Developers and app builders aim to build token economies to attract and engage community members while building loyalty. However, they often face a dilemma: though builders wish to reap the benefits of a token economy, they fear becoming bogged down in the development of a new feature that could shift their focus away from their app’s primary use case.
They’re faced with questions such as, should the app have its own, branded token? Or should it make use of an existing token? On the one hand, new tokens often struggle to access fiat ramps and suffer from a lack of liquidity. What’s more, price discovery is frequently elusive. On the other hand, existing tokens benefit from an established community and exchangeability, but they come at the cost of forgoing customization.
In short, setting up your own token is costly, expensive, and frustrating.
Fortunately, token bonding curves offer developers a fast and efficient solution. These mathematical curves enable developers to launch new tokens that are bonded to an underlying, ‘base’ token. This enables developers to launch a custom token, while retaining the benefits of an established token.
Token bonding curves allow developers to avoid key pain points. For example, developers who leverage token bonding curves do not need to create a market for their token. This means they do not have to navigate the process of listing tokens on DEX pools or swaps to create liquidity—something that’s nearly impossible for a nascent economy. Similarly, developers do not need to broker relationships with centralized exchanges—a challenging and time-consuming process for startups.
The permissionless, open source, multi-chain, no-fee RLY Protocol enables developers to leverage token bonding curves to launch branded tokens for their app that are bonded to RLY token. RLY acts as a liquid base token, extending its benefits to RLY Network app tokens, and consequently boosting their price stability, liquidity, and availability.
How Do Token Bonding Curves Work?
Token bonding curves have two primary functions: first, they facilitate the purchase and sale of a token and, second, they determine the relationship between the token’s price and supply.
For example, to purchase an app’s APP token, community members would send RLY to the token bonding curve contract, which, in turn, would issue the correct amount of APP. If members wished to sell, they would send their APP to the contract which would subsequently send the correct amount of RLY back to them. The bonding curve therefore acts much like an Automated Market Maker (AMM), in that it provides a counterparty to community members who wish to buy or sell an app’s token.
But how is price determined in the above scenario? The token bonding curve establishes a functional relationship between the supply of APP and its price. When a community member purchases APP, demand is demonstrated and the supply of APP increases. As the supply increases, the price also increases. When a community member sells, the opposite occurs—APP’s supply is reduced and its price decreases. In short, the token bonding curve dynamically and algorithmically adjusts the price of APP in relation to its supply.
Why Token Bonding Curves Matter
RLY Protocol’s token bonding curves can help developers overcome a variety of common obstacles faced in launching new tokens. For example, token bonding curves create instant markets, meaning developers are no longer reliant on centralized exchanges and liquidity pools for market-making. Instead, developers and community members can instantly liquidate bonded tokens by swapping with the base token.
Token bonding curves can also help developers align incentives with their communities. With token bonding curves’ design, the token price rises as more buyers arrive. As a result, early adopters have an opportunity to realize financial upside and are incentivized to onboard friends and family.
Likewise, token bonding curves demystify liquidity and price discovery by providing continuous token liquidity at an algorithmically determined token price. RLY Protocol also enables developers to ‘nest’ token bonding curves under each other, creating a rollup effect in which new tokens benefit from the liquidity ‘above’ them. This means developers can create multi-token apps without suffering from liquidity fragmentation.
Additionally, RLY Protocol’s token bonding curves are customizable. Developers can access a variety of token design templates and libraries, and choose from three token bonding curves according to their app’s use case, community size, and goals. Developers can also leverage RLY Protocol’s Developer Resources, and find guidance on the effective use of both fungible and non-fungible tokens, liquidity fragmentation, and other topics.
Find the Best Bonding Curve For Your App
A variety of consumer apps are already deploying RLY Protocol’s token bonding curves. Unite.io, which caters to the Asian creator economy, has launched dozens of branded social tokens using RLY Protocol’s token bonding curves. Likewise, Taki, a tokenized social network, rewards creators and users with Taki tokens and UserCoin tokens, both of which are bonded to sRLY on Solana. Finally, Joyride, a rapidly growing platform which launches tokenized gameplay apps utilizes RLY Protocol’s token bonding curves.
To find out what RLY Protocol can offer your app, start building with our Developer Resources section.
(photo credits: pexels)