The Solana-based token launch platform Pumpfun is developing its own automated market maker (AMM), which could transform the memecoin market landscape.
The Significance of Pumpfun’s New AMM
An automated market maker (AMM) allows users to trade cryptocurrencies directly against liquidity pools rather than traditional order books. Currently, memecoins on Pumpfun that gain traction move to Raydium. However, with an in-house AMM, Pumpfun could retain liquidity within its own ecosystem, capture more trading fees, and introduce new financial products such as memecoin perpetuals and lending.
Risks for Raydium’s Business
If Pumpfun fully integrates its AMM, it could reduce the need for new tokens to graduate to Raydium, allowing the platform to control its liquidity pools and extract higher fees. This could significantly impact Raydium's trading volume, with estimates suggesting a 30-50% decline. This fear has already hit Raydium's token price, which dropped by 30%. Analysts suggest Pumpfun could charge higher fees, potentially doubling its revenue. Gabriel Tramble, founder of Shoal Research, notes that 'traders are accustomed to paying high fees,' reducing resistance.
New Features or New Risks?
Pumpfun's AMM could introduce features such as memecoin perpetuals and lending pools but also present new risks. These include potential smart contract exploits, regulatory scrutiny, and trust issues, given Pumpfun's recent link to the $1.4 billion Bybit hack. Traders could face challenges to funds’ security and liquidity stability.
Development of an AMM on Pumpfun's platform could significantly alter trading conditions for memecoins on Solana, creating both opportunities and challenges for existing platforms like Raydium.
