Pump.fun uses a unique system to launch tokens, which indirectly reduces the amount of SOL in circulation and creates a deflationary effect in the Solana ecosystem.

List of contents

  • What is Pump.fun?

  • Token Launch Mechanism on Pump.fun

  • How is SOL Liquidity Locked?

  • Number of SOL Locked

  • How Does It Impact the Crypto Market?

What is Pump.fun?

Pump.fun is an automated token launch platform on the Solana network that allows anyone to create and trade tokens in a safe and transparent manner.

This system uses a bonding curve mechanism, where the token price increases as the number of buyers increases.

Token Launch Mechanism on Pump.fun

Pump.fun creates a fair and secure token launch mechanism according to them. Here is the mechanism:

  1. Someone launches a token. Anyone can choose a token name and launch it. There is no approval or selection process, so anyone can create a new token.

  2. Users buy tokens. When people buy tokens on Pump.fun, they use SOL as a means of payment. There is no presale or special allocation for the team.

  3. Token price increases. The price of a token increases as more people buy it.

  4. The token reaches a market cap of $100,000. If the total value of tokens in circulation reaches $100,000, the token is considered to have “graduated.”

  5. Some SOL is locked in the Raydium liquidity pool. $17,000 in SOL from the total funds raised is put into the Raydium liquidity pool.

  6. SOL is irrevocable – This fund ensures that the tokens remain tradable and cannot be taken back by the token creator, reducing the risk of fraud such as rug pulls.

How is SOL Liquidity Locked?

Every time a token graduates from Pump.fun, a portion of the SOL used to purchase the token is locked in a liquidity pool on Raydium.

  • Tokens that “graduated” from Pump.fun. Only tokens that reach 79 SOL market cap can enter Raydium.

  • $17,000 liquidity locked.  When the tokens successfully enter Raydium, $17,000 worth of liquidity is locked and cannot be withdrawn.

Number of SOL Locked

According to SolanaFloor, over 2.87 million SOL is currently locked in liquidity pools, with 1.38 million SOL no longer accessible.

  • Massive amount of inactive SOL: Over 74.6% of pools on Raydium have become inactive.

  • SOL deflationary effect: As more SOL is locked, the amount of SOL in circulation decreases. This could affect the long-term price of SOL. And if demand remains the same or increases, the price of SOL could increase as there is less SOL in circulation.

How Does It Impact the Crypto Market?

With SOL continuing to be locked up, there are several implications for the Solana market and crypto as a whole.

  • Rug pull risk reduction: With this mechanism, token liquidity cannot be withdrawn suddenly by developers.

  • Increased price stability: The more SOL locked, the more stable the price of tokens launched through Pump.fun.