The following will introduce you to the concept of bonding curves and how it applies in the creation of a decentralized and tokenized curation market, using smart contracts. As well, I provide one example of a project, , with a live platform where bonding curves can be used.
As the world continues to develop and adopt based technologies, it becomes more clear which problems will most hamper progression towards mass decentralization. While it may be easy to imagine all the tangible assets which can be tokenized — such as oil, diamonds, electricity, , clothing, or pharmaceuticals — a recreation of the many intangible elements of the real-world, such as trust or confidence, are now being tried in the digital-world; where philosophies, approaches, and applications which range from subtle to substantial. One of these approaches is an economic model which emerged for the digital world called “bonding curves.”
ConsenSys engineer Simon de la Rouviere developed the concept of bonding curves (though Zap.org ) in order to form curation markets which can be used to digitally replicate intangible assets. He this process by questioning how it is that we form Schelling (or Focal) Points off-chain and how to translate that form of human engagement into the digital-world. Rouviere describes a Schelling Point as “a solution people intend to use in the absence of communication, because it seems natural, special or relevant,” noting that before mobile phones and the web “Schelling Points played a key role on how we self-organized locally. Churches, community centers, and bars would all serve as a Schelling Point.”
In a global and web connected world, moreover, coordination among common goals, such as the need for trusted data providers, can be achieved by creating digital Shelling points with a “” where:
“ are algorithmically minted and then used to deposit it against participants in the community that curate and foster the shared goals of the community. These participants can then use their standing (proportional backing) in the community to curate any information in this community. Anyone, at any point in time can become a curator. It is dynamic. The deposits can be shifted around to other curators as desired.”
The image above can be used to understand what is happening and what the incentives are. As the supply increases, the price adjusts based on an immutable bonding curve. Based on the above example, every instance of an increase in the supply will result in a price increase. At the same time, each instance a is removed from the supply, the price drops accordingly. Moreover, the early stages of any curve serves as a speculative stake, whether for less expensive secondary to utilize or to sell back to the smart contracts later for a higher price. If you use the secondary , it will be paid to the service provider and you will receive the service you paid for. If you sell the secondary back to the pool, the smart contract immediately pays you out based on the price of the curve.
A key point here is that liquidity is not an issue. You do not need a buyer to be matched with a seller. All the price setting has been established and the smart contracts instantly trade based on the price.
“” will form as the number of these bonded communities continues to grow. A high balance will serve as an indicator that the tokenized service being sold is considered useful by a distributed community of people as a large amount is staked in the oracle smart contract. Contrarily, low supply indicates either a new speculative oracle or one that proved not useful or trustworthy by a distributed community of bonders. Additionally, the type of immutable curve (which is transparent) set can be an indicator of future behavior. For example, a spike in the price can indicate a possible pump and dump whereas a steady, gradual curve can indicate that reasonable profits for a provider can only be achieved if they provide a good service over an extended period.
Since Zap coined the term, I wanted to use the Zap platform as an example.
You can access their live platform of oracles through metamask at .
Bonding the Zap to an oracle gets you a secondary called a Dot, which cannot be transfered to other oracles and are non-divisible. The only exception is a particular type of oracle (described below) where the secondary is an ERC20 .
According to an , here are the “use cases currently being explored using our platform”:
- Curating Oracles for Trusted Data Feeds — The staked value creates an incentive for the provider to remain honest while giving an indicator to the developers as to which feed the community has decided is most valuable. This also allows the provider to have a fluctuating price point and make more money based on a higher demand. The secondary token in this case would be, by design, a Dot, which is good for one (1) query of the oracle from a smart contract.
- Ico Launch Platform — Generating a curve that issues erc20 secondary tokens eliminates the need for liquidity, exchange listings, or market makers as participants can enter and exit positions and have an increase or decrease in value by interacting directly with the contracts.
- Tradable Futures Markets — In its simplest form, two bonding curves are created for generating long and short tokens on an asset, and at the end of a pre-set period, the losing curve pays out the staked value as a dividend to the holders of the winning curve token.
- Fundraising or Bounty Development Competitions — Generate one master curve with a problem to be solved, and individuals stake value to this curve. Participants who want to enter the competition would each have their own curve. The community would then speculate on who they believe to be the winner by staking to one of the competitors curve. If the bounty is satisfied the winner would receive the original master value with the speculators on that winner receiving the value staked by the losing curves.
For any of these use-cases, anyone in the world can “run a server, host an oracle, and list it on our platform.” As well, anyone in the world can bond to these oracles in a speculative way or to use the tokenized service offered.
I have bonded and unbonded to oracles on the platform with success. The platform has only been live for a few months so the user interface should likely improve, though it is not too difficult to figure out or use now.
A good YouTube video guide for using their platform or seeing how it can be used, .
If you want to know more about this project you can use these links:
Telegram:
Twitter:
Medium:
Documentation:
If there are any other projects using this technology, or if you have any questions, please comment below!
Published at Fri, 03 May 2019 22:35:36 +0000
