EP 20: Fundraising Mechanism with Bonding Curve (4 Use Cases)
EP 20: Fundraising Mechanism with Bonding Curve (4 Use Cases)
Giveth, Aragon, Molecule, Fairmint
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General Conclusion
We've covered quite a bit about bonding curves. How incentive mechanisms work, visualising how the curves look like, understanding the principles of bonding curves. We also explored the use-case of bonding curve in autonomous market maker — Bancor, Uniswap, Balancer, Curve.
This week, we look at the application of bonding curve in fundraising mechanisms. Yes, ICO and angel investing are 2 ways. Well, we can use bonding curves too!
Unlike autonomous market maker in the DeFi space, fundraising doesn't have a general formula. So we look at the various case studies on how they use and apply bonding curves.
We're going to explore 4 use-cases — Giveth platform, Aragon platform, Molecule platform, Fairmint
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1. Bonding Curve in Fundraising Mechanism
What To raise money for a specific cause
Why? Align incentives and solve free-rider's problem in fundraising
How? Through math equations
Where do you find it? Continuous organisations
Who uses them? Donation, research, equity
When is it used? Business logics to be automated, embed various incentives in your model, looking for ongoing fundraising
2. Utility token vs Security token in fundraising
Tokens are needed in fundraising, since tokens represent value.
However, the tokens could have a utility function or a security function. In the utility function, it is an internal token to transact within the ecosystem. With a security function, we are referring to financial security. You can have a claim on the profits by holding the token.
So be sure to know what tokens you are releasing. For security function, there are certain regulations to follow, according to the various jurisdictions. The security token example we have here only refers to the claim on profits, not ownership (aka equity) of the company!
3. Application to your project
As I emphasised time and again, bonding curve mentioned the bonding in fundraising is quite different from the application to autonomous market maker in the defi space. Because in the AMM application, you can still have a general formula (the invariant variable), to understand how all these different things correlate with each other.
Fundraising, as you can imagine, is very different. Issuing utility token vs security token, or defining the way tokens are allocated and issued, or how collateral tokens will be used. There are many variables to consider.
That is very fun! We can customise the formula to suit the objectives of your fundraising. For example, to include governance in decision making, or to redistribute access funds to investors at the end.
Do note that bonding curve in fundraising is different from bonding curve for the product itself.
For fundraising, it is to increase the funds available for the project or business. For the product, it would be the application of bonding curve in AMM. They are 2 different applications, hence, 2 different types of curves.
What Else Did You Miss?
Bonding curve as a price discovery mechanism for security tokens
Questions to ask when you want to use bonding curve in your fundraising
Utility token function
Use-case 1, Giveth platform
Augmented bonding curve on Giveth platform
5 variables that define the bonding curve
Use-case 2, Aragon platform
5 variables that define the bonding curve
Use-case 3, Molecule platform
Starting and ending of fundraising mechanism using bonding curve
4 variables that define the bonding curve
Security token function and considerations
Use-case 4, Fairmint platform
Bonding curve in AMM vs Fundraising
4 variables that define the bonding curve
TLDR:
The application of bonding curve in fundraising does not have a general formula, unlike the application in autonomous market maker. However, there are still questions and variables to consider when designing the right curve for your fundraising.
If you are keen to learn more, we are currently having a discount for the Token Economics Blueprint course! It's a 10 lesson session and you can choose which section you are interested in. Total lesson time: 15 hours.