PumpFun Completes the Swap Puzzle, The Outline of the First Major Encryption dApp Emerges

Author: Spirit, Golden Finance

Abstract

PumpFun has rapidly emerged as a leading meme coin issuance platform on the Solana blockchain, and its latest decentralized exchange (DEX) PumpSwap marks an important milestone in its development journey. PumpSwap aims to solidify PumpFun's position in the meme coin space by providing a seamless trading experience and innovative incentive mechanisms, and it is expected to have a profound impact on the Solana ecosystem, the meme coin market, and the broader DEX industry. The following analysis examines the technical design of PumpSwap, its potential impact, future prospects, revenue models, and its historical collaborations with major DEXs, placing it within the developmental trends of Web3 crypto applications. Overall, PumpSwap has the potential to become a leading dApp in the Web3 space, but its success will depend on its execution capabilities, market competition, and its ability to attract a broader user base beyond the meme coin sector.

I. The Rise of PumpFun and the Birth of PumpSwap

Since its establishment in January 2024, PumpFun has quickly become the center for meme coin issuance on the Solana blockchain. The platform has captured the market demand for sentiment-based token issuance by allowing users to create tokens instantly and for free. As of January 2025, over 5.5 million meme coins have been created on PumpFun, demonstrating the platform's dominance in the Solana ecosystem and the immense interest from users in meme coins. PumpFun's rapid growth highlights the strong demand for creating and trading meme coins within the Solana ecosystem. The launch of millions of meme coins and the platform being described by some metrics as one of the fastest-growing crypto applications ever indicate the significant market potential for such platforms on Solana.

To further solidify its position and enhance the functionality of its ecosystem, PumpFun has launched its native DEX – PumpSwap. Behind this move is PumpFun's strategic consideration of wanting to retain transaction volume and revenue within its ecosystem, especially in the light of the recent decline in platform fees. Multiple reports have pointed to a decline in PumpFun's revenue, suggesting that the platform needs to seek to diversify or strengthen its revenue streams. The launch of a native DEX enabled PumpFun to capture transaction fees that had previously flowed to other platforms such as Raydium.

Prior to the launch of PumpSwap, the tokens that completed their union curves on PumpFun relied primarily on Raydium for trading and providing liquidity. However, there are some frictions associated with this migration process, such as the need to pay a 6 SOL migration fee, and it slows down the token's trading momentum, creating unnecessary complexity for new users. Removing the migration fee for 6 SOL and introducing an instant migration feature addresses an important pain point for users and potentially improves the user experience. Multiple sources highlighted the previous 6 SOL fee for migrating to Raydium and the delays caused by the migration process as factors hindering the user experience. PumpSwap's instant free migration directly solves these problems and has the potential to improve user satisfaction and platform stickiness.

The core of PumpSwap is a constant product automated market maker (AMM), which operates similarly to Uniswap V2 and Raydium V4. This design allows users to trade tokens and provide liquidity in a decentralized manner.

**2.**PumpSwap: Technical Design and Function Analysis

The architecture of PumpSwap is based on the classic constant product AMM model. In this model, the product of the quantities of two assets in the liquidity pool (for example, SOL and a meme coin) remains constant (x*y=k). This means that when one asset is traded, the price of the other asset adjusts accordingly, enabling decentralized price discovery. Users can freely create liquidity pools and add liquidity to existing pools, facilitating decentralized trading of all listed tokens on the platform.

The trading fee structure of PumpSwap charges a fee of 0.25% for each transaction, of which 0.20% is allocated to liquidity providers and 0.05% belongs to the protocol. This fee structure is competitive compared to other DEXs on Solana and has the potential to attract existing PumpFun users as well as new traders. A trading fee of 0.25% is typical within the DEX space. Allocating the majority of the fees (0.20%) to liquidity providers can incentivize them to provide liquidity on PumpSwap, which is crucial for the success of the DEX.

A key feature of PumpSwap is the provision of instant and free migration for tokens completing their joint curve on PumpFun. This eliminates the previous migration fee of 6 SOL, significantly lowering the entry barrier for new projects and simplifying the trading process for users. In addition, PumpSwap also plans to launch an innovative creator revenue-sharing model. According to this model, a portion of the protocol's revenue will be allocated to token creators. This mechanism aims to incentivize higher quality token issuance and strengthen the connection between creators and their communities. By rewarding creators based on the trading activity of their tokens, PumpFun links the incentives of creators to the long-term success of the project, potentially fostering a more sustainable and active community.

PumpFun places a high emphasis on security during the development of PumpSwap and has conducted nine independent security audits. In addition, the platform plans to open-source the PumpSwap program in the long term to further enhance transparency and security. In the high-risk environment of meme coin trading, showcasing a commitment to security through multiple audits can boost user confidence and attract more cautious participants. The open-source code further improves transparency and allows the community to review and contribute to the platform's security.

