Bonding Curve: Binance "grasping" retail investor psychological momentum

The Bonding Curve does not solve the Liquidity creation problem, but artificially increases the number of candidates to collide and produce the most likely Meme Token.

Written by: Zuoye

Consider a question: if Binance is destined to be unable to stop the rise of Hyperliquid, how should one maximize their benefits?

Caption: HyperLiquid vs. Binance futures trading volume, image source: @TheBlock__

At a time when $PUMP Hyperliquid is far outperforming many CEXs, Binance, which is under the most pressure, has responded by increasing the liquidity of Binance Alpha, note that it is the intraday liquidity of the alpha that is being boosted, not the return of participants.

To go on Binance used to mean going on Binance Spot, but now it means going on Alpha more. To avoid the “Binance listing effect disappearing,” we should guide towards Alpha, contracts, and BNB Chain. However, it is too strange for the exchange not to engage in trading, so we must enhance the trading attributes of Alpha.

In addition, empowering $BNB is essential for the entire Binance-YZi-BNB Chain system, and the earnings of BNB holders are the daily liabilities of the Binance system, and more use value, and even emotional value, must be introduced in addition to economic value.

To sum up, Binance Alpha opened trading for two reasons:

1. Counter the listing effect of Hyperliquid and increase the overall Liquidity of Binance;

2. Empower $BNB with more practical value to enhance the stability of the Binance system.

On these two points, it is easy to understand that Binance and FourMeme have opened Bonding Curve and TGE, and even entrained FourMeme to keep up with the wave of Meme launcher revival of PUMP issuance, after all, Bonk and MemeCore can be popular.

For details, refer to: Pump/Bonk/$M three-minute Meme, two paths for asset issuance.

Choose Bonding Curve to Incentivize Initial Liquidity

According to Binance’s announcement, this Bonding Curve TGE Token is Aptos DEX Hyperion.

We will no longer introduce this project, and this article does not cover content such as token prices. It only answers why Binance chose the logic of Bonding Curve for the Founder’s consideration of future listing plans.

Image description: @hyperion_xyz/center, image source: @BinanceWallet

After reading the announcement, it can be concluded that it is necessary to hold BNB, that successful subscriptions can be resold within the Bonding Curve system, and that after the event ends, it will enter the normal Alpha trading system. Essentially, this encourages trading within the platform, compared to pre-market trading on the Alpha platform.

Alpha trading

This just happens to cover up or solve Binance’s current largest liquidity crisis by creating more initial liquidity mechanisms. Looking back in history, the Bonding Curve did not solve the liquidity creation problem but artificially increased the number of candidates, resulting in the most likely Meme Token.

Looking back at the development history of DEX, LP Token is the true tool that solves liquidity supply. AMM/order book mechanisms need to work in conjunction with it to support their own operation. However, the issues with Binance are a bit complex; it is not an early project, but it has encountered the biggest problem of early projects—liquidity is shrinking, and the value capture ability of $BNB is declining.

In contrast, PumpFun is an intraday Bonding Curve + an off-panel AMM pool, and there is a paradox in Bonding Curve itself - the greater the demand, the higher the price, which is like the more demand for buying a house, the more the house in Yanjiao appreciates, and as soon as the inflection point of the market arrives, it will immediately collapse, and there is no room for a gentle decline.

PumpFun has not resolved this natural paradox, but rather has drastically reduced launch costs to attract more attempts. Will Yanjiao drop, and will Dubai rise? The global liquidity of the crypto world and the possibility of any attempt make the domestic market the cheapest launch site, with 1000 domestic markets yielding 10 external DEX, of which 1 further goes to CEX.

If the number of internal orders is increased to 10 million, the overall market liquidity will instantly increase, bringing an overwhelming amount of liquidity to both internal and external DEX and CEX, but of course, it will eventually collapse.

A prediction can be made here: there will be more Binance Alpha Bonding Curve TGE events in the upcoming period, otherwise it will not achieve the effect of Liquidity creation and guiding the main site and BNB.

the better the liquidity", while the latter logic is based on "the more you buy, the stronger the reserves + the more you sell, the more profit

The problems of the two are also highly convergent, they are both based on the “normal” part under the law of large numbers, that is, they do not consider the impact of extreme events, and in the case of the law of 28, they consider more 80% of the cases and do not care about the 20% exceptions, and finally one dies from the shock of Luna-UST and the other is sucked dry by $TRUMP liquidity.

Study the mental momentum and wait for the one-hit kill

There is a momentum phenomenon in the market where it can rise higher than we predict, and conversely, it can fall deeper than the market’s fair value.

The assumptions underlying the Bonding Curve are inherently unreliable, but they align very well with Binance’s real needs:

• Create initial liquidity: Binance Alpha itself has a sufficient market foundation, so it is not “built-in liquidity”, but a liquidity front, which directs the alpha liquidity after its own opening, and other DEX/CEX trading liquidity to the Bondng Curve area;
• Pricing expectations trigger demand: Just as Pre-Market trading revolves around pricing, the Bonding Curve will also instigate a game around pricing, subsequently fostering demand trading. Users will only sell their Token to avoid becoming the watchers before the collapse of the Bonding Curve.
• Digesting the token listing effect: Bonding Curve is a market game, and Binance can avoid the weakening of liquidity on the main site caused by the decline of the token listing effect, theoretically achieving a more fair pricing.

Caption: Why Bonding Curve, Image Source: @BinanceWallet

So, what is the cost?

As mentioned above, the PumpFun version of Bonding Curve relies on a large enough number of internal disks to give birth to super single products, and there are still too few listing events in the Alpha activity area, even if the project parties in the entire cryptocurrency circle are pulled over.

However, Binance Alpha will assume the role of the initial price discovery of the project side, referring to the $JELLYJELLY Binance and OKX sniping Hyperliquid, I personally feel that CEXs will unite against Hyperliquid, and Binance will bear the brunt of it.

The trick to grab liquidity is to find the price, retail investors want to buy the lowest cost, sell the highest return, if Binance directly pulls up the listing effect, it will inevitably have to pay a higher price, but in the name of helping retail investors find the earliest price, liquidity will naturally come.

Then, wait for an extreme black swan event to burst Hyperliquid, just like Bybit was severely impacted by the hack, and CZ/Binance being fined 4.2 billion doesn’t matter, just as Hyperliquid’s extreme transparency gets countered, and Binance then takes a jab, like FTX was easily toppled, yet CZ still comes out as the big brother.

Conclusion

The scale is the biggest advantage of Binance, flexibility is Hyperliquid’s offensive strategy, waiting for changes and engaging in a war of attrition is a reasonable choice, Binance chooses price signals, Hyperliquid moves towards the effect of listing tokens, liquidity is the result of the competition between the two, not the cause.

It’s just pitiful for Alpha users, who is the cow busy for? The sugar is so sweet, how can the people who grow it live so hard.