Exploring Pump.fun’s High-Stakes Memecoin Market: Success or Collapse?

Pump.fun Offers 0.5 SOL Incentive to Boost Token Success Rate

Pump.fun, a no-code platform on the Solana blockchain, has introduced a new incentive scheme aimed at boosting the success rate of tokens launched on its platform.

This comes after stark revelations, based on a Dune Analytics dashboard by evelyn233, that a mere 1.4% of the 1.58 million tokens created on Pump.fun have successfully completed the bonding curve process and made it to the Raydium decentralised exchange (DEX).

This equates to just 22,330 tokens reaching the DEX, leaving a staggering 98.6% of projects to fizzle out before gaining any significant traction.

In response to improve the successful rate, Pump.fun has announced that token creators will receive a reward of 0.5 Solana (SOL), roughly around US$73 as of writing, if their tokens manage to complete the bonding curve and secure a listing on Raydium.

This incentive, albeit modest, is designed to encourage developers to push their tokens through to market, rather than abandoning them mid-way.

The bonding curve, a key feature of Pump.fun’s platform, serves as a mechanism for ensuring that liquidity is available once tokens go live on Raydium, thereby reducing the risk of tokens becoming completely illiquid and allowing traders to sell even in the event of significant price drops.

What is Pump.fun?

Pump.fun is a platform built on the Solana blockchain that caters specifically to the creation and trading of memecoins.

These are cryptocurrencies often associated with jokes, internet culture, or celebrities, and typically lack inherent value beyond community hype and speculation.

The platform simplifies the process of launching your own memecoin, making it accessible even for newcomers to the cryptocurrency space.

It utilises a unique pricing model called a bonding curve, which adjusts the price of tokens based on supply and demand.

This fosters a dynamic trading environment where prices fluctuate based on user interest.

Launched in early 2024, Pump.fun was conceived as a response to the opaque and often exploitative practices prevalent in the cryptocurrency world, particularly in the memecoin space.

Since then, it has gained significant traction within the crypto community.

Initially supporting the Solana network, it expanded its reach by incorporating Ethereum's Layer 2 scaling solutions, Base and Blast, further diversifying its user base and functionalities.

On a fun note, the founder and his team only spent $300 on the pump.fun domain name.

Despite the domain name being challenging to search and recall, and receiving feedback that such a quirky name would deter investors and users, he responded:

"Don’t worry about it; let them remember your name."

This shows how confident he is with his product.

So, Who is the Founder Who Spent Only $300 on the Domain Name

Pump.fun was founded by 25-year-old Alon Yu, who is deeply committed to making the platform both engaging and transparent.

Yu's vision is to transform Pump.fun into "the most fun place on the internet," and he has stated that if he does not achieve this goal, he considers it a personal failure.

Despite his clear dedication to the platform, Yu remains largely anonymous outside of his personal X account, which boasts 30,100 followers and features a milady profile picture.

His substantial social media following highlights his significant influence within the crypto community, emphasising the impact of his work and his commitment to shaping the future of memecoin creation.

Recently, he had done a live podcast with threadguy (@notthreadguy) with his face intentionally covered through post-production.

The Bonding Curve Model: Will It Protect Against Rug Pulls?

Pump.fun's bonding curve model is intended to create a guaranteed supply of liquidity for new tokens.

This model works by taking a small portion from each token purchase and allocating it to the curve, which eventually leads to a token reaching the market cap threshold of $69,000 required for listing on Raydium.

Once this market cap is achieved, $12,000 worth of liquidity is deposited into Raydium, with the liquidity provider (LP) tokens automatically burned to lock the liquidity, ensuring that the token cannot be rendered completely illiquid.

The goal of bonding curves is to provide a reliable and predictable liquidity pool for a token. (Source: Yos Riady)

Source: pump.fun

However, while this system theoretically guarantees liquidity and stability, it is not foolproof.

Early buyers of tokens often benefit the most, as the initial cost to contribute to the bonding curve is significantly lower.

As the token's value increases with each subsequent purchase, the price eventually becomes prohibitive, limiting the entry for new buyers.

