Pump.fun issue coin: Opportunities and risks under a valuation of 4 billion

Author: GLC

Compiled by: Shenchao TechFlow

The upcoming token launch of Pump.fun may become one of the most talked-about events in the crypto space this year. Since 2024, this launch platform has been at the heart of the Memecoin craze, creating what can be considered the most successful and controversial retail traffic channel in the ecosystem.

Whether you love it or hate it, Pump.fun has proven its product-market fit.

Its permissionless token issuance platform has attracted thousands of users and creators through viral distribution and gamified user experience (UX), generating astonishing trading volume. Although the overall activity of Memecoins has cooled down, Pump.fun still maintains a strong moat and continues to advance through new initiatives like PumpSwap.

As of this year, Pump's monthly median income is approximately $45 million, making it not only one of the most widely used platforms in the crypto space but also one of the most profitable. With the upcoming launch of the $PUMP token, the protocol is at a crucial turning point.

The key question is whether the team sees this moment as an opportunity to build a sustainable and investable asset, or chooses to aggressively extract value. Their past performance has raised some doubts, but opportunities still exist.

Regardless, the risk and reward (R/R) do not seem to be symmetrical.

Next, we will delve into the bull and bear market scenarios of $PUMP.

Agenda

Data and Performance: Revenue, Trading Volume, and User Base

Team and Narrative Shift: Can They Reach an Agreement with Holders?

Valuation: Cash flow, income, and price-to-earnings ratio (P/E) considerations

Growth Catalysts: Airdrops, Acquisitions, and Vertical Expansion

Main risks: execution capability, competition, and market structure

Summary thinking

Key indicators: more resilient than expected

In January of this year, with President Trump launching personal tokens, the Memecoin market experienced a wave of frenzy, marking the peak of activity in the entire industry. During that month, Pump.fun generated an astonishing $140 million in revenue. However, shortly after, the trading volume of the Memecoin market began to decline sharply, and market sentiment plummeted.

The remarks about "Memecoin End" spread rapidly.

However, the performance of Pump.fun is much more resilient than most people expected.

Even against the backdrop of an overall market downturn, Pump.fun has successfully retained a large and active user base. Currently, its daily active users are around 340,000, slightly down from 400,000 in January. Of course, PumpSwap had not yet launched at that time, but the key point is that there are still a large number of users using Pump's products every day.

Since the beginning of the year, Pump.fun has an average monthly trading volume of approximately $14 billion through PumpSwap, with a total fee rate of 0.3% (of which 0.2% is allocated to liquidity providers, 0.05% to creators, and 0.05% to Pump).

Its core Bonding Curve product also maintains a monthly trading volume of about 5 billion dollars, charging a fee of 1% for both buying and selling.

This series of active data explains why the platform can consistently generate $45 million to $60 million in revenue each month, with an annualized revenue of approximately $500 million. This makes $PUMP one of the highest-grossing tokens in the cryptocurrency space.

It is expected that $PUMP will launch its token issuance with a fully diluted valuation (FDV) of $4 billion, making it easy to understand why this is one of the most anticipated launches of the year.

We will delve deeper into its valuation mechanism later, but the core conclusion here is simple: even in a market downturn, $PUMP continues to "print money" incessantly.

Team: Can the narrative be reversed?

Pump.fun has created one of the most profitable products in the cryptocurrency space, but the team behind it has not garnered the same level of respect. Critics argue that they focus too much on value extraction without providing sufficient benefits to the community. Additionally, many view Memecoins as a factor that undermines the reputation of the crypto industry rather than a catalyst for growth.

Nevertheless, their success is not accidental. Speculation remains the core driving force of this industry, and Pump.fun is the first team to fully capture this demand through product-market fit.

Now, they have the opportunity to turn this narrative around.

The upcoming $PUMP token issuance is an opportunity aligned with the holders. It is reported that part of the protocol's revenue may be used for buybacks, but the specific proportion has not yet been announced.

We do not expect a 100% revenue reinvestment similar to the Hyperliquid model. While this model can stimulate price performance in the short term, it undermines long-term sustainability. Pump is not an L1 (Layer 1 blockchain), and its growth requires capital support. A more realistic approach might be to allocate 50% of the revenue for buybacks, similar to the methods used by Raydium or Jupiter.

