The rush to create meme tokens has created a Solana (SOL) sinkhole due to deposits that remain locked in failed launches. Pump.fun may still be holding more than 98% of all tokens at the bonding curve stage, along with their SOL deposits.
Solana (SOL) may have an unplanned tool to lock up its tokens – the Pump.fun bonding curve contracts. Only a small percentage of meme tokens graduate to Raydium, transferring all liquidity raised to the DEX.
Some memes end up as rug pulls, putting the SOL in the hands of token developers. But many tokens remain stuck, unable to fulfill the market cap required to leave the bonding curve. At that level, some trading is happening, including rug pulls.
However, some SOL remain at that level, attached to inactive, virtually unknown memes.
SOL flows into bonding curve contracts, decreasing free supply
Pump.fun has facilitated the creation of a total of 4,022,404 new tokens as of November 29, with tens of thousands more launched each day. For each token, some SOL is deposited until the project reaches the escape valuation to be added to Raydium. Pump.fun is still the main source of tokens generated on Solana, responsible for 70% of all assets, with the remaining 30% created by other projects and tools.
Based on a back-of-the envelope calculation, stalled bonding curves on Pump.fun may hold on average $3,471 per token. After live streams were disabled due to chaotic unmoderated content, Pump.fun tokens may face an even harder time with marketing to raise liquidity.
The SOL locked in bonding curve tokens may come from the creators, bots, and early traders trying to snipe the assets.
Another large portion of tokens are still traded within the bonding curve range, with minimal liquidity. In a potentially exaggerated estimation, they lock up more than 58M SOL out of a total supply of 474.8M tokens. Others have queried a more recent snapshot, coming up with a much lower number for locked SOL.
An alternative estimation reveals a bigger turnover of bonding curves. Even at the current active period, the real amount of SOL locked is 162,789 SOL.
I queried Solana currently sitting in Pump bonding curveSeems close to 162K SOLNote: This doesn't include graduated tokensKinda surprised with how low it was with over 60K tokens being launched everydayGoes to show the insane churn rate — Juve (@notjuve) November 28, 2024
One of the reasons is that the long tail of tokens has a much lower value, and the tokens that draw in the most SOL end up leaving Pump.fun trading very fast.
Even if SOL is harvested from those meme pairs, Pump.fun remains a sinkhole for tokens, which are not used in other parts of the ecosystem.
SOL effectively becomes deflationary and valuable, with no pressure to trade or sell for stablecoins. One concern is that SOL is produced at a close to 5% inflation rate from validator rewards. However, the SOL locked in DeFi and meme tokens help to offset that amount.
More than 23% of the total Solana supply comes from the planned inflation rate. Solana is more than 91% unlocked, and at that stage, the market price shows no significant selling pressures. The only question is whether the meme token run is sustainable both in terms of new launches and in subsequent trading for top tokens.
Raydium locks in peak value
While only a few tokens graduate to the Raydium DEX, the ones that reach that level have contributed to a new record in value locked.
On Raydium, liquidity pairs rose to more than $2.3B in value locked, in addition to the highly active daily turnover.
The entire value locked on Solana is now above $9B, based on both DEXs and lending protocols. Pump.fun is still far from that valuation, but it has certainly shown a significant turnover of SOL in the meme token trenches.
As of the end of November, Solana, Jito, and Raydium rank among the top 5 in fee production, far surpassing even Ethereum, which has plummeted to 20th position. High demand keeps SOL near its peak, trading at $240.55.
Bot activity on Solana increased significantly in the past two months. As of November 29, Solana carried 87% of all bot traffic, up from around 50% in early October.