This dynamic often leads to quick pumps followed by abrupt dumps, as early investors capitalise on their gains, leaving latecomers holding the bag.

Despite the bonding curve's promise, large holders can still significantly impact the token’s price post-launch, leading to potential rug pulls even after the token is listed on Raydium.

Token Launch Fee Eliminated But Charges Buyers Instead

In a bid to further incentivize token creation and address concerns over the platform’s previous fee structure, Pump.fun has slashed its token deployment fee from $2 to $0.

This change shifts the financial burden from the creators to the first buyers of the token, who will now pay a 0.02 SOL (about $3) fee.

This adjustment is expected to lower the barrier to entry for prospective token creators, encouraging a broader range of participants to launch their tokens on the platform.

The new fee structure is part of Pump.fun's broader strategy to democratise token creation and prevent pre-sale practices that have historically allowed insiders to manipulate token markets.

Pump.fun wrote in their X post:

This unlocks the use case of someone creating a coin without buying any of its supply

By making it free for creators to launch tokens and shifting the initial fee to buyers, the platform aims to create a more transparent and equitable environment where the success of a token is determined by market dynamics rather than behind-the-scenes manipulations.

The Economic Impact: Revenue Streams and Market Realities

Despite the challenges faced by most tokens launched on Pump.fun, the platform itself has been a significant revenue generator.

In May 2024, Pump.fun became the second-largest revenue-generating platform across the cryptocurrency space, pulling in $3.38 million in just one week, second only to the Ethereum network.

The platform's revenue model, which includes a 1% fee on all trades, has proven highly lucrative, with daily revenues frequently surpassing $1 million throughout July 2024.

On 30 July, the platform recorded an all-time high of $2.31 million in revenue within a single day.

However, these impressive revenue figures come with a caveat.

The vast majority of Pump.fun’s earnings — approximately $85.9 million out of a cumulative $87.2 million — stem from tokens that failed to reach Raydium, highlighting the platform's reliance on the high volume of unsuccessful token launches.

This disparity projects the challenges within the memecoin market, where the overwhelming majority of tokens fail to achieve long-term viability.

Empowering Creators with Transparency and Visibility

Pump.fun’s no-code platform allows anyone, regardless of technical expertise, to create and launch memecoins, with all data concerning token creation and ownership made publicly available.

This commitment to transparency is further reinforced by Pump.fun’s partnership with CoinGecko, which has integrated Pump.fun tokens into its DEX tracker, GeckoTerminal.

This collaboration not only enhances the visibility of Pump.fun tokens but also supports the broader DeFi ecosystem by providing users with more comprehensive tools for tracking decentralised tokens.

Celebrities Joining the Memecoin Mania

The platform's ease of use and low barrier to entry have undoubtedly attracted a diverse range of individuals eager to capitalise on the namecoin craze, with many new tokens created everyday.

Further fueling its popularity, several high-profile figures have leveraged Pump.fun to capitalise on the memecoin craze.

Olympic gold medalist Caitlyn Jenner launched her own token, "JENNER," while rapper Iggy Azalea debuted her token, "MOTHER."

These celebrity endorsements, alongside countless others, showcase the platform's reach and ability to attract established names.

Can Pump.fun Survive the Memecoin Market's High Risks?

Despite the innovative features and financial success of Pump.fun, the platform faces significant challenges moving forward.

With a dismal success rate of tokens reaching Raydium and a troubling frequency of rug pulls, the platform’s financial incentives may merely be a Band-Aid on a fundamentally flawed system.

The $80 reward for completing the bonding curve is a mere trinket in the grand gamble of memecoins, where speculation and high risk overshadow intrinsic value.

As the market evolves, the critical question remains – will Pump.fun transition from a high-stakes gamble to a sustainable innovation, or will it succumb to the volatility and pitfalls that define the memecoin arena?

Coinlive advises to tread cautiously with Pump.fun's memecoins — invest only what you can afford to lose, and do so with a clear understanding of the high-risk, speculative nature of these assets.