On-Chain Liquidity
VC Coins Are Dead — Understanding On-Chain Liquidity Models and Harvest Methodology
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| ON-CHAIN LIQUIDITY |
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| "VC coins are dead" is becoming consensus |
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| 15-20% of total liquidity migrated on-chain |
| The rest is on its way |
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| On-chain liquidity overflow = meme season |
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+-----------------------------------------------------------+1/ AMM vs Order Book
On-chain liquidity's biggest difference from centralized exchanges is the liquidity model:
| Model | Characteristics |
|---|---|
| AMM | Publicly displays total liquidity via pool TVL, every price point has deterministic liquidity |
| Order Book | Matches trades via buy/sell orders, liquidity mainly depends on market makers, can be manipulated |
Order book price and liquidity aren't directly linked, liquidity can be manipulated to entice or allow market volatility.
Order books can create ultra-high market caps with minimal capital, high capital efficiency, but essentially a mutual-aid Ponzi structure, like winning at a casino but not getting paid (thin liquidity in downside zones)
2/ Why AMM Is More Fair
For mainstream assets, order books are fine because trading demand is high enough.
But for on-chain long-tail assets like memecoins and DeFi natives, market makers have no profit motive.
AMM is the most effective and fairest trading model for participants
3/ Who Provides On-Chain Liquidity?
On-chain liquidity sources:
| Category | Source | Description |
|---|---|---|
| LP | DEX pools | Memecoin dev injection, LP fee strategies (like Meteora DLMM) |
| Yield Products | JLP/GLP | Package LP ownership and dividends, sell to retail to bear impermanent loss |
| Bots | MEV/Snipers/Copy Trading | MEV scientists, Pump internal snipers, smart money backruns, Jupiter snipers |
| Retail | Manual trading | Smaller proportion |
4/ Bot Liquidity
Bots are essentially pre-programmed strategies with capital deployed, executing trades when conditions trigger.
Equivalent to deterministic liquidity like AMM.
In centralized trading scenarios, automated strategies are the absolute majority. Correspondingly, on-chain with lower barriers to entry, the proportion should be even higher.
This is easily misunderstood—saying high bot proportion means few real users is completely wrong
On-chain liquidity has deterministic liquidity due to AMM advantages, enabling many strategies impossible in centralized scenarios, especially on low-liquidity assets.
5/ Why Provide Liquidity?
Returns come from strategies, strategies are relative:
- Lending, USDE arbitrage, JLP as systematic strategies
- Launching a memecoin, or sniping fair launch openings then quickly selling, equally strategies
As long as strategy risk-reward is good enough and capacity large enough, someone will provide liquidity
Strategy scale will grow until approaching capacity boundary, causing risk-reward to decline below other strategies.
6/ Truth About Memecoin Explosion
Don't believe narratives about Solana or mainnet memecoin explosions, where only few "graduate," assuming liquidity is being drained by conspiracy groups.
Likely the exact opposite:
Conspiracy groups making too much money, expanding operations
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▼
More and more capital sucked into memecoin schemes
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▼
Total Solana or mainnet memecoin scale growing
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▼
Liquidity growing largerIf you can't accept this, review ETHENA's logic again
7/ How to Harvest On-Chain Liquidity?
Wolves eat meat, dogs eat shit—to harvest, go where the most liquidity is
First understand your scenario's liquidity model:
| Question | Description |
|---|---|
| In what form provided? | AMM/Order Book/Order Matching |
| By whom provided? | LP/Bots/Retail |
| Why provided? | Strategy returns/Fees/Speculation |
Must be specific to your own exit liquidity path, knowing "who" provides liquidity "in what manner"
8/ Case: Death of Pump Copycats
Many Pump copycats die not because operations are poor or simple competition.
Root cause:
- Pump's fundamental business comes only from maximizing Bonding Curve volume
- Various strategy bots on Bonding Curve currently all revolve around Pump
Copycat problems:
- Can't share Pump's bot liquidity
- Need to find bots and liquidity for their own bonding curve stage from scratch
- Makenow already had bots starting to support, but failed due to Twitter API issues
9/ Copycats vs Direct DEX Launch
Launching on DEX vs launching on copycats is completely different:
| Scenario | Liquidity Situation |
|---|---|
| Meteora/Radyium Direct Launch | Launch-sniping bots and corresponding liquidity are shared |
| Bonding Curve Copycats | Need to build bot ecosystem from scratch |
10/ Key to Harvesting
Finally, you must understand why anyone would provide liquidity (consider buy-side as liquidity provision too).
That's because your liquidity model's risk-reward meets certain liquidity provider type preferences
As long as this criterion is met:
- Write good docs for liquidity providers to integrate
- If it doesn't make sense, adjust the model
Core Formula
On-chain Liquidity = LP pools + Bot strategy capital + Retail trading capital
Liquidity Migration Trend:
CEX (Order Book) ────────► DEX (AMM)
│ │
▼ ▼
Manipulable liquidity Deterministic liquidity
High capital efficiency Fairer for participants
Harvesting Prerequisites:
├── Understand liquidity model
├── Know who liquidity providers are
├── Know why they provide
└── Design products matching their preferencesConclusion
On-chain compared to previous CEX scenarios is still relatively blue ocean, don't have preconceptions—this damages your efficiency seeing essence with first principles.
When you see someone making money on-chain, don't rush to curse them as a scheme operator—that won't earn you an extra baht. Think carefully whether they see something more essential than you
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