Liquidity pool
Liquidity pool is a smart contract holding reserves of two tokens that traders swap against, with prices set by a formula rather than an order book; on Solana, memecoins trade mainly in pools on Raydium, Meteora and PumpSwap.[1][4] Depositors receive LP tokens representing their share of the pool.[1]
How it works[edit]
Constant product
Raydium's AMM v4 and CPMM pools use the constant-product rule x · y = k: a trade must leave the product of the two reserves at least as large as before. The liquidity providers' share of fees stays in the reserves, so k grows over time.[1] The first deposit mints LP tokens equal to the square root of the two amounts, and a small amount is burned to prevent a first-depositor attack; later deposits mint LP tokens pro rata.[1] A sale large relative to the pool moves the price sharply and suffers heavy slippage, so a paper gain in a thin memecoin pool may not be realisable.[2]
Concentrated and one-sided liquidity
Meteora's DLMM pools place liquidity in discrete price bins, each a single price; swaps within the active bin trade at a fixed price and move to the next bin once it is used up. DLMM accepts single-sided deposits of only one token, offers fees that rise with volatility, and is pitched for launch markets.[5]
Launchpads[edit]
On pump.fun, a token's liquidity moves from its Bonding curve into a PumpSwap pool when the curve completes, and the LP tokens received are burned.[3] PumpSwap, launched on 20 March 2025, is a constant-product AMM charging 0.25% per trade, of which 0.2% goes to liquidity providers; graduates previously migrated to Raydium on reaching a $69,000 market cap, for a 6 SOL fee.[4]
LP burns and locks[edit]
Whoever holds a pool's LP tokens can withdraw its reserves, so creators who seeded a pool can remove it in a Rug pull. Burning the LP tokens makes the liquidity permanent, as pump.fun does on migration.[3] In March 2024 the developer of Slerf said he had accidentally burned both the LP tokens and the tokens set aside for the presale airdrop, after raising about $10 million in presale funds.[6]
One-sided pools[edit]
- Libra: a class action filed on 17 March 2025 alleges that Kelsier Ventures, KIP Protocol and Meteora used a "predatory" one-sided liquidity pool to inflate LIBRA's price, and that insiders drained about $107 million from its pools; Argentine President Javier Milei is mentioned but not a defendant.[7]
- Melania Meme: Bubblemaps said in April 2025 that Hayden Davis had covertly sold MELANIA through single-sided liquidity, the tactic it said he used with LIBRA, and that about $30 million of tokens were moved out of community funds; neither Davis nor the team explained the transfers.[8]
Timeline[edit]
- 2024-03: Slerf developer says he burned the LP tokens by mistake[6]
- 2025-03-17: LIBRA class action filed in New York[7]
- 2025-03-20: PumpSwap launches[4]
- 2025-04-07: Bubblemaps reports $30 million MELANIA transfers[8]
See also[edit]
References[edit]
- ^ Constant product, Raydium documentation, n.d.
- ^ PEPE Holder Turns $250 into $1M in Four Days. But Can They Sell It?, Decrypt, 2023-04-19
- ^ Pump program README, pump.fun (GitHub), n.d.
- ^ Pump.fun launches DEX called PumpSwap to instantly migrate graduated tokens, The Block, 2025-03-20
- ^ What is DLMM?, Meteora documentation, n.d.
- ^ Solana Meme Coin Slerf Racks Up $2 Billion in Volume Despite Dev Burning Presale Funds, Decrypt, 2024-03-18
- ^ LIBRA memecoin orchestrators named as defendants in US class-action suit, Cointelegraph, 2025-03-18
- ^ Melania Trump memecoin team sold $30 million: Bubblemaps, Cointelegraph, 2025-04-09