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Fundraising Mechanism with Bonding Curve (3 Use Cases) | Econteric.com

We’ve covered quite a bit about bonding curves. How incentive mechanisms work, visualising how the curves look like, understanding the principles of bonding curves. We also explored the use-case of bonding curve in autonomous market maker — Bancor, Uniswap, Balancer, Curve.This week, we look at the application of bonding curve in **fundraising** mechanisms. Yes, ICO and angel investing are 2 ways. Well, we can use bonding curves too!Unlike autonomous market maker in the DeFi space, fundraising doesn’t have a general formula. So we look at the various case studies on how they use and apply bonding curves.We’re going to explore 3 use-cases — Giveth platform, Aragon platform, Molecule platform, Fairmint

# 1. Bonding Curve in Fundraising Mechanism

* **What** To raise money for a specific cause
* **Why?** Align incentives and solve free-rider’s problem in fundraising
* **How?** Through math equations
* **Where** do you find it? Continuous organisations
* **Who** uses them? Donation, research, equity
* **When** is it used? Business logics to be automated, embed various incentives in your model, looking for ongoing fundraising

# 2. Utility token vs Security token in fundraising

Tokens are needed in fundraising, since tokens represent value.However, the tokens could have a utility function or a security function. In the utility function, it is an internal token to transact within the ecosystem. With a security function, we are referring to financial security. You can have a claim on the profits by holding the token.So be sure to know what tokens you are releasing. For security function, there are certain regulations to follow, according to the various jurisdictions. The security token example we have here only refers to the claim on profits, not ownership (aka equity) of the company!

# 3. Application to your project

As I emphasised time and again, bonding curve mentioned the bonding in fundraising is quite different from the application to autonomous market maker in the defi space. Because in the AMM application, you can still have a general formula (the invariant variable), to understand how all these different things correlate with each other.Fundraising, as you can imagine, is very different. Issuing utility token vs security token, or defining the way tokens are allocated and issued, or how collateral tokens will be used. There are many variables to consider.That is very fun! We can customise the formula to suit the objectives of your fundraising. For example, to include governance in decision making, or to redistribute access funds to investors at the end.

>**Do note that bonding curve in fundraising is different from bonding curve for the product itself.**

For fundraising, it is to increase the funds available for the project or business. For the product, it would be the application of bonding curve in AMM. They are 2 different applications, hence, 2 different types of curves.

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