior as they offer inherent liquidity and auto-adjust supply
- Bonding Curves form the price, bonding and token supply mechanisms
Although we’ve already touched on some of the unique possibilities Zaps’ Bonding Curve technology offers, their implications run much deeper than one might expect. For example, Zap Bonding Curves can function as a:
- DEX: Offer distributed, autonomous exchanges for your assets or services
- Automated market maker: Buying and selling is handled automatically
- Liquidity tool: Offer inherent liquidity for an asset or service
- Curation tool: Find out true community-curated value for a service
- Reputation tool: Income through staked value incentivizes honest behaviour by the provider
- Speculation tool: Find valuable assets or services early and profit
- Incentivization tool: Early participation is financially rewarding
- Price discovery tool: Find out precise buyer and seller equilibrium
- Innovation tool: Offering a superior product is financially rewarding quicker as users are incentivized to participate early
- Fundraising tool: You can raise funds and financially incentivize users to participate
- Tokenization tool: You can tokenize anything while offering liquidity
- Continuous Token tool: You can launch ICO’s, IEO’s, Initial Oracle Offerings, etc
- Stablecoin tool: Easily create liquid tokens that peg to their real-world counterpart(s)
Additionally, you can set multiple curves, assigning each curve to something else. Long and short positions, for example. Or individual proposals, goals or funds. Or a buy and sell curve. This adds another layer of possibilities, of which some might include:
With Zap Protocol, every tokenized asset or service can directly be integrated with oracles fetching required data, and programmable smart contract business logic triggering actions.
Furthermore, Zap ERC20 tokens can be time-released through pre-set conditions which are triggered and verified by the protocols’ smart contracts and oracles. This can be helpful when you want to filter short-term and long-term participants, for example.
The protocol can also be used to leverage oracles only, like regular oracle networks, or solely issue liquid tokens. Pricing curves can be set flat to emulate regular pricing, yet with the added benefits of liquidity and automated market making.
Finally, a ‘Master Bonding Curve’ is in development. It will distribute proportional payouts derived from the protocols’ transaction fees to anyone who bonds to it. Basically, this allows anyone to invest in the decentralized protocol directly and receive passive income.
As we now know, the unique and powerful combination between Zap Protocols’ oracles and ERC20-tokenized Bonding Curves is not to be understated. Now we covered each of Zaps’ major components and the flexibility they offer, it is time for us to take a closer look at just how easy it is to start realizing intriquing usecases, powered by Zap Protocol.
More on this in our next blog entry: Usecase Highlights. Stay tuned!