BNB Empowers a New Paradigm: Analyzing the Liquidity Bail-in of DEX from the Perspective of Bonding Curve Game Theory

Author: Zuo Ye

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

Image description: Comparison of HyperLiquid and Binance contract trading volumes, image source: @TheBlock__

As $PUMP is performing far better than many CEXs on Hyperliquid, the most pressured Binance's response is to increase the liquidity of Binance Alpha. Please note that what is being increased is the liquidity within the Alpha market, not the return rate for participants.

On Binance, it used to be equivalent to trading on Binance Spot, but now it is more about trading on Alpha. To avoid the "Binance listing effect disappearing", it should guide towards Alpha, contracts, and BNB Chain. However, it is too strange for the exchange not to engage in trading, so it is necessary to enhance the trading attributes of Alpha.

In addition, empowering $BNB is crucial for the entire Binance -YZi-BNB Chain ecosystem. The earnings of BNB holders represent the daily liabilities of the Binance system. Beyond economic value, it is essential to introduce more utility value, and even emotional value.

In summary, Binance Alpha has opened trading for two reasons:

1. Counter the listing effect on Hyperliquid and increase overall liquidity on Binance;

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

In these two aspects, Binance and FourMeme's initiation of the Bonding Curve and TGE is easy to understand, and it even helps FourMeme keep up with the PUMP meme launch revival wave, after all, both Bonk and MemeCore can become popular.

Choose Bonding Curve to stimulate initial liquidity

According to Binance's announcement, the Bonding Curve TGE token is Aptos DEX Hyperion.

We will no longer introduce this project, and this article does not cover token prices or other content. It only answers the logic behind why Binance chose Bonding Curve, for the Founder to consider 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, and after a successful subscription, it can be resold within the Bonding Curve system. After the event ends, it will enter the normal Alpha trading system. Essentially, this encourages internal trading, as opposed to pre-trading in the Alpha market.

Alpha trading

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

Looking back at the history of DEX development, LP Tokens are the real tools that solve liquidity supply. AMM/order book mechanisms need to work in conjunction with them to sustain their operation. However, Binance's situation is a bit complex; it is not an early project, but it has encountered the biggest problem that early projects face—liquidity is shrinking, and the value capture ability of $BNB is declining.

In comparison, PumpFun is an internal Bonding Curve + an external AMM pool. The Bonding Curve itself has a paradox - the greater the demand, the higher the price. It is like the more demand there is for buying houses, the more the value of houses in Yanjiao appreciates. Once the turning point in the market arrives, it immediately collapses, leaving no room for a gradual decline.

PumpFun has not solved this natural paradox, but has greatly reduced launch costs to attract more attempts. Will Yanjiao fall, and will Dubai rise? The global liquidity and the possibility of arbitrary attempts in the crypto space make the domestic market the cheapest launch site, with 10 out of 1000 domestic projects running on external DEX, and 1 of them further launching on CEX.

If the number of internal orders is increased to 10 million, the liquidity of the entire market will instantly increase, bringing a flood of liquidity to both internal and external DEXs and CEXs. Of course, it will ultimately collapse.

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

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

The problems of the two are also highly convergent, both based on the 'regular' part of the law of large numbers, which does not take extreme events into account. Using the Pareto principle, they consider 80% of the cases and disregard the 20% exceptions. In the end, one was impacted by the Luna-UST crisis, and the other was drained of liquidity by $TRUMP.

Study psychological momentum, waiting for a one-hit kill

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

The assumptions on which the Bonding Curve relies are inherently unreliable, but they align very well with Binance's real-world needs:

• Create Initial Liquidity: Binance Alpha itself has a sufficient market foundation, so it is not "built-in liquidity," but rather liquidity pre-positioned, directing the liquidity of Alpha after its opening and other DEX/CEX trading liquidity towards the Bonding Curve area;
• Pricing expectations drive demand: Just like the pricing game in Pre-Market trading, the Bonding Curve will also trigger a pricing game, which in turn promotes demand trading. Users can only sell tokens to avoid becoming watchers before the collapse of the Bonding Curve.
• Digesting the Token Listing Effect: Bonding Curve is a market game, and Binance can use this to avoid the weakening of liquidity on the main site due to the decline of the token listing effect, theoretically achieving a more equitable pricing.

Image description: Reason for choosing Bonding Curve, image source: @BinanceWallet

So, what is the cost?

As mentioned earlier, the PumpFun version of the Bonding Curve relies on a sufficient number of internal orders to create super products. The number of token listing events in the Alpha activity area is still too few; even if we bring all the project parties in the crypto space over, it won't be enough.

However, Binance Alpha will take on the initial price discovery role for the project, referencing Binance's joint efforts with OKX to target Hyperliquid in $JELLYJELLY. Personally, I feel that centralized exchanges (CEX) will band together against Hyperliquid, with Binance being the primary player.

The ultimate trick to seizing liquidity lies in discovering prices. Retail investors all hope to buy at the lowest cost and sell for the highest profit. If Binance directly pushes up the price, it will inevitably have to pay a higher cost. However, by claiming to help retail investors discover the earliest prices, liquidity will naturally follow.

Then, wait for an extreme black swan event to pop Hyperliquid, just like Bybit was severely damaged by a hack, and CZ/Binance being fined 4.2 billion is no big deal, just like Hyperliquid's extreme transparency being exploited, and Binance subsequently coming in to poke a bit, just like FTX was easily toppled, and CZ still coming out as the big brother.

Conclusion

The scale is Binance's greatest advantage, while flexibility is Hyperliquid's offensive strategy. Waiting for changes and engaging in a war of attrition is the rational choice. Binance chooses price signals, while Hyperliquid aims for the effect of listing new coins. Liquidity is the result of the competition between the two, not the cause.

Poor Alpha users, who is the cow busy for, the sugar is so sweet, how can the people who grow it live so bitter.