When I first began trying to understand bonding curves, I kept running across this language of “when you buy it the price goes up and when you sell it, the price goes down” and I found it to be incredibly confusing (isn’t there always a buyer and a seller?) Why would the price just magically “go up”? For which party? Who enforces this “price”? etc… It wasn’t until later that I finally had my “a-ha” moment, which I will share below.
Context matters. Many descriptions don’t give the reader the proper context!
In the bonding curve examples in this article, when the author is talking about “buying” they do not mean “buying a token in an open market” or “on an exchange” but rather, buying the token from the originating source (aka “minting” — yes, she said “minting” in the article, but it was not obvious to a newcomer what that means exactly.) Once minted, that token can be “sold” anywhere for whatever price. However (another confusing part in what I had read in the past) if you sell the tokens back to the originating source then there is a set price (as described in the article, based on how many tokens exist and what the curve looks like and what the selling tax charged is…) and those tokens are burned (aka destroyed).
The most confusing aspect of these articles is the use of the term “buy” and “sell” without the specific context of “buy → from the originating token source” and “sell → back to the originating source”. Because there are so many venues for trading tokens, merely using “buy” and “sell” makes it sound like some magical and confusing process where prices are somehow forced in the open marketplace (which makes no sense). Nope.
Hope this helps, and encourages people writing about bonding curves to use more contextual, explicit language for those of us who have never heard of this concept before.
https://medium.com/p/bf326bc4e11a/responses/show