Why You Should Care About Liquidity
You found a memecoin. The chart looks incredible — straight up, 500% in two hours. You buy in. Price keeps climbing. You’re up 300%. Life is good.
Then you try to sell.
Your $500 position? The best price you can get is $180. The slippage eats 64% of your trade. Or worse — there aren’t enough buyers at any price, and your transaction just… fails.
That’s what happens when you ignore liquidity. And it happens to people every single day in the memecoin world.
Liquidity, Explained Simply
Liquidity is how easily you can buy or sell something without significantly moving the price.
Think about it like a market stall. If a fruit vendor has 1,000 apples, you can buy 10 without changing the price. But if they only have 5 apples left, buying 3 of them suddenly makes apples scarce — the price goes up for the last 2.
In crypto, liquidity is the money sitting in trading pools that allows people to buy and sell tokens. More money in the pool = easier to trade = less price impact per trade.
How Liquidity Works on Solana (AMMs)
Solana (and most of modern crypto) uses something called Automated Market Makers (AMMs) instead of traditional order books. Here’s how it works:
Someone creates a liquidity pool — a pair of two tokens locked in a smart contract. For a memecoin on Solana, this is usually the memecoin + SOL. The pool holds, say, 10,000 of the memecoin and 50 SOL.
When you buy the memecoin, you send SOL to the pool and receive the memecoin in return. The pool now has more SOL and fewer memecoins, so the price of the memecoin goes up (it’s scarcer in the pool). When you sell, the reverse happens.
The size of the pool determines how much your trade affects the price. In a pool with $100,000 of liquidity, your $200 trade barely moves anything. In a pool with $500 of liquidity, your $200 trade is catastrophic — you just moved the price by 40%.
Liquidity Numbers You Need to Know
When you look at a token on TokenRadar, one of the key numbers displayed is liquidity in USD. Here’s how to read it:
Under $1,000: Basically untradeable for any meaningful amount. A $50 trade could crash the price. Only absolute degen territory.
$1,000 – $5,000: Very thin. You can trade small amounts ($10-50) but expect significant slippage. Getting out of a larger position is nearly impossible without tanking the price.
$5,000 – $20,000: Workable for small trades. You can enter and exit positions of a few hundred dollars without destroying the price. This is where many early-stage memecoins that have some traction live.
$20,000 – $100,000: Healthy for a memecoin. You can make trades in the hundreds to low thousands with reasonable slippage. Most tokens that reach this level have some community and staying power.
$100,000+: Strong liquidity. Even larger trades don’t move the price dramatically. These are established tokens or memecoins that have built significant traction.
$1M+: Blue-chip memecoin territory. BONK, WIF, and similar tokens that have proven themselves over months. Very deep liquidity, institutional-grade trading.
What Slippage Actually Means
Slippage is the difference between the price you expect and the price you actually get. It’s a direct consequence of liquidity.
When you go to swap on Jupiter or Raydium, you’ll see a “Price Impact” number. That tells you how much your trade will move the price.
- Under 1%: Normal. Barely noticeable. Good liquidity.
- 1-3%: Acceptable for memecoins. You’re paying a small premium for lower liquidity.
- 3-5%: Getting expensive. Consider trading a smaller amount.
- 5-10%: Significant. You’re losing a meaningful chunk. Only trade if you’re very confident.
- 10%+: Danger zone. You’re getting a substantially worse price than displayed. Either the liquidity is too thin for your trade size, or something is wrong with the token.
Here’s what people miss: slippage hits you twice. Once when you buy (you pay more than the displayed price) and once when you sell (you get less than the displayed price). A 5% slippage on entry + 5% on exit means you need the token to go up at least 10% just to break even.
Locked vs. Unlocked Liquidity
This is where safety meets liquidity.
Locked liquidity: The pool’s funds are locked in a smart contract for a set period. The creator can’t pull them out. This means you can trust that the trading pool will exist for at least as long as the lock period. Most legitimate token launches lock liquidity.
Unlocked liquidity: The creator can remove the liquidity at any time. This is one of the most common rug pull methods — the creator adds liquidity, lets people buy in, then pulls it all out. Everyone’s tokens become unsellable because there’s no more SOL in the pool to swap against.
Burned liquidity: Even better than locked. The LP (liquidity provider) tokens are sent to a dead address, permanently. The liquidity can never be removed by anyone. This is the gold standard.
On Pump.fun, the bonding curve model is slightly different — liquidity follows a mathematical curve rather than a traditional pool. When a token “graduates” to Raydium, it gets a real liquidity pool, and the migration process typically burns the LP tokens.
Liquidity Trends: What to Watch
A single liquidity number tells you the current state. But the trend tells you what’s coming.
Growing liquidity: More money flowing into the pool. This usually means: more people adding liquidity, more trading volume attracting market makers, or the project is actively building. Good sign.
Stable liquidity: Pool size isn’t changing much. For an established token, this is normal and healthy. For a brand-new token, it means growth has plateaued — which could be fine or could be a warning that momentum is dying.
Declining liquidity: Money is leaving the pool. This is a red flag. If liquidity is dropping by 20-30% over a few hours, people are pulling out. The token might be heading toward a death spiral where declining liquidity → worse trading experience → more people leaving → even less liquidity.
Sudden liquidity drop: If liquidity crashes 50%+ in minutes, someone just pulled a significant portion of the pool. Either a major LP pulled out or you’re witnessing a rug pull in progress. Get out immediately if you can.
How Liquidity Affects Your Trading Strategy
Small positions in low liquidity: If you’re buying a very new token with $2,000 liquidity, keep your position tiny — $10-20 max. You need to be able to exit without crashing the price.
Scale position size to liquidity: A reasonable rule of thumb: your trade should be no more than 2-5% of the pool’s total liquidity. On a $10,000 liquidity pool, that means trades up to $200-500. Go bigger and you’re the one moving the market.
Check liquidity before selling, not just before buying: The liquidity that existed when you bought might not be there when you want to sell. Always check current liquidity before placing a sell order.
Use limit orders when available: Some Solana DEXs support limit orders that only execute at your specified price. This protects you from slippage on larger trades.
The Bottom Line
Liquidity isn’t glamorous. Nobody’s posting “check out this token’s amazing liquidity depth” on Twitter. But it’s the invisible force that determines whether you can actually realize your paper gains.
A token that went up 1000% with no liquidity isn’t a win — it’s a number on a screen that you can’t convert to real money. A token that went up 100% with deep liquidity? That’s actual profit you can take home.
Before every trade, check the liquidity. TokenRadar shows real-time liquidity data for every Solana token, right next to the safety rating and holder count. Make it part of your routine: safety check, liquidity check, then — and only then — think about buying.