Bonding Curve (Linear vs Flat)

Carrot Launchpad provides two types of Bonding Curves, each with distinct characteristics that impact how token prices increase and how liquidity is managed.

1. Linear Bonding Curve

The Linear Bonding Curve follows a model where the token price increases at a constant rate. As more tokens are issued, the price rises in a linear fashion.

• Characteristics:

  • Price Increase Rate: The token price rises by a fixed percentage as more tokens are purchased. For example, the price may increase by 1% for every 100 tokens sold.

  • Steady Price Growth: As demand for the token increases, the price consistently rises at a predictable rate, allowing investors to anticipate price changes.

  • Benefit for Early Investors: Early investors can purchase tokens at a lower price and benefit from price increases as demand grows.

  • Investment Incentive: The expectation of continuous price increases encourages long-term investors to buy in early before the price rises further.

• Advantages:

  • The price changes are predictable, offering stability for investors.

  • It supports the natural growth of the project and accumulation of capital.

• Disadvantages:

  • If demand surges rapidly, it can cause sharp price increases, which may deter some investors.

2. Flat Bonding Curve

The Flat Bonding Curve keeps the token price fixed at a constant level. This means that no matter how many tokens are purchased, the price remains unchanged during the initial sale phase.

• Characteristics:

  • Fixed Price: The price remains the same for a specific period or until a target is reached, allowing both early and later buyers to purchase tokens at the same price.

  • Increased Liquidity: Since the price remains stable, more investors can buy tokens without worrying about price increases, which can rapidly increase liquidity.

  • Short-Term Fundraising: This model is effective for quickly raising funds, focusing more on rapid liquidity accumulation than on the opportunity for price increases.

• Advantages:

  • Lower price pressure on early participants, making it easier to attract more investors.

  • All participants get equal opportunities to buy tokens at the same price.

• Disadvantages:

  • Investors may find it difficult to benefit from price appreciation, as the price remains fixed.

  • In cases of sudden demand, the price adjustment is delayed, which may cause liquidity management challenges.