This ratio is competitive and also leaves room for reinvestment for new business lines, acquisitions, or ecosystem expansion. Pump.fun is a young company with real growth potential. We would prefer to see them set a target of approximately 10% annual dividend payouts while using the remaining funds for compounding growth of long-term value.

More important than the numbers is transparency. If a team wants to be taken seriously, they need to publicly disclose how funds are used, including operating costs, capital expenditures (Capex), reserve funding plans, and governance structures.

Raising 1 billion dollars requires genuine responsibility.

If they can achieve this, even a moderate buyback could work. But if they fall back into silent value extraction behavior again, the market reaction may not be very good.

That said, even if they make mistakes, the downside risk seems to be limited. We will explore this in more detail in the next section.

$PUMP Valuation Analysis

In this section, I will not provide a complete valuation framework as we usually do at GLC. The reason is simple: we are not experts in the field of Memecoins, and any modeling attempt may carry a high degree of subjectivity.

That said, Messari's @defi_monk has proposed a rather solid valuation framework, and I feel reassured by his assumptions. He is an excellent analyst and seems to take a more conservative rather than optimistic stance, which aligns very well with the way I evaluate such issues.

In his base prediction, Monk expects the trading volume of Bonding Curve to decline, but AMM (Automated Market Maker) activity to increase, with annualized revenue potentially reaching around $670 million by 2027. These predictions reflect the growth of overall on-chain trading volume, the potential increase in market share compared to Raydium, and the advantages brought about by vertical integration.

In my opinion, this outlook is not only reasonable but also very realistic.

Of course, we cannot know the specific plans of the PUMP team for sure. This is also one of the reasons why this is an asymmetric opportunity. If the revenue really reaches this range, it is hard to say that $PUMP is overvalued at a fully diluted valuation (FDV) of $4 billion, especially when the price-to-earnings ratio (P/E) is around 12.

Indeed, the long-term existence of Memecoins still carries uncertainty, but the fact is that they have lasted longer than many anticipated. Memecoins have strong community support, and if Bitcoin breaks its all-time high later this year, speculative activity is likely to soar again, with $PUMP probably becoming one of the major beneficiaries.

In the past, the main way to invest in Memecoin was through $SOL, but now $PUMP is gradually becoming a more direct and logical choice. If the market turns bullish, $PUMP is likely to become a high beta asset, quickly reflecting this trend.

Overall, considering that the protocol has already generated about $500 million in revenue annually and holds $1 billion in cash reserves, purchasing $PUMP at a valuation of $4 billion, while 75% of the token supply may be used for community incentives or airdrops, seems to be a choice with relatively limited downside risk.

Unless we unexpectedly enter a deep bear market with a collapse in on-chain trading volume (a scenario I did not believe in back in February this year and still do not believe in now), this opportunity is quite attractive to me.

Growth Catalysts: Airdrop and Acquisition Engine

$PUMP is considered an asymmetric investment opportunity for the following key reasons:

Firstly, most participants in the crypto space have now come to realize that Hyperliquid's operating model is working – creating products for the community, sharing profits with the community, and ultimately gaining returns. Game theory strongly favors founding teams that follow the Hyperliquid model. Currently, $PUMP is in the issuance phase, fully controlling its token supply, backed by a highly profitable company, holding a cash reserve of $1 billion, and having potential large-scale airdrop plans; these conditions undoubtedly equip it with all the elements for success.

It is also worth noting that the team has generated hundreds of millions of dollars in revenue without issuing tokens. It is reasonable to speculate that most team members have earned far more than expected, and now they hold all the resources to turn $PUMP into a long-term successful asset.

While it is difficult to predict growth solely through speculation on airdrops, a more practical source of growth is the potential for vertical acquisitions. With its cash reserves and strong profitability, Pump.fun is fully capable of acquiring companies that perfectly align with its model.

Jack Kubinec recently shared some insights in Blockworks' Lightspeed newsletter, where two of the acquisition targets he proposed particularly align with Pump's growth strategy:

Telegram trading bot (such as BullX)

Telegram trading bots are used by a large number of active traders for sniping and copy trading. These bots generate income by taking a cut from the trading volume. According to Blockworks, the annual revenue from Solana trading bots alone reaches at least $500 million. Acquiring such bots can not only integrate well with Pump's core products but also add a significant new revenue stream.

