In-depth analysis of Pump.fun: Decoding the operating mechanism of the meme coin casino

Source: Yue Xiaoyu

Pumpfun is a Solana-chain meme coin issuance and trading platform, focusing on fair issuance.

Pumpfun was launched in January 2024. After its launch, it quickly became popular in the community, catching up with the meme coin craze, or directly pushing the meme coin craze into a new stage.

Pumpfun's data can be said to be very impressive. It has accumulated more than 200 million US dollars in revenue. In some peak periods, Pump.fun's daily revenue can reach millions of dollars, surpassing Uniswap Labs at one time and becoming the fourth largest protocol among all blockchain networks.

If speculating on meme coins is like gambling, then pump is the most profitable casino. It is better to open a casino than to participate in gambling.

Pump is a phenomenal product in this cycle, so it is very direct to study and learn.

01 Team Background

The pump team did not actually start out as a launchpad, but initially worked on an NFT marketplace, but only after several attempts did they turn to their current direction.

Pump is a European team whose founding members are all very young. Their CTO did not even go to college, and his highest level of education is middle school, but he is very technically proficient. Their youth and technical prowess allow them to look at problems in different ways, and their intuition about products is also very keen.

Therefore, the key to the success of the pump project lies in the youth and innovation of their team. In fact, many people have thought of this idea, but only the PUMPFUN team can really make it happen.

The road to success is not crowded, because most people cannot stick to it.

When you have an idea, there may be a thousand people in the world who already have this idea, but only a hundred people can turn the idea into action and really put it into practice, and only a few people can continue to do it and solve one difficulty after another.

Not only Web3, but also in the Web2 industry and in the development of various industries, there are already many such cases.

02 Operation Principle

Pump focuses on fair issuance, without pre-sale and team allocation, so how is it achieved?

Like the automated market maker (AMM) used by decentralized exchanges (DEX), it is also necessary to create a liquidity pool and inject initial liquidity, but the joint curve pricing model (Bonding Curve) used by Pump.fun directly uses the function curve to realize price changes.

Simply put, in the joint curve pricing model, the token price and the number of tokens have a positively correlated exponential upward relationship. The higher the token price, the more tokens are released.

That is to say, tokens will gradually enter circulation according to purchases. As users purchase tokens, tokens will be "minted" or "released".

The joint curve function will make the price increase faster as the supply of tokens increases.

Because this can achieve early purchases, the token price does not rise quickly, but the later the purchase, the more the same amount of funds can raise the price.

In the early purchase stage, due to the relatively small number of tokens in circulation, the impact of each purchase on the price is relatively small. In other words, the price increase will not be too large.

When the number of tokens in the market has a considerable base, the number of tokens that can be purchased with the same amount of funds (SOL or other currencies) will decrease, but due to the characteristics of the price function, these purchases will lead to a more significant increase in prices.

What results will such a function characteristic bring?

First, it can encourage early investment. Early buyers can obtain tokens at a lower price, and then as the price rises rapidly, the value of the tokens they hold will increase significantly.

Second, late-stage investment has a leverage effect. In the later stage, the same investment amount will have a greater impact on the price due to the characteristics of the price curve, which will have a stronger incentive effect for late entrants and is more in line with the characteristics of meme coins. Unlike some large-cap tokens, when the funds invested in the later stage are relatively small, it will not have any impact on the price, which means there is no sense of participation.

Of course, the price increase is not without an upper limit. The setting of the pump is: When a certain market value is reached, a liquidity pool will be automatically built in the DEX and transferred to the DEX for trading.

That is, the fundraising stage of issuing tokens on pump uses the joint curve function, which provides a price discovery mechanism for the early stage of tokens.

However, without external intervention, prices may rise indefinitely due to excessive speculation. By transferring to DEX and using AMM (automatic market maker), the natural balance mechanism of the market can be introduced to avoid excessive price fluctuations.

Building a liquidity pool on DEX can provide a stable trading environment for tokens, and to a certain extent alleviate the extreme price fluctuations that may be caused by a single curve model.

When the market value of a token is relatively large, a trading mechanism that can maintain price stability is required, and the market liquidity depth is better to avoid very drastic price fluctuations.

03 Overall process

The overall process can be divided into two stages: the fundraising stage before listing and the trading stage after listing.

(1) Create tokens:First, users can issue tokens with one click. Users can create a token at a very low cost (0.02 SOL) without the need for technical background. The creation process only requires entering the token name, code, introduction and a picture.

(2) Fundraising stage:The creator attracts other users to buy tokens. All token models on pump.fun are the same, with a total constant of 1 billion, an initial circulation of 0, and an initial "virtual market value" set at 30 $SOL. Tokens are released through user purchases.

