Bonding curve voting - AMA

Market Impact and Tokenomics

1. What is a bonding curve?

A bonding curve is a mathematical formula of the price of a token and its supply. A bonding curve smart contract acts as an automated vending machine where one can acquire tokens or return them in exchange for some DAI that the smart contract holds in its reserve, as in the case of the Swarm bonding curve (also called “Bzzaar”). You can read more about the Swarm bonding curve here.

2. How does the Bzzaar's bonding curve work?

The Bzzaar's bonding curve automatically adjusts the price of BZZ tokens based on the current supply. When tokens are acquired from the bonding curve, new ones are minted, increasing the supply and the cost per token. Conversely, when tokens are sold back to the bonding curve, they are burnt, reducing the supply and lowering the price per token. You can read more about the Swarm bonding curve here.

3. What is the maximum supply of BZZ tokens?

The maximum supply of BZZ tokens is capped at 125 million token. If the bonding curve is shut down, the supply will be the one as of 4 May at 12:00 pm UTC, when the shutdown happens.

4. Would the shutdown of the bonding curve impact the price of BZZ?

The bonding curve creates transparency for the price per token given the total supply at any given time. The BZZ price, with or without the bonding curve, is subject to market dynamics that cannot be predicted. Assessment of the specific impact of the bonding curve on the token price and market dynamics is extremely difficult and speculative.

5. How would supply be set if the bonding curve gets shut down?

If the vote favours the shut down of the bonding curve, the smart contract will be killed, and the DAI remaining in the smart contract will be inaccessible.

Regarding the total token supply, without the bonding curve smart contract, there will be no new minting of BZZ and the total supply will be fixed at the block height of the shut down. BZZ will still be regularly traded on third party markets such as centralised exchange and decentralised exchanges.

6. If the bonding curve is shut down, will this also kill the BZZ token?

If the bonding curve gets shut down, the token to interact with the Swarm Network would still be BZZ. The shut down of the bonding curve will not impact the utility and usage of the BZZ token on the Swarm network, and therefore no other token will be created and distributed to users.

7. Why is the bonding curve vote happening now?

The bonding curve initial proposal was to provide liquidity and therefore constant permissionless access to the token that enables the Swarm network to function. After three years, the token is widely distributed and questions were raised on the relevance of the original design of the bonding curve. Having only a kill switch and no possibility for upgrades, the vote is about keeping the status quo or shutting down the bonding curve, as the two only alternatives possible.

This discussion is facilitated by the Foundation, highlighting its commitment to innovation, adaptability and community engagement. Swarm is to remain at the forefront of decentralised technology and the network competitive, sustainable and closely aligned with community interests.

Governance and voting process:

8. Is the Swarm Foundation going to vote on this matter?

The Swarm Foundation pays close attention to the fairness and concerns regarding governance and the influence of significant token holders on decision-making processes. It is important to emphasise that the Foundation's primary role is to facilitate a transparent, inclusive and fair governance process that allows the Swarm community to shape the network's future.

For this reason, the Foundation’s wallets and the Association’s wallets are excluded from voting. Moreover, known wallets of centralised exchanges are also excluded from the vote.

9. Why is this matter subject to a vote?

The vote represents a key aspect of Swarm's decentralised governance model, empowering the community to directly influence the project's strategic direction. It underscores the importance of community consensus in decisions that shape the network's future, ensuring that Swarm continues to reflect the values and priorities of its community and stakeholders.

10. When and where will the questions submitted through this form be answered and by whom?

Answers to the community's questions will be systematically organised and addressed on Swarm's official channels, including the website, community forums and social media platforms by subject-matter experts

Technical and operational details:

11. Should the bonding curve be shut down, will it impact the minting of new BZZ token?

If the bonding curve is shut down, minting of new BZZ tokens will not be possible anymore and the supply will therefore remain fixed.

12. What will happen to my BZZ tokens if the bonding curve is shut down?

Your BZZ tokens will continue to serve as the utility token within the Swarm network, with its functionality and use cases maintained.

13. If the vote favour the shut down of the bonding curve, what would the shutdown process look like?

Should the community decide in favour of the shut down of the bonding curve, the Swarm Foundation will steward a structured and transparent shutdown process with the key holders of the kill switch.

The voting will close on 25 April and if the vote favours shutdown, the shutdown will happen on 4 May.

14. If the bonding curve is a smart contract, how can it be stopped?

Stopping the bonding curve involves invoking specific functions within the smart contract designed for this purpose, called the kill switch. These functions can disable the contract's ability to mint new tokens for DAI or accept existing tokens against DAI, effectively ceasing its operation and locking its DAI treasury forever.

15. I have a smart contract deployed that interacts with the bonding curve. How will that affect me?

If the bonding curve is shut down, smart contracts interacting with it won’t be able to function as planned.

General information and communication:

16. Where can I find more information about the shutdown and its implications?

While the Foundation and its members cannot foresee nor speculate on the implications of the bonding curve's potential shutdown, several panels have taken place and materials are available, some of which you can find here:

Bonding curve description blogpost.
Voting announcement blogpost.
“Rethinking Bonding Curves” an expert debate. Watch the YouTube video here, or read the summary here.
“Are Bonding Curves good or bad?” Twitter space with Web3 and DeFi experts, listen to it here.

The discord server’s channel #tokenomics is where the community discusses this subject.