DEX Screener:

As Jack pointed out, another pain point for Pump regarding user attrition is token discovery. Traders often rely on platforms like DEX Screener for real-time and data-rich analysis. DEX Screener has also generated considerable revenue by charging Memecoin projects for increased visibility. According to DeFiLlama data, the platform earned over $100 million in revenue in just the past year. If Pump could acquire such a platform, it would help better control the user experience and improve user retention.

The above are just two examples of vertical integration that can strengthen Pump's market position, but the potential possibilities go far beyond this. We believe that Pump will actively utilize its raised funds and operating cash flow to acquire companies that can expand its moat, drive diversification, and accelerate growth.

With strong fundamentals, deep cash reserves, and a clear path for vertical expansion, Pump is likely to evolve into a comprehensive acquisition engine to drive its next phase of growth.

Risks and adverse factors

Clearly, Pump.fun has some risks.

The first thing that comes to mind is competition. Everyone has seen how profitable Pump's business model is, so multiple teams are trying to capture market share, including Launchlabs, Believe App, Moonshot, and others. One of them may eventually succeed in gaining market attention.

Another risk is regulatory pressure. Pump has already faced some issues, and it can be said that their current model does not fully align with regulatory expectations. Further scrutiny is entirely possible.

However, in my opinion, the biggest risk lies in the team's future operational choices. As mentioned earlier, to receive positive evaluations for this issuance, the team needs to embrace transparency, maintain consistent reporting, and align appropriately with token holders. If they repeat past mistakes, exhibiting exploitative behavior or transferring value to insiders without clear communication, I believe the market will not respond favorably.

Currently, the market seems to hope that the team will follow the Hyperliquid model, viewing the token as a long-term, community-aligned asset rather than a short-term extraction tool.

Even if the team fails to meet these expectations, I believe the downside risk could be limited to around -50%, assuming on-chain transaction volume remains stable. Of course, widespread market changes could alter everything.

Nevertheless, I find it hard to believe that a company with 1 billion dollars in cash and 500 million dollars in annual revenue would be valued below 2 billion dollars in the long term.

Final Thoughts

Pump.fun has positioned itself at the intersection of crypto speculation and on-chain infrastructure. Despite the controversial narrative surrounding Memecoins, the platform has demonstrated a clear product-market fit, becoming one of the most profitable and widely used applications in the space.

The upcoming $PUMP is a pivotal moment. Besides being a highly anticipated event, it also represents a broader test:

"Can the team transition from a closed, extractive model to a more transparent model that aligns with the interests of token holders and focuses on long-term sustainable development?"

If possible, $PUMP has the potential to evolve into a more sustainable asset within the ecosystem.

At the same time, long-term success may also depend on whether the team can move beyond the Memecoin space and diversify. Competing with more mature platforms like Jupiter to become a broader on-chain "super application" requires continuous product development, deeper integration, and strategic acquisitions. Although this is filled with uncertainties, the foundation has already been laid.

This report specifically focuses on the asymmetric opportunities at the time of the $PUMP listing, based on the current fundamentals and market expectations. Considering its annual revenue of approximately $500 million, $1 billion in cash reserves, and a flexible token supply mechanism, a fully diluted valuation (FDV) of $4 billion does not seem excessive, provided that the team can execute a credible strategy that aligns with investor interests. Furthermore, as the market's demand for direct exposure to Memecoin infrastructure increases, $PUMP may achieve a higher valuation premium.

It should be clear that we typically do not focus on the Memecoin space and do not consider it our core area of expertise. However, from a financial perspective, if the team takes the right actions, the valuation of $PUMP at the time of listing seems reasonable. Given its current cash flow and balance sheet strength, the downside risk also appears to be relatively limited in the short term, unless macro conditions or on-chain activities significantly deteriorate.

In short, $PUMP is a high-risk, high-reward opportunity with some clear potential growth drivers, while the downside risks in the short term appear to be limited. Although we generally take a cautious approach to such areas, this is indeed a prime example of an asymmetric opportunity worth noting.

Disclosure Statement: The analyst of this research plans to purchase the asset at the time of the $PUMP listing.