Token Distribution and Market Stability

IBCO

Initial Bonding Curve Offerings (IBCOs) are a novel approach to token distribution that offer certain benefits over traditional methods like ICOs or IEOs. The decision for Wonderlive to sell its token via an IBCO aligns with the platform's emphasis on transparency, fairness, and long-term sustainability.

The primary reason Wonderlive chose an IBCO is to mitigate the risks associated with traditional exchange listings. Listing on exchanges often opens up tokens to market volatility, price manipulation, and other instabilities that can stem from external factors like regulatory news or investor sentiment. These factors can be especially impactful for tokens from Web3 projects, which often have smaller market capitalizations and are subject to price discovery dynamics after listing.

In contrast, IBCOs use a mechanism known as bonding curves. A bonding curve is a mathematical curve that defines the relationship between the price and the supply of tokens. When a user buys tokens, new tokens are minted and the price increases along the curve; conversely, when tokens are sold, they are burned and the price decreases along the curve.

This system provides transparency and predictability for users, as the price of tokens is not determined by market sentiment but by the bonding curve. Additionally, the fact that tokens are minted and burned on demand ensures a continuous liquidity, eliminating the need for market makers.

Furthermore, by not listing on exchanges, Wonderlive ensures that the value of its token is tied more closely to the platform's actual use and success, rather than speculation. It creates a more stable and predictable environment for users and investors, preserving trust and contributing to the long-term sustainability of the project.

The IBCO method aligns with Wonderlive's core principles and contributes to its mission to create a transparent, fair, and rewarding social media economy. This innovative approach to token distribution is a reflection of the project's commitment to leveraging the advantages of blockchain technology to provide a better experience for its users.

Bonding curve

A bonding curve is a mathematical concept used in the field of decentralized finance (DeFi) and tokenomics. It's a pricing algorithm that defines a relationship between the price and the supply of tokens. This relationship is usually visualized as a curve, hence the name "bonding curve".

The principle behind a bonding curve is that the price of tokens changes dynamically based on the token supply. Here's how it works:

1. When new tokens are bought or 'minted', the supply of tokens increases and the price goes up along the curve. The more tokens are in circulation, the higher the price to purchase additional tokens.

2. Conversely, when tokens are sold or 'burned', the supply of tokens decreases and the price goes down along the curve.

This mechanism creates an automatic market maker (AMM) system, providing continuous liquidity for the token. It means there's always a buyer and a seller at any given point along the curve.

The bonding curve model offers transparency and predictability in pricing because the price is algorithmically determined based on the token supply, not directly influenced by external market forces or speculative trading. It also ensures that early participants who take on more risk are appropriately rewarded as more participants join the network.

FORMULA

Bonding curves can vary in shape and size. For the Wonderlive project, the team embraced the Bancor Formula:

FORMULA EXPLANATION

The Reserve Token refers to the token users stake into the bonding curve.

The Continuous Token is the token users receive from the bonding curve upon staking the Reserve Token.

For Wonderlive, the Reserve and Continuous Tokens are DAI and WOND, respectively.

The Connecting Weight (also known as Reserve Ratio) signifies a fixed ratio (between 0 and 100%) between the total value of the Continuous Token (total supply × unit price) and the value of its Reserve Token balance. The Connecting Weight remains constant in the Bancor Formula, as both the Reserve Token balance and the Continuous Token’s total value (or 'market cap') change with purchases and sales.

Each transaction involving the Continuous Token (WOND) prompts an increase or decrease of Reserve Tokens (DAI). Therefore, the price of the Continuous Token relative to its Reserve Tokens must continuously recalculate to uphold the designated Connecting Weight between them.

The Connecting Weight outlines how significantly a Continuous Token's price must adjust to maintain balance with every transaction, or in simpler terms, its price sensitivity.

A higher reserve ratio between the Reserve Token balance and the Continuous Token results in lower price sensitivity, meaning that each buy and sell will have a less than proportionate effect on the Continuous Token’s price movement. Conversely, a lower ratio between the Reserve Token balance and the Continuous Token leads to higher price sensitivity, meaning that each buy and sell will have a more than proportionate effect on the Continuous Token’s price movement.

Wonderlive's Reserve Ratio is 33%, friends! This implies there's no need to worry about large investors causing drastic price fluctuations. They can't pump & dump WOND as the bonding curve is fortified against their significant transactions!

If you wish to see it in action, refer to the below model of the bonding curve developed by the team.