Bonding Curves

How the Mathematical Curve Functions

In traditional token launches, creators had to provide tens of thousands of dollars in paired liquidity to open a trading pool on a DEX.

Bonding curve launchpads (such as Pump fun on Solana) eliminate initial capital requirements: 1: When Tokens are Purchased: The smart contract mints new tokens from the bonding curve and deposits the payment (SOL) into the contract reserve. As more tokens are bought, the price increases along a steep mathematical formula.

1. When Tokens are Sold: The smart contract burns the returned tokens and releases the corresponding SOL back to the seller. Price automatically decreases along the exact same curve.

The Graduation Milestone (Migration to Raydium / DEX)

Launchpads use bonding curves as a funding milestone mechanism: 1: When enough buyers purchase tokens to reach the curve target (often 100 percent of the curve, representing roughly 69,000 to 100,000 dollars in market cap), the curve completes.

1. The smart contract automatically withdraws the accumulated SOL and remaining tokens from the bonding curve contract.
2. The capital is automatically deposited into a permanent decentralized liquidity pool (like Raydium) where the initial liquidity is permanently burned.

Risks Associated with Bonding Curve Trading

1. Developer Sniping and Dumping: Creators often use automated bots to buy large portions of the early, cheap curve supply and dump their position as retail buyers push the price higher.
2. Extremely High Churn: Over 98 percent of tokens launched on bonding curves fail to complete the curve and migrate to secondary exchanges.

Learn how to audit new tokens and protect capital in our Complete Guide to Onchain Analysis and DEX Trading.