Let say a random person make 100 tokens called, qtc. They throw 50 qtc and 50 eth into the liquidity pool, so one qtc is worth 1 eth. If a person buy it, they are getting it from the pool. What happens to the 50 qtc in the developer wallet, because on paper, it is worth 1 eth each?
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If they have 50 and the pool has 50 qtc and 50 eth, there is 100 in circulation
If eth was $2000 that would be mean they have $100,000 worth in their wallet and $100,000 worth in the pool (they have 50% of the entire circulation)
now since liquidity pools have to be 50/50 if someone wants to buy 1 qtc, it costs 1 eth or $2000 dollars
the pool now has 49 qtc and 51 eth. qtc is now $2040, eth is $1960
If the developers wanted to sell 25 coins for eth, the pool would have 74 qtc and 26 eth. Qtc is now $1300. It has lost 30.5% value which could trigger a sell off from the remaining users.
It’s a very ELI5 explanation as there is a bit more to it but essentially sums it up (if this wrong feel free to correct me)
It literally is just money they printed themselves, but only worth as much as people are wiling to buy it for. It is also why so many coins and tokens are scams. They promise the world, get people invested and because the developers hold so much of the circulation, they can sell it and leave everyone else holding the bags
The more they print, the further it dilutes so it’s worth less. This is the the problem with inflation, however having less coins in circulation doesn’t automatically make it better
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