🔹Bonding Curve Mechanics

The bonding curve governs the price dynamics of STICKR Board Shares. It enforces strict supply control policy and ensures that whenever Board Shares are minted, they are backed by liquidity. Each Board issued via STICKR has a built-in virtual bonding curve, functioning as a constant function market maker (CFMM) with two reserves: a base token (ETH in these examples) and the issued token (Shares). The bonding curve dynamically adjusts to market demand, determining the market price of Shares. This ensures that the market price of Shares remains above or equal to the floor price, providing ample liquidity and promoting price discovery. The virtual bonding curve uses the xy=k invariant.

Key Features

Single-Sided Liquidity: Allows liquidity provision for Shares without the risk of impermanent loss, leading to deeper liquidity pools and better price stability.

Credit: Enables borrowing against Shares without risk of liquidation, no duration, no interest, and no oracle, creating a risk-free borrowing mechanism.

Demand-Based Reserve Shifts: Every buy and sell increases the floor and market price, enhancing liquidity and credit.

Initial State The virtual bonding curve negates the necessity for upfront capital, offering deep liquidity and minimal slippage for Shares from inception, without relying on external liquidity incentives. Initially, the entire Shares supply is minted into the bonding curve reserves, balanced by a quantity of virtual ETH for accounting purposes. The circulating Shares supply starts at zero.

Pricing and Transactions Share pricing within the bonding curve varies from the floor price to a theoretical maximum of infinity. Users can buy or sell Shares at the current market price from these reserves. Buying Shares from the market reserves brings them into circulation, while selling Shares to the market reserves removes them from circulation.

Example To better understand the bonding curve's functionality, let's consider a scenario that begins with an empty bonding curve, undergoes some operations, and then winds down to empty again. This example will illustrate how the bonding curve works and demonstrate how 1 Share is always backed by liquidity. For the sake of simplicity we will ignore fees and reserve shifts.

Initial State: The bonding curve has 0 circulating Shares and 0 ETH backing it. Reserve equation is set to (100 virtual ETH) * (100 Shares) = 10,000.

Buy Shares: A user spends 33.33 ETH to purchase Shares from the bonding curve. The calculation is as follows: (100 virtETH + 33.33 ETH)(100 Shares - y Shares) = 10,000 → y = 25 Shares.

This example illustrates how the bonding curve achieves single-sided liquidity without any upfront liquidity provision. Shares itself serves as the "LP". Note that there are now 25 Shares in circulation, backed by 33.33 ETH of liquidity.

Buy Shares: A user spends 66.67 ETH to purchase Shares from the bonding curve. The calculation is as follows: (100 virtETH + 33.33 ETH + 66.67 ETH)(75 Shares - y Shares) = 10,000 → y = 25 Shares.

Sell Shares: A user now sells 25 Shares back to the bonding curve. The calculation is as follows: (100 virtETH + 100 ETH - x ETH)(50 Shares + 25 Shares) = 10,000 → x = 66.67 ETH.

Sell Shares: A user now sells 25 Shares back to the bonding curve. The calculation is as follows: (100 virtETH + 33.33 ETH - x ETH)(75 Shares + 25 Shares) = 10,000 → x = 33.33 ETH.

With the system wound down completely, there are no longer any Shares in circulation and no need for ETH in the bonding curve to back it. However, the bonding curve still functions as needed, with Shares available for purchase from the reserves.

Single-Sided Liquidity

When purchasing Shares, the transaction involves inputting ETH and in return, receiving Shares. Consequently, holders maintain just the Shares, subjecting them exclusively to Shares’ market variations in relation to ETH. This concept mirrors a single-sided liquidity position. Swap fees benefit Share holders by shifting the bonding curve to increase the floor and market price, also increasing borrowing power.

Credit

The bonding curve's ensured floor price allows Share holders to borrow ETH risk-free, as the value of Shares will never fall below the floor price. This eliminates the need for liquidation measures or oracles. Essentially, holders borrow their exit liquidity, making the last Share always redeemable at the floor price.

Some key distinctions include:

No liquidation

No duration

No interest or fees

No oracles

No deposits (Shares do not leave wallet; borrow directly)

Demand-Based Reserve Shifts (Burns and Heals)

Reserve shifts happen whenever circulating Shares are burnt or external ETH is put into the bonding curve. This happens internally on buys and sells, but can also happen externally. Every swap on the bonding curve will push the floor and market price of a Share up, and when demand is low (small amount of Shares circulating) the increase in floor and market price is more aggressive.

As the floor price shifts up, the borrowing power of Shares also increases. Instead of distributing swap fees as rewards to Share holders, the bonding curve increases their holding value and borrowing power.

When circulating Shares are burnt, the bonding curve adjusts to ensure all circulating Shares can be sold to retrieve the real ETH in reserves. This induces a secondary burn on reserve Shares, shifting the floor and market price upwards. If Shares are burnt outside of swap fees, a burn function can be called to induce the shift as needed.

When external ETH is injected in the bonding curve (say from swap fees) the bonding curve also shifts, but this time the virtual ETH reserves are shifted. So injecting ETH will both increase the real ETH reserves and induce a secondary shift on the virtual ETH reserves. This is done to ensure that all circulating Shares can be sold to pull out all the real ETH in the reserves. If a Board were to have revenue outside of swap fees, a heal function can be called to induce this shift as needed.