3.Impact on the Solana Ecosystem: Reshaping theMeme****Landscape

The launch of PumpSwap is expected to significantly increase the trading volume on the Solana blockchain. By facilitating token trading within its ecosystem, PumpSwap aims to concentrate a large amount of Meme coin trading volume on Solana. Previously, tokens issued on PumpFun would migrate to other DEXs (mainly Raydium) for secondary market trading. With PumpSwap, this portion of trading volume will now remain in the PumpFun ecosystem. The simplified trading process of PumpSwap, along with the potential revenue-sharing mechanism for creators, may attract more users to participate in Meme coin trading on Solana, thereby boosting user activity on Solana. The convenient migration process and the incentives from the creator revenue-sharing mechanism may lower the barriers for new users to engage in Meme coin trading, thus increasing the total number of active users on the Solana network.

However, the launch of PumpSwap also poses a challenge to existing DEXs, especially Raydium. Since PumpFun has been an important source of trading volume for Raydium, the emergence of PumpSwap as a competitor may lead to a significant decline in Raydium's trading volume, resulting in a redistribution of DEX market share on Solana. Raydium seems to have recognized this threat and has announced the launch of its own meme coin issuance platform, LaunchLab, as a direct response to PumpFun.

The increasingly fierce competition between PumpFun and Raydium may drive further innovation and development in the Solana Meme coin ecosystem, ultimately benefiting all users. The direct competition between the two major players could prompt both platforms to launch new features and improvements to attract and retain users, thereby creating a more vibrant and competitive market.

With the launch of PumpSwap, Solana is expected to further solidify its position as one of the main hubs for meme coin trading. **PumpFun already accounts for 70% of Solana token issuance and 56% of DEX trading volume. The launch of PumpSwap is likely to further strengthen this position by creating a more self-sufficient ecosystem for the creation and trading of meme coins on Solana. **

**IV.**Mastering the Meme Market: Efficiency Improvement or Increased Volatility?

PumpSwap has the potential to improve the trading efficiency of Meme coins through instant migration and reduced fees. The streamlined process on PumpSwap can accelerate the price discovery and trading speed of newly issued Meme coins. The removal of migration delays and lower fees reduce friction in the trading process, enabling users to respond more quickly to market trends, potentially leading to more effective price adjustments. The user-friendliness of PumpSwap, along with the potential creator reward mechanism, may attract more users to the Meme coin market. The user-friendly interface and the prospect of directly supporting creators could engage a broader audience in Meme coin trading on PumpSwap.

Creator revenue share may incentivize creators to build more sustainable projects and foster more active communities, potentially reducing the occurrence of "pump-and-dump" scams. By providing creators with a continuous revenue stream based on their token trading activity, PumpFun incentivizes them to focus on long-term community building and project development, not just short-term gains. However, even with a more efficient platform, the inherent risks and volatility associated with meme coin trading remain. **It is worth noting that the tokens issued on PumpFun have a high failure rate. Although there may be some efficiency gains, the meme coin market is likely to remain highly speculative and volatile. Meme coins are often driven by hype and sentiment in nature, which means that even with more efficient trading platforms, large price swings and project failures can continue to occur. **

V.** The Impact of PumpSwap on the DEX Industry**

PumpSwap has the potential to disrupt the existing DEX landscape by providing unique integration with popular issuance platforms. Compared to independent DEXs, PumpSwap has significant advantages in initial liquidity and user base due to its direct integration with PumpFun. By automatically listing tokens that graduate from its issuance platform, PumpSwap benefits from built-in channels for new assets and users, giving it a competitive edge in DEXs that need to independently attract projects and liquidity.

PumpSwap showcases its cross-chain ambitions through collaborations with partners like TRON. The partnership with TRON aims to bridge SOL/TRX and enhance liquidity. Additionally, PumpSwap leverages LayerZero and Wormhole to achieve cross-chain liquidity. The focus on cross-chain interoperability positions PumpSwap to attract users and liquidity from other blockchain ecosystems, thereby extending its influence beyond Solana. By integrating with cross-chain technologies like LayerZero and Wormhole, and collaborating with other blockchains like TRON, PumpSwap aims to break down barriers between different blockchain networks, providing users with a more seamless cross-chain asset trading experience.

The launch of PumpSwap may trigger competitive reactions from other DEXs, such as Raydium's LaunchLab. The introduction of PumpSwap is likely to intensify competition within the DEX industry, potentially prompting a series of innovations and new features from existing participants. The success of PumpSwap may inspire other token issuance platforms to integrate native DEX functionalities, leading to a trend of more vertically integrated platforms in the Web3 space. If PumpSwap proves successful in capturing trading volume and generating revenue, other issuance platforms may see the benefits of offering similar integrated solutions to users, potentially resulting in a broader shift in the way new crypto projects are issued and traded.

