Article Source: Yue Xiaoyu
Author: Yue Xiaoyu
Pumpfun is a platform for the issuance and trading of meme coins on the Solana chain, emphasizing fair issuance.
Pumpfun was launched in January 2024 and quickly exploded in the community, riding the wave of meme coins, or rather, directly pushing the meme coin craze into a new stage.
The data from Pumpfun is quite impressive; it has accumulated over $200 million in revenue. During peak periods, Pump.fun's daily revenue can reach millions of dollars, once surpassing Uniswap Labs to become the fourth-largest protocol across all blockchain networks.
If trading meme coins is like gambling, then Pump is the most profitable casino. Participating in gambling is not as good as running a casino.
Pump is a phenomenal product in this cycle, making it very direct to study and learn from.
01 Team Background
Initially, the Pump team was not focused on being a launchpad; they originally created an NFT marketplace but shifted to their current direction after several attempts.
Pump is a European team; the founding members are very young, and their CTO didn't even go to college, with the highest education being high school, but their technical skills are very strong. Their youth and technical strength allow them to view problems differently and have keen intuition regarding products.
Therefore, the success of the Pump project hinges on the youth and innovative capability of their team. Many people have thought of this idea, but only the PUMPFUN team can truly bring it to fruition.
The road to success is not crowded because most people cannot persevere.
When you have an idea, there might be a thousand people in the world who have the same idea, but only a hundred can turn that idea into action and truly put it into practice, and only a few can persist in solving one difficulty after another.
Not just in Web3, but in Web2 industries and across various industry developments, there have been many such cases.
02 Operational Principles
Pump emphasizes fair issuance, with no pre-sale and no team allocation. So how is this achieved?
Like the automated market makers (AMM) used by decentralized exchanges (DEX), a liquidity pool needs to be created with initial liquidity injected. However, the bonding curve pricing model used by Pump.fun directly uses a function curve to implement price changes.
Simply put, in the bonding curve pricing model, there is a positive correlation and exponential rise relationship between token price and token quantity; the higher the token price, the more tokens are released.
In other words, tokens will gradually enter circulation based on purchases. As users buy tokens, they will be 'minted' or 'released'.
The bonding curve function will cause the rate of price increase to accelerate with the increase in token supply.
This allows for a slower rise in token price during early purchases, but the later the purchase, the same amount of funds can raise prices more.
In the early purchasing phase, since the number of circulating tokens is relatively small, each purchase has a relatively small impact on price. In other words, the magnitude of price increase will not be too large.
When the number of tokens has reached a considerable base in the market, the same amount of funds (SOL or other currencies) can purchase fewer tokens, but due to the characteristics of the price function, these purchasing behaviors will lead to a more significant price increase.
What results will such function characteristics bring?
First, it can encourage early investment. Early buyers can acquire tokens at a lower price, and as prices rise rapidly, the value of the tokens they hold will increase significantly.
Secondly, later-stage investments have a leverage effect. In the later stages, the same amount of investment can have a greater impact on price due to the characteristics of the price curve, which provides stronger incentives for later entrants and aligns more with the characteristics of meme coins. Unlike some large-cap tokens, where investment amounts in later stages have little impact on price, leading to a lack of participation.
Of course, the rise in price is not limitless; Pump's setting is that when a certain market cap is reached, a liquidity pool will be automatically constructed in DEX, and trading will be moved to DEX.
In other words, the fundraising phase of issuing tokens on Pump uses a bonding curve function, which provides a price discovery mechanism for the early stages of the token.
However, without external intervention, prices could rise indefinitely due to excessive speculation. By moving to DEX and using AMM (automated market makers), a natural balancing mechanism can be introduced to avoid excessive price fluctuations.
Building a liquidity pool on DEX can provide a stable trading environment for tokens, alleviating extreme price fluctuations that may arise from a single curve model to some extent.
When the market cap of a token is relatively large, a trading mechanism that can maintain price stability is necessary, providing better market liquidity depth to avoid extreme price fluctuations.
03 Overall Process
The overall process can be divided into two phases: the fundraising phase before listing and the trading phase after listing.
Creating a token: First, users can issue a coin with one click, creating a token at a very low cost (0.02 SOL) without needing a technical background. The creation process only requires entering the token's name, symbol, description, and an image.
Fundraising phase: Creators attract other users to purchase tokens. All token models on pump.fun are the same, with a total supply fixed at 1 billion, an initial circulation of 0, and an initial 'virtual market cap' set at 30 $SOL, releasing tokens through user purchasing behavior.