(3) Reaching the listing threshold:When the market value reaches $100,000 (in SOL), that is, the fundraising amount reaches $17,000, the circulation of tokens is 800 million, and Pumpfun mints another 200 million tokens, which are combined to form a trading pair and added to the decentralized exchange Raydium. Finally, a decentralized Memecoin with a market value of $69,000 and a total token amount of 1 billion is launched.

(4) Successful listing: The price of each token on Raydium, i.e. the moment the fundraising was completed, was 0.00000041 $SOL, 14.64 times higher than the initial virtual pool price. During the entire process, Pumpfun will charge a 1% transaction fee during the fundraising phase, and a 6SOL listing fee when the token is listed on Raydium.

04 Highlight function: live broadcast

Recently, the live broadcast function of pump has become very popular. I browsed around and was shocked. Some people were doing pornographic live broadcasts, some locked up their grandmothers until they reached a certain market value before releasing them, and some kept squatting on the toilet to hype. They were really using every possible means.

When it comes to live-streaming cryptocurrency trading, the first thing that comes to my mind is that someone live-streamed how they traded cryptocurrency, but I didn't expect that it has now become a variety of abstract ways to attract attention, like live-streaming with goods.

Attention is a scarce resource.

Meme coins are themselves a tool for attracting attention,

attracting people's attention through humor and pop culture elements.

Live streaming further amplifies this attraction through real-time interaction, making the audience more willing to participate and pay attention.

Simply put, Meme tokens are inherently entertaining, and live streaming further amplifies this entertainment. Users can participate in a market similar to a game through live streaming, which is both entertaining and participatory.

More importantly, the model of "Meme coins + live streaming = attention economy" has created a new economic model in the cryptocurrency ecosystem.

Through this combination, Meme coin creators can quickly accumulate a large amount of attention, and live broadcasting provides an opportunity to directly interact with the community, thereby converting this attention into investment and trading in Meme coins.

Live broadcasting provides Meme coins with the opportunity for instant promotion and real-time marketing. Creators can communicate directly with users to share the concept of tokens, market analysis or real-time trading activities.

Pump's live broadcast function is not only a technical innovation, it changes the market dissemination method of Meme tokens, making the issuance and trading of tokens more social and entertaining.

This not only increases user stickiness, but also provides a platform for creators who want to promote Meme tokens through social media influence.

Everything has its pros and cons.

In the live broadcast of the Web2 industry, various anchors are also trying to attract attention in various ways, and finally make profits through rewards or bringing goods.

In the live broadcast of pump in the Web3 industry, because the platform's control is very weak and it is closer to money, the anchors can directly issue and speculate on coins, which may catalyze more abstract and bottom-line behaviors.

Typically, they will be involved in pornography, gambling and drugs, because behind pornography, gambling and drugs is human nature.

For example, there are already many pornographic anchors.

It has to be said that the pornography industry is actually very sensitive. It is often the fastest to use innovative technologies in some pornography industries. For example, after AI became popular, AI face-changing pornographic videos soon appeared, and the faces of celebrities were replaced in pornographic videos, satisfying the dirty fantasies of many people.

The live broadcast function of pump has indeed achieved remarkable results in attracting attention and increasing user participation, but the lack of a certain review mechanism will cause the platform to become a hotbed of unhealthy content, and eventually backfire on the platform itself.

Not all traffic is valuable, some is toxic traffic.

At present, pump is condoning the proliferation of these bad contents. Although it can help the platform to achieve the effect of bursting out of the circle in the early stage, if it is not restricted later, it may lead to more vicious negative events, and supervision may have to intervene.

Therefore, pump needs to find a balance between attracting user attention and maintaining a healthy and compliant platform ecology.

05 Summary

The pump team is very product-oriented, and pump is very innovative in product mechanism design, which meets the market's demand for meme coin issuance and hype.

More importantly, pump's live broadcast function further promotes its popularity. Meme coin + live broadcast = attention economy explosion.

Pump is no longer just a phenomenal product in the Crypto industry, and is constantly bursting out of the circle.

Although meme coins are gambling and pure hype, it may also conform to the most primitive desires and needs of human nature.

Meme coin is also a unique embodiment of encryption culture and decentralized culture.

The craze of Meme coin actually tells the market: blockchain technology is so complicated and the threshold of Web3 application is so high, so ordinary users should come to this big casino to experience the pleasure of trading and satisfy their desire to get rich quickly.

Meme coin is the most primitive and purest capital plate, and Pump meets the needs of everyone to issue coins and everyone can speculate on coins.