> For the complete documentation index, see [llms.txt](https://hello-fun-1.gitbook.io/hello.fun-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://hello-fun-1.gitbook.io/hello.fun-docs/bonding-curve/understanding-the-bonding-curve.md). # Understanding the Bonding Curve Every Hello.Fun token begins its market on a bonding curve. The bonding curve provides the first trading environment for a newly launched token. It manages buying and selling, determines pricing as the market develops and builds the reserves required for graduation. It is the first stage between token creation and an open Uniswap v4 market. ### What Is a Bonding Curve? A bonding curve is a market mechanism where the relationship between token supply and the pairing asset is defined by a mathematical curve. Instead of beginning with a traditional liquidity pool, a Hello.Fun token begins inside its own bonding curve. ```mermaid flowchart LR A["Token Launch"] --> B["Bonding Curve"] B --> C["Buying and Selling"] C --> D["Market Progress"] D --> E["Graduation"] ``` The curve provides the token with an active market immediately after launch. ### How Buying Works When a user buys during the bonding curve stage, they provide the pairing asset to the curve. The curve calculates the amount of tokens the buyer receives based on its current state. ```mermaid flowchart LR A["Buyer"] --> B["Pairing Asset"] B --> C["Bonding Curve"] C --> D["Tokens"] D --> A ``` As tokens are purchased, the state of the curve changes. This changes the price available for subsequent trades. ### How Selling Works Selling moves in the opposite direction. The user provides tokens to the bonding curve and receives the pairing asset according to the current curve state. ```mermaid flowchart LR A["Seller"] --> B["Tokens"] B --> C["Bonding Curve"] C --> D["Pairing Asset"] D --> A ``` Selling remains available during the bonding curve stage until the launch becomes ready to graduate. ### How Price Develops The bonding curve determines the token price based on the current state of the market. As tokens are purchased from the curve, the price rises along the curve. A trade can therefore affect the price available for the next trade. The size of that effect depends on the trade and the current state of the bonding curve. ### Phantom Liquidity The bonding curve uses phantom liquidity as part of its market configuration. Phantom liquidity helps define the mathematical behavior of the curve and its pricing. It does not represent additional assets deposited into the market by the creator. ```mermaid flowchart TD A["Pair Economics"] --> B["Phantom Liquidity"] B --> C["Bonding Curve Math"] C --> D["Market Pricing"] ``` Phantom liquidity is different from the actual reserves accumulated through trading. ### Building Real Reserves As users trade through the bonding curve, actual reserves build within the launch. These reserves come from market activity. They are later used during graduation to establish the token's Uniswap v4 liquidity market. ```mermaid flowchart LR A["Bonding Curve Trading"] --> B["Reserves Build"] B --> C["Graduation"] C --> D["Uniswap v4 Liquidity"] ``` This connects the initial market directly to the liquidity used in the graduated market. ### Progressing Toward Graduation The bonding curve is designed as the starting market rather than the permanent market. Each launch has a graduation condition determined by its pair economics. For current ETH paired launches, the graduation threshold is **4.2 ETH**. As the market progresses through the curve and reaches the **4.2 ETH threshold**, the launch becomes ready to graduate. ```mermaid flowchart LR A["Bonding Curve Trading"] --> B["Reserves Build"] B --> C["4.2 ETH Graduation Threshold"] C --> D["Ready to Graduate"] ``` The 4.2 ETH threshold applies to the current ETH pair configuration. Other pairing assets can use their own configured pair economics as they are introduced. ### What Happens to the Bonding Curve? When graduation completes, normal trading transitions away from the bonding curve. The accumulated reserves are used to establish the Uniswap v4 market. ```mermaid flowchart LR A["Bonding Curve"] --> B["Graduation"] B --> C["Uniswap v4"] C --> D["Continued Trading"] ``` The token then continues trading through its graduated liquidity market. ### Two Market Stages A Hello.Fun launch can therefore be understood as two connected market stages. **Bonding Curve → Graduation → Uniswap v4** Graduation connects the two. The bonding curve creates the starting market and builds reserves. Uniswap v4 becomes the continuing market after graduation. ### The Role of the Bonding Curve The bonding curve performs three important functions within Hello.Fun: * It gives a newly launched token an immediate market. * It provides the pricing mechanism for buying and selling before graduation. * It builds the reserves used to establish liquidity at graduation. The bonding curve is therefore not only where a Hello.Fun market begins. 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