A bonding curve is a type of auction based around the bancor formula illustrating changes in supply and demand.
This type of auction is used when there is a limited quantity (i.e a cryptographic token) whereby each sale slightly increases the price of the remaining supply. In the case of a cryptographic token, the price per token will rise as the number of issued sold increases, thereby decreasing total supply. This mechanism rewards the earliest purchasers and encourages fast acting participants.
Here’s an example of a bonding curve:
In the example above as the number of tokens sold grows, so does its price. The growth rate accelerates as the number of tokens sold increases.