Art Coin Launches & Bonding Curves
Notes on bonding curves, what they are, how they work, and how they serve as the launch mechanism to create art coins linked to open-form projects on fxhash.
When creating a new open-form project, artists can choose to create a new art coin, or link the project to an existing one. Art coins are project native ERC20 tokens on the Base L2 chain, that power all collector interactions with the project.
Launching a new art coin comes with a key challenge: how do you determine a fair starting price for something that has no trading history? Traditional approaches—such as setting an arbitrary price or listing directly on exchanges—often result in unpredictable volatility or poorly received launches.
Bonding curves are a mechanism that solve this problem. They create an automated, mathematical relationship between supply and price, backed by real value: $FXH. They are an established method in crypto that help distribute the initial supply of a coin gradually, fairly, and based on demand among the collectors and traders interested in participating in the launch of an project — while also setting an initial price point for the market.
Overview & TLDR
The supply of art coins linked to open-form projects are distributed through a bonding curve mechanism.
An art coin's bonding curve phase begins at the end of the creation flow of an open-form project.
Art coins launch with a supply of 1M. 800k of which are purchasable through the bonding curve, and 200k reserved for graduation.
When art coins graduate, both the $FXH and art coin reserves are migrated to a liquidity pool, placed under the artist's ownership and locked for 2 years.
Artists earn 0.75% of the trading volume on that primary liquidity pool.
Artists can choose to manually graduate the bonding curve at any point.
The open-form project only becomes available for minting when the art coin graduates.
Bonding curve launch parameters are the same for all artists.
In this page we explain how bonding curves work, the specific bonding curve model fxhash uses for the launch of art coins, as well as best practices for a successful open-form launch.
How bonding curves work
A bonding curve is a smart contract that helps launch a new token — in this case, an art coin — in a fair, automated, and transparent way.
It does two important things:
Stores funds used to buy the art coin (like a vault)
Automatically sets the art coin’s price based on how many people are buying or selling (like a built-in pricing engine)
In the case of fxhash this contract stores and manages two types of tokens:
$FXH – fxhash's established token with a known price, and the currency used to buy art coins.
Art coin – the brand new token that's being launched; its price isn’t fixed — it will be set once the bonding curve completes.
There are only two ways to interact with a bonding curve: either purchasing from the art coin supply that bonding curve makes available, and depositing $FXH into the smart contract, or selling the art coin back to the curve and withdrawing $FXH that's stored as a reserve inside the smart contract. Both buying and selling on the curve impacts and changes the price of the art coin.
When You Buy Art Coins
You send $FXH to the bonding curve contract
The contract calculates how many art coins you should receive based on the current remaining supply
New art coins are minted and sent to your wallet
Critically: Your $FXH doesn't disappear—it stays in the contract as permanent backing for all art coins in circulation
The price automatically adjusts upward for the next buyer
When You Sell Art Coins
You send art coins back to the bonding curve contract
The contract burns (permanently destroys) those coins, reducing the total remaining supply
Based on the new, lower supply, it calculates how much $FXH you should receive
You get $FXH from the contract's reserves (the accumulated backing from all previous purchases)
The price automatically adjusts downward for the next transaction
During the bonding curve launch phase, the art coin can only be traded through the bonding curve—no external exchanges, no peer-to-peer trading. This creates a controlled environment for price discovery where every transaction is backed by real $FXH reserves.
We call this $FXH the liquidity — it’s the pool of value that lives inside the bonding curve contract and makes all art coin transactions possible.
What is Liquidity?
Liquidity means that whenever someone wants to buy or sell the art coin, there’s always $FXH available in the contract to complete the trade. You don’t need to find a buyer or seller on the other side — the bonding curve itself is always ready to transact.
The more $FXH locked in the contract, the easier it is to buy or sell without large swings in price. This is what gives the art coin real, redeemable value at every moment.
Once the curve has served its purpose — distributing the art coin among buyers, accumulating an $FXH reserve, and establishing smooth market conditions — the art coin graduates to open trading. At that point art coins can be bought and sold on decentralised exchanges, and most importantly be used to mint and interact with open-form projects on fxhash.
The cold-start problem & virtual seed solution
How the price of art coins available for purchase changes, as coins are bought and sold on the curve, is determined by a formula.
There are different models for bonding curves; a common one being the constant product bonding curve (also called an AMM-style curve) that's used for the Uniswap v2 token launches, simply: where:
x is the number of art coins available
y is the $FXH reserve
k is a constant number that defines the relationship between supply and price.
The bonding curve always keeps x × y = k. So, if someone buys art coins (meaning x goes down), the contract needs to increase y (the $FXH reserve) to keep the equation balanced — and that means the price goes up.
The fewer art coins there are left, the more expensive they become.
In this scenario the $FXH liquidity stored in the contract plays a crucial role for the bonding curve to function properly and ensure a smooth pricing experience for both early buyers and when the coin graduates to the open market. There are two challenges here:
Prices Swing Too Wildly (High Volatility) — With low liquidity, even a small purchase can cause a big spike in price. The curve is too shallow to absorb the trade, so the next buyer ends up paying significantly more for fewer art coins. This makes the pricing feel unpredictable and unfair — discouraging new buyers from participating.
The Creator Faces a High Barrier to Entry — To avoid that volatility, the creator would need to deposit a large amount of $FXH up front. Providing large amounts of $FXH upfront can be prohibitively expensive for most creators however. It puts the burden entirely on the artist to “seed” the market, which limits who can launch tokens and how fairly they start.
Virtual bonding curves are a different model that solve this "cold start problem" for new art coin launches; instead of starting with just the creator's small investment—which creates terrible pricing once the art coin graduates—the system pretends there's much more $FXH in the contract by adding "virtual liquidity."