Reaching the listing threshold: When the market cap reaches $100,000 (in SOL), which means the fundraising amount reaches $17,000, the circulating supply of the token will be 800 million, and Pumpfun will mint an additional 200 million tokens, forming a trading pair added to the decentralized exchange Raydium, ultimately launching a decentralized issued Memecoin with a market cap of $69,000 and a total supply of 1 billion.
Successful listing: Upon listing on Raydium, the price per token at the moment of fundraising completion is $0.00000041 $SOL, 14.64 times the initial virtual pool price. Throughout the process, Pumpfun will charge a 1% transaction fee during the fundraising phase and a 6 SOL listing fee when tokens go live on Raydium.
04 Highlight Features: Live Streaming
Recently, Pump's live streaming function has exploded in popularity. I browsed around and was simply shocked. There are those doing erotic live streaming, some locking up their grandmothers until a certain market cap is reached, and others who sit on the toilet to hype things up—it's truly extreme.
When it comes to live streaming trading, I initially thought of someone live streaming their specific trading operations, but I didn’t expect it to become various abstract attention-grabbing activities, similar to live-streaming sales.
Attention is a scarce resource.
Meme coins themselves are a tool for attracting attention.
Attracting people's attention through humor and elements of popular culture.
Live streaming further amplifies this attraction through real-time interaction, making the audience more willing to participate and pay attention.
Simply put, Meme tokens inherently carry entertainment properties, and live streaming further amplifies this entertainment. Users can participate in a market similar to a game through live streaming, both entertaining and engaging.
More importantly, the model of 'Meme coins + live streaming = attention economy' has created a new type of economic model in the cryptocurrency ecosystem.
Through this combination, Meme coin creators can quickly accumulate a large following, and live streaming provides direct opportunities to interact with the community, transforming this attention into investment and trading in Meme coins.
Live streaming provides instant promotion and real-time marketing opportunities for Meme coins. Creators can interact directly with users, sharing the token's concepts, market analysis, or real-time trading activities.
The live streaming function of Pump is not just a technical innovation; it changes the way Meme tokens are marketed, making their issuance and trading more social and entertaining.
This not only increases user stickiness but also provides a platform for creators who wish to promote Meme tokens through social media influence.
Everything has two sides.
In the live streaming of the Web2 industry, various streamers are also trying various ways to attract attention, ultimately profiting through tips or sales.
In the live streaming of Pump in the Web3 industry, due to the platform's weak regulation and proximity to money, streamers can directly issue and trade coins, which may catalyze more abstract and unconstrained behaviors.
Typically, it will get involved with adult entertainment, gambling, and drugs, because these involve human nature.
For example, there are already many erotic streamers.
It must be said that the adult industry has a very keen sense of smell, often being the first to adopt innovative technologies, such as quickly producing AI-generated adult videos after AI became popular, swapping celebrities' faces onto adult videos, satisfying many people's sordid fantasies.
Pump's live streaming function has indeed achieved significant results in attracting attention and increasing user participation, but the lack of a certain review mechanism may turn the platform into a breeding ground for unhealthy content, ultimately backfiring on the platform itself.
Not all traffic is valuable; some are toxic traffic.
Currently, Pump is condoning the proliferation of these harmful contents. Although it can help the platform achieve explosive popularity in the early stages, if not restricted later, it may lead to more malicious negative events, prompting regulatory intervention.
Thus, Pump needs to find a balance between attracting user attention and maintaining a healthy, compliant platform ecosystem.
05 Summary
The Pump team is very product-oriented, and Pump is very innovative in product mechanism design, meeting the market's demand for the issuance and speculation of meme coins.
More importantly, Pump's live streaming function has further propelled its popularity, meme coins + live streaming = explosive attention economy.
Pump is no longer just a phenomenal product in the crypto industry; it is continuously gaining popularity.
Although meme coins are gambling and pure speculation, they may also cater to the most primitive desires and needs of human nature.
Meme coins are also a unique embodiment of crypto culture and decentralized culture.
The craze for Meme coins essentially tells the market: blockchain technology is so complex and Web3 applications have such high entry barriers, so ordinary users should come to this big casino to experience the thrill of trading and satisfy their desire for quick wealth.
Meme coins are the most primitive and purest form of financial schemes, and Pump meets the need for everyone to issue and trade coins.
