Undergirding Bonding Curves: Supply-sovereign Automated Market Makers Enabling Liquidity and Sustainable Financing

Conventional exchanges and market makers facilitating initial public offerings and market making of tokens are prone to illicit practices. Automated Market Makers (AMMs) and, especially, Supply-sovereign AMMs (sAMMs) seem to tackle those challenges by employing persistent and transparent market making strategies. AMM designs typically serve two purposes: (1) facilitating the exchange of tokens not issued by the AMM and (2) enabling the issuance and exchange of tokens by the AMM itself, known as supply-sovereign AMM (sAMMs). In this work, we establish the foundations of bonding curve representations for these two AMM designs and explore their relationships. We introduce Undergirding Bonding Curve (UBC)-based sAMMs, a novel design of sAMMs well suited to represent continuous value growth and to support all project phases, from raising capital to mature and late phases. This is achieved by the novel type of shape-adapting bonding curve in our sAMM, enabling incentive-compatible value accumulation and distribution to shareholders. The provided formalized analysis shows that UBC-based sAMMs implement desirable characteristics of conventional share-based companies with accumulated future value derived from generated revenues.