**6.**Beyond Trading: The Vision of Web3 Super Applications

PumpFun has integrated chat features and may reintroduce live streaming capabilities. Previously, the live streaming function was suspended due to challenges with audits. Integrating social features such as chat and live streaming aligns with the trend of social finance and may enhance community engagement around Meme coins issued on the platform. By incorporating social elements, PumpFun aims to build a stronger community awareness between users and creators, potentially increasing user participation and loyalty to the platform and its issued tokens. These features are in line with the broader trend of community-driven Web3 applications. PumpSwap has the potential to combine DEX with social features, thereby leveraging the growing demand for integrated financial activities and community interaction platforms. The Web3 space increasingly sees the fusion of DeFi and social functions as users seek platforms that not only allow for trading and investing but also connect with like-minded individuals and engage in community-driven activities.

There are several factors to consider when evaluating whether PumpSwap has the potential to become a leading Web3 dApp. It has a strong initial user base from the PumpFun distribution platform. However, competition in the Web3 dApp space is fierce, and there are challenges in maintaining growth momentum and attracting a diverse user base beyond meme coin traders. While PumpSwap has a strong foundation and innovative features, to become a leading Web3 dApp also needs to successfully execute its roadmap, continue to innovate, and be able to appeal to a wider user base outside of the meme coin space. PumpSwap's initial success is likely to be driven by its existing user base and its focus on meme coins. To become a leading Web3 dApp, it needs to expand its offerings, attract users with diverse interests, and overcome the scalability, security, and user experience challenges common in the Web3 space. **

7.** Financial Pillar: Income Sources of PumpFun and Analysis of DEX Derivative Income**

The historical revenue data of PumpFun shows that its income is highly correlated with the overall sentiment and activity in the Meme coin market. During peak activities in the Meme coin sector, PumpFun once recorded peak daily revenues exceeding $15 million. However, recent revenues have declined. The significant peaks and troughs in PumpFun's income directly reflect the common boom and bust cycles of the Meme coin market, indicating its high dependence on market sentiment and speculative trading. The table below summarizes PumpFun's recent revenue data, highlighting its volatility:

A 0.25% trading fee has a significant impact on PumpSwap's potential revenue generation ability. If PumpSwap can successfully attract the majority of trading volume for its issued tokens, it could become an important source of revenue for PumpFun, offsetting the recent decline in issuance fees. Even with relatively low trading fees, if PumpSwap successfully captures the substantial Meme coin trading volume that was previously conducted on other DEXs, it can still generate considerable income.

The launch of PumpSwap may lead to a reduction in the derived income of cooperative DEXs, such as Raydium, which previously relied on issuing tokens via PumpFun to gain significant trading volume. Raydium particularly benefits from the trading activity of tokens issued on PumpFun. With the launch of PumpSwap, this portion of income is likely to decrease significantly as trading activities shift to PumpFun's native DEX.

**8.**Past Cooperation: From Partners to Competitors

Historically, PumpFun primarily relied on Raydium as its main trading platform for completing joint curves with its tokens. Raydium has played a crucial role in the development of the Solana Meme coin ecosystem, partly due to its symbiotic relationship with PumpFun. The fact that PumpFun tokens have historically migrated to Raydium for secondary market trading highlights the importance of this collaboration in establishing two platforms within the Solana DeFi space.

Competing directly with Raydium now may put pressure on the relationship between both parties and could lead to further competitive actions from both sides. Shortly after the launch of PumpSwap, Raydium announced the launch of LaunchLab, indicating a direct competitive response and suggesting that there may be intense competition in the Solana meme coin market.

Summary

The launch of PumpSwap is a bold move in the development of PumpFun, with the potential to reshape the Solana Meme coin ecosystem and have a significant impact on the broader Web3 space. The advantages of PumpSwap lie in its direct integration with PumpFun's existing user base, its innovative creator revenue-sharing model, and its focus on cross-chain interoperability. However, it also faces fierce competition from existing DEXs, particularly Raydium, and its success largely depends on the continued vitality of the Meme coin market and its ability to attract a broader user base.

While PumpSwap has the potential to become a major DEX in the Solana ecosystem, and possibly even expand to other blockchains, to become a leading Web3 dApp, it needs to overcome the inherent volatility of the meme coin market, successfully attract and retain a wider user base, and continue to innovate to cope with increasing competition. PumpFun will need to effectively execute its product roadmap, specifically regarding the integration of social features, and demonstrate its ability to go beyond the meme coin and provide value to a wider range of Web3 users.

The launch of PumpSwap marks a new competitive era for the Solana Meme coin ecosystem. While it poses a direct challenge to existing DEXs like Raydium, it also brings new opportunities for users and creators. Whether PumpSwap can fully realize its potential and become a leading dApp in the Web3 space will largely depend on its ability to adapt and innovate in the rapidly evolving cryptocurrency market.