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Meme coin PEPE early investors saw returns of over a thousand times? However, with insufficient liquidity, cashing out in full would take thousands of years.

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Meme coin PEPE early investors saw returns of over a thousand times? However, with insufficient liquidity, cashing out in full would take thousands of years.

In recent times, the meme coin craze has resurfaced in the crypto community, causing not only a surge in on-chain gas fees but also creating many myths of overnight fortunes. One such case is an early holder of PEPE, who with just 0.125 ETH as capital, managed to generate returns of nearly a thousand times within a short span of five days. However, the lack of liquidity in meme coins poses a problem, as cashing out the remarkable paper assets may not be as straightforward as it seems.

Curious about which meme coins are currently trending and how they are causing the increase in on-chain fees? Check out this article.

The Legend of PEPE Coin's Sudden Wealth

The holder of PEPE, dimethyltryptamine.eth, made two transactions on 4/14, the day the PEPE token contract was deployed, through Uniswap v2, exchanging 0.125ETH for approximately 5.9 trillion PEPE tokens. As PEPE surged during this frenzy, the value of these PEPE tokens reached a peak of over 1,200ETH, making them the object of desire in the crypto community.

However, despite the seemingly impressive profits, cashing in on these gains may not be as easy as it seems.

Lack of Liquidity in PEPE Coin Makes Full Cashout Challenging

According to a report by Decrypt, Grzegorz Drozdz, an analyst at the fintech platform Conotoxia, stated that assuming the buyer demand remains constant, liquidating the 5.9 trillion PEPE tokens would take 46,200 years. If the exit from the market is too rapid, it could lead to a price drop, potentially below the initial purchase price.

Additionally, Adrian Hetman, the technical lead at the Web3 bug bounty platform ImmuneFi, mentioned that the issue of low liquidity tokens is not just due to a lack of buyers, but also because liquidity is often concentrated in automated market maker (AMM) liquidity pools. Since the amount of PEPE being sold also accounts for a significant portion of the pool's total liquidity, significant slippage occurs during trades, resulting in the selling proceeds not coming close to the expected value calculated directly based on the spot price.

After reviewing the data on CoinMarketCap here, it was found that PEPE's trading volume is mainly concentrated on Uniswap v2 at 50% and v3 at 20%, with a combined volume of $3.7 billion. However, in the best depth Uniswap v2 PEPE/WETH trading pair, the supply of WETH is only $1.3 million, 710 WETH, compared to the approximately 930ETH worth of PEPE currently held by dimethyltryptamine.eth, showing a significant gap.

Furthermore, attempting to cash out PEPE into ETH all at once on Uniswap v3 would face nearly a 40% slippage.

However, dimethyltryptamine.eth has not yet made any large sell-offs, only exchanging 0.6% of their PEPE for 4ETH last night.