Bonk Liquidity Ratios Explained

Written by Keegan

Common questions:

  • Why does the price of BONK change in USD when there are no buys/sells?
  • How does Uniswap.vision calculate the USDC price chart, and why is it different from the ETH price chart?

To begin, the price of Bonk is tied to the amount of Ether and Bonk in the liquidity pool. The USD has no bearing over the price of BONK, if not for the psychological sell pressures at round values like 50 cents or $1. The USD chart is completely calculated based upon the price of ETH and the amount of BONK in relation to how much ETH there is in the liquidity pool. This is best shown through example.

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Scenario 0 (base):

Let’s say there is 200 ETH and 200,000 BONK in liquidity.

This means that for every 1 ether, there are 1,000 BONK. Or, for every 1 BONK, there is 0.001 ETH.

At the price of $400, in this example, then 1 BONK = 0.001 ETH = $0.40

Scenario 1: Eth down, no buy/sell

IF the price of ether changes to $390, AND there are no buys or sells (so there is still 200 ETH and 200K BONK), then 1 BONK = 0.001 ETH = $0.39

Scenario 2: Eth down, with buy

IF ether drops to $390, AND a buy of 2,000 BONK for 2 ETH occurs, then the new liquidity ratio is

202eth : 198,000BONK

=

0.001020202 eth/bonk

So now

1 BONK = 0.001020202 eth

0.001020202 eth × $390 = $0.39787878

Scenario 3: Eth up, no buy/sell

IF the price of ether changes to $410, AND no buys/sells occur, then 1 BONK = 0.001 with = $0.41

Scenario 4: Eth up, with buy

IF the price of ether changes to $410, AND a buy of 2,000 BONK for 2 ETH occurs, then the new liquidity ratio is

202eth : 198,000BONK

=

0.001020202 eth/bonk

So now

1 BONK = 0.001020202 eth

0.001020202 eth × $410 = $0.41828282

Summary BONK Prices

Scenario 0: $0.40/Bonk @ 200eth:200kBonk and $400/eth

Scenario 1: $0.39 @ 200eth:200kBonk and $390/eth

Scenario 2: $0.39787878 @ 202eth:198kBonk and $390/eth

Scenario 3: $0.41 @ 200eth:200kBonk and $410/eth

Scenario 4: $0.41828282 @ 202eth:198kBonk and $410/eth

There are 9 total scenarios that are calculated, including scenario 0. Each scenario is a combination of Eth price rising, falling, or staying the same, crossed with EITHER a buy or a sell a occurring, OR neither a buy or a sell occuring.

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In conclusion, the BONK:USDC graph on uniswap basically does this set of 9 possible functions for every change of ether price, and for every buy or sell of BONK. Although the USD has no technical bearing over the price of BONK, the BONK/USD pair can still be calculated as above. For many investors it is more natural, or easier, to see how the price of an asset changes in USD, since that’s the world reserve currency.

If you have any questions regarding this write up, I’m happy to answer in TG.

best,

Keegan!

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