The volatile nature of memcoins and their infrastructure has been on display recently with some big financial moves. The Solana-based project Pump.fun has changed the world of token creation, sometimes causing division among different users. Recently, Pump.fun announced that it would be burn $370 million worth of their native PUMP token.
This is estimated to represent around 36% of the current circulating supply and is believed to be an attempt to stabilize the project which has had difficulty with price discovery since the beginning. However, there is a major event happening this week that could cause negative momentum to build in relation to this major deflationary event.
Inside the burn and future revenue plans of $370 million
In cryptocurrencies, token burning is a common method where a project takes a large percentage of its total supply and sends it to a “dead” wallet, making those tokens permanently unusable. By reducing the amount of available supply by more than a third, Pump.fun aims to benefit the remaining holders.
However, this team plans to continue the ongoing commitment and has stated that 50% of the platform’s future revenue will be allocated to buybacks pump Icons and burn them. As of today, even as bear market conditions slow, the platform projects run rate revenue (RRR) of $400 million annually. If these predictions come to fruition, the platform’s continued buyback of PUMP tokens will create consistent buying pressure. This can help stabilize the price by acting as a safety net.
A looming $193 million supply shock
There is a lot of uncertainty in the market as a large number of tokens have been burned and the “unlock” event is approaching this week. Over $193.3 million of the PUMP token will be open for sale.
This represents a significant tradeoff between $370 million worth of tokens being burned versus nearly $200 million of new tokens to be minted and issued.
Currently, the value of the PUMP token is down 60% from its IPO price; Thus, the market is very concerned that new tokens will be released into the market simultaneously resulting in an oversupply of tokens resulting in a further drop in prices.
Shift towards revenue-based models
Pump.fun’s operating method is similar to other successful DeFi platforms that have used Burn and Earn style models. However, there are risks regarding how long meme industry trends will persist over time. Pump.fun is working hard to find new solutions to achieve its goal of 400 million RRR; They want to keep users engaged so they don’t get bored and try something else before reaching their goal.
This new focus on sustainability-based token economies to reach Pump.fun’s 400 million RRR goal reflects a growing movement in Web3 ecosystems, many of which have moved away from purely speculative token economies toward profit-sharing methodologies.
The importance of benefit and customer retention has also gained great importance in many other areas, not just projects oriented towards a symbolic launch. Liquidity management of Solana-based protocols has been found to affect their sustainability, especially in periods of high market volatility, according to an article published by Coindesk.
conclusion
Pump.fun burning more than a third of its token supply is a huge declaration of its commitment to the future of the PUMP token project. However, the massive $193 million that will be unlocked this week is a stark reminder of some of the challenges that high FDV (fully diluted valuation) tokens face.
While it remains uncertain whether the project’s massive revenues will be enough to create a buying wall against the coming supply shock, investors are watching closely. This week could either see the PUMP token return to its initial coin offering (ICO) price or create a new price floor driven by a supply shock.
