Meme Insider
If you've been trading meme coins on Solana, you've probably wondered how price movements in SOL affect your favorite tokens. A recent thread on X by @DSentralized puts this to the test with a simple yet tricky scenario that highlights key liquidity pool (LP) dynamics. Let's break it down step by step and see why understanding this can save you from costly mistakes.
The Scenario from the Thread
In the original thread, DSentralized poses this puzzle:
Testing your LP knowledge:
There’s a pool with 1,000 $SOL and 180,000 $COIN
$SOL = $180 each
$COIN = $1 eachNow SOL goes up 10% to $198, but nobody buys $COIN at all.
What’s the new price of $COIN ? 🤔
It's a classic setup for an automated market maker (AMM) like those used on Solana DEXes such as Raydium or Jupiter. The pool follows the constant product formula (x * y = k), where x is the SOL reserve, y is the COIN reserve, and k is constant unless liquidity is added or removed.
Initially:
- SOL reserve: 1,000
- COIN reserve: 180,000
- Price of COIN in SOL: 1,000 / 180,000 = 1/180 SOL per COIN
- With SOL at $180, that's (1/180) * $180 = $1 per COIN
Now, SOL jumps to $198, but no one trades—no buys or sells of COIN. The reserves stay exactly the same.
Calculating the New Price
Here's the key insight: since no trades happen, the pool's reserves don't change. The ratio remains 1,000 SOL to 180,000 COIN. So, the price of COIN in SOL terms is still 1/180 SOL.
But we're often thinking in USD. With SOL now at $198:
- Price of COIN = (1/180) * $198 ≈ $1.10
That's right—the meme coin's price increases by the same 10% as SOL. No impermanent loss (IL) kicks in because IL only occurs when trades arbitrage the price difference, shifting reserves.
As one reply from @kotegnfts nails it:
$1.10
The pool’s spot price is set by the reserve ratio. With 1,000 SOL and 180,000 COIN, the pool price is 1 SOL = 180 COIN. If SOL’s external price moves to $198 while no trades occur in the pool, then 1 COIN = (1/180) SOL = $198/180 = $1.10
Common Misconceptions and Replies
The thread sparked some confusion, with replies ranging from correct answers to head-scratchers like "$0.90" or even "irrelevant." Some folks might think the coin cheapens because SOL is "more valuable," but that's backward. Without trades, the meme coin rides SOL's wave upward.
Another user, @alphashot_, puts it simply:
Well you pay pricier SOL for that coin so that coin is 10% more expensive as well
Seems logical
DSentralized clarifies in a follow-up:
You pay the same amount of SOL in SOL terms, but more in USD terms since SOL went higher in USD terms and no $COIN was bought from the pool.
This ties into why meme coins on Solana often correlate heavily with SOL's price—until trading volume disrupts the balance.
Why This Matters for Meme Token Traders
For blockchain practitioners diving into meme tokens, grasping LP mechanics is crucial. Many new projects launch with SOL as the base pair, and early liquidity is thin. If SOL pumps without much buying pressure on your meme coin, its USD price tags along for the ride. But flip it: if SOL dumps and no one sells the coin, your token's price falls too.
This also explains "fake pumps" or why some tokens seem overvalued initially. Traders who ignore this end up providing liquidity at a loss or misjudging entry points.
Pro tip: Tools like Dexscreener or Birdeye let you monitor pool reserves in real-time. Watch for reserve shifts to spot when arbitrage (and potential IL) starts happening.
Key Takeaways
- No trades = no reserve changes: The token's price mirrors the base asset's movement.
- AMM pricing is ratio-based: Always calculate in the base token first, then convert to USD.
- Avoid the IL trap: Impermanent loss requires actual swaps; external price changes alone don't trigger it.
Threads like this are gold for building your DeFi knowledge base. Follow creators like DSentralized for more insights, and stay tuned to Meme Insider for breakdowns on the latest meme token trends and tech updates. What's your take—did you guess $1.10 right away? Drop a comment below!
