High-yield liquidity pools can be very dangerous. Let me share my personal experience.
On January 26, the meme coin WEN was launched by the Jupiter platform.
Jupiter is a multifunctional DEX aggregator on Solana with many useful features such as DCA and limit orders for buying and selling assets.
WEN was launched through an airdrop of 70% of its supply to active users of the Jupiter aggregator.
The WEN token itself is absolutely useless and has nothing behind it but the hype from the airdrop.
But the volumes were insane, and there was very little liquidity in the pool. The most interesting part – the base commission in the pool was 5%.
For comparison – in the ETH/USDC trading pair, the base commission is 0.05% in most cases.
Here it was a whole 5%. I immediately took $5,000, transferred it to my Solana wallet, and added liquidity to the pool through meteora.ag (https://meteora.ag/)
Meteora is a direct copy of the TraderJoe exchange, only on Solana and without automatic reinvestment of commissions.
Commissions were pouring in at a furious pace. I set a fairly wide range with a margin for a drop and a small margin for growth. I did all this at night and went to bed satisfied.
In the morning, I woke up and saw about $1,000 in commissions. Overnight the token had doubled in value, and my position was out of range.
I was up $1,000 from commissions and $700 due to the growth of the WEN token, which I had bought for liquidity.
It was time to end this movement and take the money.
But the huge returns clouded my judgment.
The price had already doubled, and the capitalization of the useless meme coin was $100 million.
This didn’t stop me, and I decided to open another position with a new range.
In the end, WEN fell by 32%, bringing me back to my original deposit of $5,000. The commissions partially covered the fall, and I only lost 25% of $6,700.
I closed the position and broke even. There was no confidence that WEN wouldn’t plummet. And holding a useless token for the long term is simply foolish.
This is where my advice about working in DeFi only with assets you’re willing to hold long-term comes from. And they should not be fly-by-night tokens.
What’s even more important – you need to know how to take profits from such risky positions. Otherwise, it turns into a casino.
In fact, this is a casino, not the investment approach I always talk about.
I remind you that I have a small percentage of my deposit that I use to open high-risk positions. This was one of them.
I hope you take away a few important lessons from this story.