Glossary

Below are brief descriptions of concepts that may, or may not be familiar to readers, depending on their level of understanding of blockchain and defi. The descriptions are not comprehensive and intended only to help understand concepts within our protocol. More detailed information may be found on the internet.

Bonding Curve AMM

A Bonding Curve AMM is a mechanism by which a token bonding curve is attached to an AMM (automated market maker) for the purpose of issuing tokens continuously to meet demand within a market. Each token is issued at a price that is higher than the preceding token, and the bonding curve maps token price against the volume of tokens issued.

The AMM (automatic market maker) may also be used to buy the tokens back again from the market in a mechanism that is locked with the issuance function. Consequently the funds realised from the issuance of tokens are pooled in the AMM to provide a bid price to buy them back. The sums dedicated to buying the tokens back might be less commissions charged and the spread, which is the KiX model.

Tokens bought back by the AMM might well then be re-inserted into the bonding curve below the previous offer price. Consequently both the offer price and the bid price move up and down in lockstep with each other, reflecting demand vs. supply within the market.

Constant Product XYK AMM

Constant Product AMMs (automatic market makers) are very common price discovery mechanisms in defi that rely on a mathematical formula to price assets.

This formula can vary with each protocol. The most basic and common, adopted by Uniswap and many others, uses x * y = k, where x is the amount of one token in the liquidity pool, and y is the amount of the other. In this formula, k is a fixed constant, meaning the pool’s liquidity ratio always has to hold this rule.

This is a simple algorithmic function that determines the ratio of each token held within the AMM, and expresses this ratio as a price.

These AMMs have several advantages over traditional order book systems within blockchain based markets. Firstly they do not rely on a huge number of open orders, all of which are costly in gas fees, to establish a price. They also provide opportunities for ordinary users to perform the function of market makers in Tradfi, and to be rewarded for it, known as liquidity staking. This is when a User stakes tokens into the AMM and receives a percentage of trading commissions and fees in return. Thirdly, the AMM captures liquidity in a more meaningful way than an order book, where orders carry little sense of commitment and are very easily cancelled.

DAO (decentralized autonomous organisation)

A DAO (decentralized autonous organisation) is a legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity, and it's declared intention. Conceptually it is strongly aligned with decentralization and smart contracts. There is no corporate entity with a board of directors and shareholders, there is in its place a number of smart contracts which execute the declared goals of the DAO.

In the place of 'shareholders' there are instead 'members of the DAO' (token holders), who govern the DAO though voting mechanisms. It is important to understand that from a regulatory perspective, tokens are not securities, confer no ownership rights, yields or dividends, and only bestow voting eligability.

This is enabled as a result of the power of smart contracts, logically coded agreements that dictate decision-making that is recorded on the blockchain, that might be regarded as the 'rule of code'. Once establised an endeavour or common goal might be entirely executed by this code, which cannot be changed on the whim of a director, mangement, or board, and so consequently is decentralised.

This system of governance removes the inevitable friction between 'them' and 'us', the customers and shareholders, both looking to extract maximum value from the enterprise. Generally the customer is likely to come off worse as his only power is to remove his custom.

In this model there are only 'token holders' all of whom are aligned in a common goal, the declared mission of the DAO, which might include a healthy price for the token that is held by all. The token price is a reflection of the health and success of the project and its goals.

Smart Contract

A smart contract is a self-executing digital program that automates the actions required in an agreement or contract. They are logically coded agreements that dictate decision-making. Once completed, the transactions are transparently trackable on the blockchain and cannot be reversed.

Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.Once completed, the transactions are trackable and irreversible.

They are at the heart of, and power decentralization, which enable transactions to be 'trustless'.