This imaginary $FXH (vy) essentially shifts the curve, makes prices start higher, and makes the art coin price increase more smoothly, creating a better experience for buyers while the creator only risks their small initial investment.
As the art coin supply is bought up, real liquidity replaces this virtual liquidity, up to a certain point where the virtual liquidity becomes negligible in comparison.
Structure of bonding curve launches on fxhash
When an art coin launches on fxhash, it's created with a total supply of 1 million coins:
800,000 coins can be purchased through the bonding curve
200,000 coins are held in reserve for post-graduation liquidity
This split means that the art coin is released to the open market when 80% of the coins are bought up. This ensures that there's enough supply for price discovery during the bonding curve phase, while reserving a portion of tokens to provide trading liquidity upon completion.
The following table shows how the price of an art coin increases as more liquidity in $FXH is deposited in the curve and the available supply is bought up — the $ value here only serves demonstration purposes and will be determined by the market once $FXH becomes available for trading:
0%
0
$100
$0.00498
$4,980
10%
100,000
$653
$0.00615
$6,150
20%
200,000
$1,345
$0.00778
$7,780
30%
300,000
$2,234
$0.01016
$10,160
40%
400,000
$3,420
$0.01383
$13,830
50%
500,000
$5,080
$0.01992
$19,920
60%
600,000
$7,570
$0.03113
$31,130
70%
700,000
$11,720
$0.05533
$55,330
80%
800,000
$20,000
$0.12450
$124,500
As the art coin supply is purchased, the real $FXH liquidity increases while the virtual starting reserve stays constant. This creates reasonable starting prices and a much smoother price discovery on the bonding curve. When 80% of tokens are sold, there's enough real liquidity in FXH to provide a stable trading environment without price swings.
At graduation time, the virtual amount of art coins created alongside the initial virtual FXH reserve is paid out to the artist when the coin graduates. In this manner there is no dip in the art coin's price.
Naturally, once the art coin starts trading on exchanges, its price will either increase or decrease with the demand as well as the success and sustained interest in the project.
Art coin graduation
Graduation is the transition from the controlled bonding curve environment to open market trading. It happens automatically once all 800,000 available art coins have been purchased through the bonding curve, or when artists manually graduate an art coin. Here's what graduation means in practice:
You can only buy/sell art coins through the bonding curve smart contract
The coin becomes available on decentralized exchanges (open markets) — anyone can trade with anyone else, not just with the smart contract
The art coin price follows a predictable mathematical formula
Prices are determined by supply and demand between market participants
Purchases on the curve are backed by $FXH reserves in the smart contract
The primary liquidity pool provides initial trading liquidity — contains 200k art coins + the real $FXH accumulated by the bonding curve
What happens when art coins graduate
When art coins graduate, the $FXH reserve stored in the contract (deposited by buyers), as well as the 200k remaining art coins, are migrated and locked in a primary liquidity pool (LP). This pool establishes initial market liquidity and allows the art coin to be exchanged for $FXH on decentralized exchanges, and through fxhash's interfaces.
What is a liquidity pool?
A liquidity pool is also a smart contract that holds a pair of tokens and enables the trading between them.
However, unlike the bonding curve's liquidity reserve—which only holds $FXH and automatically mints/burns art coins based on the formula—a liquidity pool contains actual reserves of both tokens that traders exchange directly.
In the bonding curve, your $FXH stays locked as backing while new art coins are created for you, but in a liquidity pool, you're swapping existing tokens that other people have already deposited, and the pool's price changes based on the ratio of tokens available rather than a predetermined curve.
This liquidity pool is placed under the coin creator's control and locked for 2 years. This means that the liquidity cannot be withdrawn for that period of time, ensuring access to trading and price stability over time.
Trading on this pool incurs a 1% fee, distributed in art coins: 75% to the artist, and 25% to fxhash.
In addition to the primary pool, anyone can create additional liquidity pools for the art coin — for example, pairing it with ETH, other stablecoins, or alternative community tokens. However, the trading fees only apply to the official fxhash pool.
Manual graduation
In the case where the graduation threshold is not met, and the 800k art coins are not purchased in their entirety by buyers within some given amount of time, artists can choose to end the bonding curve early and graduate the coin manually.
In this scenario, the remaining unsold art coins are added to the primary liquidity pool. This leads to an unbalanced amount of art coins vs $FXH liquidity, and causes some amount of slippage during transactions, relative to the disproportion of art coins to $FXH in the LP.
What is slippage?
Slippage is the difference between the price you expect to get in a trade and the price you actually get. For example, in an unbalanced LP with low liquidity in $FXH, when you intend to buy $5 worth of art coins, you might only be getting ~$4.
Slippage happens because prices can change quickly or because there isn’t enough liquidity in the pool to handle your trade without affecting the price. While your trade is being processed, other people might be trading at the same time, and their actions can shift the price in the pool before your transaction goes through. That price movement is what causes slippage.
Early art coin graduation implies a more volatile price with higher initial swings during trades. However, if there is sufficient interest in the project, this will eventually balance out. With the bonding curve parameters we set we aimed to provide reasonable liquidity ratios at any graduation threshold.
Conclusion
Bonding curves create a fair and transparent way for art coin to enter circulation, giving participants an equal chance in taking part with the launch of an open-form project. Investors are protected in that they can always sell on the curve, and at the same time early adopters are rewarded as the token’s value increases with growing demand.
Once an art-coin graduates, the open-form project becomes available for minting and evolving, with the art coin becoming the currency to interact with the project, and its valuation directly reflecting interest in the project.
$FXH being used as the same reserve currency across all art coins creates a shared base for value and liquidity in fxhash's ecosystem.
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