How did the practice of public chain pump and lock liquidity, represented by pumpfun, form a conspiracy of volume and liquidity? How should retail investors and project parties understand and judge this?
Yesterday, the $APE FOMO effect triggered a wave of public chain pumpfun craze, which made me think a lot. After re-reading the theory of Professor @thecryptoskanda, I used my own words to understand the current situation of pump frenzy across various chains. Here are my three personal understandings of this phenomenon:
1/ The native token must be in an upward trend
First, I think the most important point is that, in fact, before $APE, many public chains or Layer2s have already tried similar products with pumpfun @pumpdotfun nature, but except for $SUI, most of them were short-lived.
As for the reason?
Many people's understanding is, in my view, a reversal of cause and effect. It's not because pumpfun-like products are so popular and have locked up liquidity that they can pump the price, but rather because the coin price has already risen, and when it hits a bottleneck and can't be pulled up anymore, they need the chain's ecological effect to assist in driving up the price and locking up liquidity.
Therefore:
- For retail investors, to judge whether there is a market on the chain, it is best to first observe whether the main token of the chain is in an upward trend, whether there are opportunities for altcoins on the CEX, based on this capital trend, which can drive the spillover effect on the chain and create a wealth effect, rather than all public chains launching a pumpfun can pump the price.
- For public chain project parties, if they want to achieve a win-win situation of liquidity and volume through pumpfun-like products, they may still need to have the hardware conditions driven by capital before they can easily go with the flow. The pumpfun product alone is unlikely to pump the coin price, and capital hardware is the core.
In addition, for Layer2s like Linea that use $ETH as the native token on the chain, or new public chains that have not yet issued tokens, if the official does not get involved, the meaning for the project parties to do pumpfun and for retail investors to speculate on their chain pumpfun is not so great, because there is no large capital driving the prosperity of the chain ecology.
Of course, there may also be expectations - the single-digit 5U bought by the shearing studio will create a grand scene, and the million-strong shearing army is a buying pressure of 5M USD. Although it has a bit of a joking element, the MEME token ecosystems of ZKsync @zksync and Starknet @Starknet are probably formed in this way in my understanding, and after the token issuance, the capital flow out of the cat-shearing, the MEME on the chain has never risen again. To some extent, there may still be some small meat to eat, but the order of magnitude of the opportunity may not be so great 🤣
2/ Strong market capability, understanding of hot spots
On the basis of the above capital drive, for the chain ecology to really take off, it also depends on the market capability. This is not only limited to the ability of public chain ecosystem projects to understand MEME, but also tests the ability of the public chain itself to connect with whales and KOLs for distribution.
Most public chain project parties can actually understand the needs of KOLs and whales, but often due to different language systems, lack of communication bridges, and not knowing what is happening in the market, their reactions are lagging behind, and it may often be because there are no degen in the team. Everyone wants to ride the tailwind and be a free rider like @MustStopMurad. Therefore, whether for retail investors or project parties, the most frontline demand is to grasp the hot spots, and the content that is out of date or not on the hot spot, even if someone is willing to shill, it is difficult to be effective.
Specifically, it is the right time, place and people -
- Timing: Project parties need to take action when the market is good, and choose the timing and trend of hot spots.
- Location: The public chain's native token chip structure is good, and it can seize the opportunity of the upward trend in price.
- People: The team's BD capability is strong, able to maintain good relations with the community and KOLs, and willing to let external collaborators profit to complete a conspiracy.
A positive example is this time's APE @ape_express_ & @apecoin
- In terms of timing, it coincided with Apefest, and communicated with the community and whales (I'm not a holder, just heard about it), and launched it after the Solana AI hot spot had been played for a few days and everyone felt a bit tired;
- In terms of location, APE has been washed for a long time and is close to full circulation, with a relatively low market cap and low resistance to pulling up, and there are also short-selling arbitrageurs as fuel;
- In terms of people, the Yuga community has a lot of rich people, and it is well known that the holders left now are still capricious diamond hands, and there are various big KOLs who still have nostalgic feelings for the apes and are willing to rush in.
As for the negative examples, I won't go into them, such as the Pandora project that cooled down by half before they thought of launching the Altcoin 404, and the Launchpad that cooled down before they thought of making a launch pad... These were evaluated by the group members as: "eating the exhaust gas".
3/ It's best to have a head effect
When there is a head effect, hot money will be more concentrated, and this point does not need to be argued directly. Let's give a few examples of situations without a head effect. Recently, the AAA crash on SUI has dragged down various on-chain memes, and in the past, the FT head key collection has led to the withdrawal of all players.
The on-chain ecosystem without a head effect is like a pile of loose sand, scattered by the wind.
I think ApeCoin didn't do very well in this regard. The momentum of the original dragon $Curtis 30M was not stabilized, and many of the big Vs of BAYC did not actually hold the position of the dragon, so they each started their own Tokens, without concentrating their firepower on the leader. From this situation, I guess the creation of the dragon may also be an accidental creation of retail investors, and 30M is a threshold in the market value of retail investors' FOMO Tokens. It's possible that the Foundation itself was not well prepared or did not have this awareness.
By the way, when I saw a bunch of new small memes posted by various celebrities at night, especially after another retail investor was completely not on the car with the high control panel Bored, I immediately withdrew. As for the next battlefield, is it SUI? Is it FTM? We'll have to see.
Solana has done a good job in capital clustering and head effect, and can always have a hot spot Token to lead the narrative every period. The hotter the hot spot, the more hot money will gather on the chain, the more prosperous the ecosystem, and the greater the voice.
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Finally, what's the use of these three theoretical points? Suggestions from two perspectives:
- For retail investors, when should they take profits? If you find that your Token has broken the upward trend, don't cling to it, go to the next battlefield immediately. This is the current state of liquidity, as long as you run slower, the feast may end up being you who pays the bill, otherwise you may find something that can cross the small cycle and hold it, which may be even more difficult than PVP.
Relying on diamond hands to get rich, and relying on running fast to protect the principal, but both are risk reward. This is not me encouraging PVP, but the reality is like this, the version rhythm is too fast. This is a prisoner's dilemma - the current situation of the retail investor PVP liquidity seesaw.
- For project parties, although the principles of one, two and three are simple, it is extremely difficult to make everyone cheer and have a full house. The team itself needs to be able to share benefits with external collaborators, give benefits to the community and retail investors, in order to complete a decent conspiracy and exciting game.
The perfect combination of timing, geography and human resources requires the project team to have strong comprehensive strength. If the hard power such as capital and chip structure is insufficient, it can only be supplemented by soft power, which is the market capability. How to do it? Rely more on the instinct of degen and head trader, and enhance the team's BD ability to get close to the ground, so that there is a greater chance of success in starting a business with more alignments.
I've talked a bit about the technique and the Tao, without any investment advice, just my personal bias, for your reference.
