"Pump.Fun's AMM Threat Sends Raydium's RAY Token Plunging 25%"

Raydium's RAY token has experienced a significant 25% drop in the past 24 hours, as speculation mounts that Solana-based token issuance platform Pump.Fun is preparing to launch its own automated market maker (AMM) exchange. While there has been no official announcement from Pump.Fun, a URL connected to the site suggests that the platform is developing a swap product with sell and buy options, as well as deposit and withdrawal functions.

An AMM is a decentralized exchange system that uses a liquidity pool of at least two tokens to facilitate trading. Instead of matching buyers and sellers, smart contracts set prices based on supply and demand, allowing trades to be processed without a counterparty. Pump.Fun's potential entry into the AMM market could have significant implications for the broader crypto ecosystem, particularly for Raydium, which currently benefits from the trading activity generated by Pump.Fun tokens.

When the market capitalization of any token issued on Pump.Fun reaches $69,000, a portion of its liquidity is deposited to the Solana-based exchange Raydium and burned, or permanently removed from supply. If Pump.Fun launches its own AMM, tokens may no longer be migrated to Raydium, which could dampen sentiment for the latter's RAY tokens. This development has contributed to the recent 25% decline in RAY's value.

Traders have speculated that Pump.Fun's own AMM could allow the platform to extract more fees on the Solana network or implement a mechanism to reward token holders. While Raydium does derive a portion of its total trading activity from Pump.Fun tokens, the exchange also supports several other top markets, such as Solana (SOL) to stablecoins, contributing to its average daily trading volumes of $500 million.

If Pump.Fun launches its own AMM, it could further boost the platform's revenues and profits. Notably, Pump.Fun has no token of its own but has still managed to become one of the most profitable crypto applications in the past year. Since March 2024, the platform has generated over $550 million in total fees, with $2.4 billion in trading volumes over just the past two weeks. Over 8 million tokens have been issued on the platform since its launch in 2024, with a few, such as fartcoin (