NFTs and Questionable Tokenomics

Aavegotchi, the NFT tamagotchi equivilant, used a Bonding Curve.

So far in this series of NFT articles, we’ve guided you through understanding why so many people find value in NFTs and what makes certain projects successful. Now, we want to take some time to shed some light on the investment and financial aspects of NFTs. We will walk you through the most commonly used tokenomics concept of NFT projects — a bonding curve.

Bonding Curves

At its base, bonding curves describe a clever little smart contract that enables users to mint/burn tokens according to a previously defined pricing algorithm. The benefit is that it allows developers to incentivize consumer behavior with different pricing structures and allows tokens to create their own markets without having to rely on exchanges.

The bonding curve is generally a simple pricing algorithm where the price of the token increases with the supply.


Here are important factors from a bonding curve (Source: LinumLabs):

  • Limitless Supply — There is no limit to the number of tokens that can be minted (while this is a part of the theoretical definition of a bonding curve, many NFTs have a fixed supply in practice).
  • Deterministic Price Calculation — The price of the tokens increases and decreases according to the number of tokens minted.
  • Continuous Price — The price of token n is less than token n+1 and more than token n-1.
  • Immediate Liquidity — Tokens can be bought or sold instantaneously at any time.

Bonding curves are great solutions most popularly used in Automated Market Makers (AMM), ICOs, continuous organizations, and continuous token-curated registries.

What does this have to do with NFT projects?

A lot of NFT projects, especially after Hashmasks blew up, follow some kind of bonding curve-type pricing model. In the case of Hashmasks, it’s a piecewise bonding curve where it gets progressively more expensive to mint a new Hashmask in progressive tiers as the number of tokens increases.

Hashmasks Pricing Curve (Source: Hashmasks)

As with any pricing model, there are pros and cons to this model. Let’s analyze them both:


  • It allows early adopters to get in at a cheaper price (so it’s good for you if you got into Hashmasks early!)


  • Gives investors a false expectation that the price will go up
  • Many buyers try to spray and pray to get in early to NFT projects, only to try to flip them for a small profit on the secondary market. This ends up killing the project before it can get traction.
  • The tokenomics are skewed to allow early adopters profit and later adopters to lose money, which is not sustainable for the long term longevity of a project.

Aside from the one obvious upside of incentivizing early adopters, we feel that the bonding curve mechanics, specifically with NFTs, have more downsides that hinder the long term success of a project. Let’s dive in a little.

Why the NFT + Bonding Curve Model is Completely Broken

NFT projects have the biggest misuse of a bonding curve. The bonding curve is supposed to go both ways — price goes up if the demand goes up, but also the price goes down if the demand goes down. To achieve this, a true bonding curve smart contract would allow you to sell the token back at the designated price. This would in turn lower the sale price of the next token, since the supply was reduced.

However, NFT projects completely ignore this fact — you can’t actually sell your NFT for what the bonding curve price dictates. You can only sell the NFT on a secondary market, where nobody is following the pricing rules of the smart contract.

This basically means the following:

  1. The price movement is completely unrelated to the actual feedback and value creation on a NFT project’s end because there’s no proper supply and demand mechanism embedded in the smart contract.
  2. The fact that these projects are still being bought up by the masses indicates the severity of the NFT bonding curve bubble, and also manipulation by the early adopters of these projects. Generally early adopters are those constantly on social media (Twitter, Discord, Telegram) and are also influencers. These influencers buy in early, shill the NFT project, and then dump it on the secondary market for a price lower than the current mint price to exit early.
  3. People are treating these NFTs are a lottery ticket, hoping that they will buy the next “rare” NFT that will go on the news for millions of dollars.
  4. Project owners who use a bonding curve don’t care about the long-term viability of the project and its community. There is no crypto-economic feedback loop in place for a sustainable system. They’re money-grabs.


BASTARD GANPUNKS is a great example of a project that uses bonding curves. Below is an example of the latter part of the bonding curve, where the price starts at 0.0065 ETH and eventually ends at 10ETH.

Part of the pricing curve for BASTARD GANPUNKS (Source: BASTARD GANPUNKS)

During the initial craze in March, the average prices for trades on the secondary market were going for more than the price to mint them on the platform. However, as the project slowed down and the prices started to come down, people were no longer incentivized to mint a new NFT on the platform itself, because it was cheaper to buy one on the secondary market. This was the end of BASTARD GANPUNKS, which has been stuck at ~8900 / 11305 sold for the last couple of weeks (4/30/2021 at the time of writing).

Sale prices of BASTARD GANPUNKS on the secondary market

Final Thoughts

We can see through the above analysis of bonding curves that most NFT projects that use bonding curves are not sustainable in the long run, unless they received insane hype upfront or are the first to introduce the concept (like Hashmasks). In the next article, we discuss what we think is an example of an up-and-coming project that has possibility for long-term success. Stay tuned!


NFTs are just like any investment vehicle. We do not provide any investment advice, and please do your own due diligence before purchasing them!



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Crypto Insider

Crypto Insider

Analysis of NFTs + new crypto projects and predictions on what the next big projects & trends will be.