The Math Behind Memecoins: How Bonding Curves Work

A bonding curve is a mathematical formula that sets a token's price based on its supply. This mechanism, used by platforms like Pump.fun and in many DeFi protocols, allows tokens to launch without order books or external market makers.

The curve works as follows: when a user buys a token, the contract mints new tokens and increases the supply, causing the price to rise. Conversely, when a user sells tokens, the contract burns them and pays out reserve assets at the current rate, decreasing the supply and lowering the price.

This mechanism ensures guaranteed liquidity and deterministic pricing, making it an attractive solution for token launches. However, it also has its limitations, including vulnerability to sniper bots and bundled buys that can exploit the curve's weaknesses.