In-Depth Analysis of Pumpfun: Decoding the Mechanism of the Meme Coin Casino

Pumpfun is a meme coin issuance and trading platform built on the Solana blockchain, emphasizing fair token distribution.

Launched in January 2024, Pumpfun quickly gained massive popularity within the community, riding the meme coin wave or even driving the meme coin trend to a new phase.

Pumpfun's data is quite impressive, with over $200 million in total revenue. At peak times, Pumpfun's daily revenue has reached millions of dollars, surpassing Uniswap Labs to become the fourth largest protocol across all blockchain networks. @pumpdotfun
If trading meme coins is like gambling, then Pumpfun is the most profitable casino. Instead of betting, why not run the casino?

Pumpfun has become a phenomenon in this cycle, and studying and learning from its model is highly valuable.

01 Team Background

Pumpfun's team initially wasn't focused on launchpads. They first tried launching an NFT marketplace, but after several attempts, they shifted to their current model.

The team is based in Europe, and the founders are quite young. The CTO, for example, didn't attend university and only completed high school, but his technical skills are exceptional. Their youth and technical prowess allow them to approach problems from different angles, and their keen intuition for products is a key reason behind their success.

The success of Pumpfun highlights the power of innovation and persistence. Many people might have similar ideas, but only a few can turn those ideas into action and stick with them through the inevitable challenges.

This phenomenon isn’t unique to Web3; it’s a pattern that has emerged in various industries, including Web2. Many have ideas, but only a few will take the necessary steps to bring those ideas to life.

02 Operating Mechanism

Pumpfun emphasizes fair token issuance, without presales or team allocations. So how do they manage to achieve this?

Much like decentralized exchanges (DEX) use Automated Market Makers (AMMs) and liquidity pools to facilitate token trading, Pumpfun uses a Bonding Curve pricing model. Instead of relying on a liquidity pool, it uses a mathematical curve to determine price changes.

In simple terms, within the Bonding Curve model, the price of a token is directly proportional to its supply. The more tokens released, the higher the price will rise.

Tokens are gradually minted or "released" as users purchase them. The bonding curve means that as token supply increases, the price growth rate accelerates.

This results in the following:

1. Encouragement for early investors: Early buyers can acquire tokens at a lower price, and as the price rises quickly afterward, the value of their tokens increases significantly.
2. Leverage effect for later investors: Later buyers, due to the curve's nature, will see a more substantial price increase with the same investment, making the early phase seem more rewarding. This aligns with the characteristics of meme coins, unlike larger tokens where later investments don’t affect price much.

Of course, the price doesn’t rise without limit. Pumpfun has a mechanism in place: once the token reaches a certain market cap, it will automatically create a liquidity pool on a DEX, enabling trading there.

In other words, the token's fundraising phase uses the bonding curve model, which provides a price discovery mechanism for early stages. However, if left unchecked, the price could rise indefinitely due to speculation. By moving to a DEX and using an AMM, the platform introduces a natural market balance to prevent extreme price volatility.

When tokens are listed on a DEX, liquidity is introduced, creating a more stable trading environment and mitigating the price fluctuations that a single curve model might cause. When the market cap becomes significant, it ensures price stability and avoids extreme volatility.

03 The Overall Process

The overall process can be divided into two stages: the pre-listing fundraising stage and the post-listing trading stage.

1. Token Creation: Initially, users can create a token at a very low cost (0.02 SOL) with no technical background required. The creation process involves entering a token name, symbol, description, and an image.
2. Fundraising Phase: The token creator attracts users to purchase the token. Pumpfun uses a fixed total supply of 1 billion tokens, with an initial supply of 0. The "virtual market cap" starts at 30 SOL, and tokens are released based on user purchases.
3. Reaching the Listing Threshold: When the market cap reaches $100,000 (in SOL), or when the fundraising amount hits $17,000, the circulating supply will be 800 million tokens. At this point, Pumpfun will mint an additional 200 million tokens and create a trading pair on Raydium DEX, listing the token with a market cap of $69,000 and a total supply of 1 billion tokens.
4. Successful Listing: After listing on Raydium, the token’s price immediately jumps to 0.00000041 SOL per token, 14.64 times higher than the initial fundraising price. During this process, Pumpfun charges a 1% transaction fee during the fundraising phase and a 6 SOL listing fee when the token is added to Raydium.

04 Conclusion

Pumpfun’s team is highly innovative, and the project’s product mechanisms meet the market’s demand for meme coin issuance and speculation.

What sets Pumpfun apart is its live-streaming feature, which has helped it gain wider attention, blending meme coins with live streaming to create a "attention economy" explosion.

Pumpfun has become a phenomenon not only in the Crypto industry but is also gaining recognition outside of it.

Although meme coins are often seen as gambling and pure speculation, they may fulfill the most primal desires and needs of human nature.

Meme coins represent a unique aspect of crypto culture and decentralization.

The meme coin craze shows the market that blockchain technology is complex, and Web3 applications have high entry barriers, so why not let ordinary users join this grand casino, experience the thrill of trading, and satisfy their desire for quick wealth?

Meme coins are among the most primitive and pure forms of financial speculation, and Pumpfun caters to the demand for everyone to create and trade coins.

Price Curve Comparison: Pumpfun vs. Friend Tech

Both Pumpfun and Friend Tech share similarities in that the price slope increases rapidly as more tokens are purchased. In the early stages, the same amount of funds has a smaller impact on the price, but in the later stages, the same investment will cause a more significant price surge.

The difference, however, lies in the steepness of the price curve. Friend Tech has a steeper curve, which rises exponentially (due to the quadratic relationship in the mathematical formula). This means that users don’t need to buy much for the price to skyrocket (e.g., 100 people buying causes the token price to exceed 1 ETH). On the other hand, Pumpfun’s curve is more gradual at first, but steepens later. More importantly, once the token's market cap exceeds $100,000, Pumpfun automatically creates a liquidity pool on a DEX, allowing it to accommodate larger investments and higher trading volumes.

Therefore, Pumpfun’s token price model can be seen as an upgraded version of Friend Tech’s.

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