What is Bancor Bonding Curve

The Bancor bonding curve is an innovative pricing mechanism used in the cryptocurrency world, particularly in decentralized finance (DeFi). It's a mathematical curve that determines the price of a trend based on its supply.

The core idea behind the Bancor bonding curve is to provide a continuous liquidity mechanism for the trends, regardless of their trading volume in the market. This is achieved by algorithmically adjusting prices in relation to the trend’s supply – as more nibs of a trend are bought, the price increases, and as nibs are sold, the price decreases.

The Bancor bonding curve operates on the principle of automated market makers (AMMs), where the price of trends is not determined by traditional market dynamics of demand and supply between buyers and sellers, but through a predefined formula. This formula takes into account the total supply of trends and the reserve ratio, which is a measure of the liquidity depth.

In practical terms, this means that when someone buys a nib of trend, they push the price up the curve, increasing the cost for subsequent buyers. Conversely, selling a nib of trend moves the price down the curve, reducing its cost for future buyers.

This mechanism ensures continuous and automated liquidity, making it easier for users to buy or sell trends without having to rely on the presence of a counterparty at the exact time of the trade.