Welcome to a special edition of the Bonfida newsletter!
This edition is solely written to focus on Raydium (RAY). This will be a deep dive into the bits and pieces of it and what makes it ready to disrupt everything you thought you knew about Automated Market Makers (AMM).
WHAT IS RAYDIUM?
Raydium is an automated market maker (AMM) and liquidity provider built on the Solana blockchain for the Serum decentralized exchange (DEX). Raydium has a first-mover advantage as an AMM within Serum and will be an integral part of bringing new and existing projects and protocols into the ecosystem. The protocol will act as a bridge for projects looking to expand to Solana and Serum, and in the process Raydium and the RAY token will become a foundation for enabling further development with partners, its own platform, and the ecosystem.
Unlike any other AMMs, Raydium provides on-chain liquidity to a central limit orderbook, meaning that Raydium LPs get access to the entire orderflow and liquidity of Serum. Long term, Raydium aims to capture and maintain a leadership position among AMMs and liquidity providers on Serum, while leveraging the power of Solana to drive the evolution of decentralized finance (DeFi) and emerge as a leading protocol in the space alongside our partners and the community.
THE ISSSUE WITH CURRENT DEFI EXCHANGES
In 2020, the Total Value Locked (TVL) was only $1.077 Billion. Now a year later it is $42.18 Billion, with the explosive growth of Decentralized Finance (DEFI). The Ethereum blockchain accounts for the majority of these transactions, however this blockchain is incapable of handling the congestion therefore creating several issues that make decentralized trading inaccessible for most users.
The issues present are:
High gas fees: At the time of writing, it costs over $100 to provide liquidity to an AMM pool, farm the LP token and harvest the reward.
Speed: As the number of users grows rapidly, the underlying blockchain is increasingly congested. A user performing the above transaction would have spent on average 30 minutes waiting for it to complete.
Lack of limit orders: Traditional AMMs offer a way to set the number of tokens to be traded and a slippage value. If the conditions are unmet then the order and gas fee go to waste instead of waiting for a transaction.
Overlapping liquidity: Many DeFi AMMs have a huge overlap in their offerings. Traders should not pay for slippage because liquidity providers prefer one exchange over another.
WHAT DOES RAYDIUM OFFER TO ADDRESS THE SHORTFALLS OF DEFI EXCHANGES?
The Speed of Solana
Raydium is built on the Solana blockchain, enabling faster transactions, significantly lower fees, and enhanced scalability. Solana was chosen as the underlying blockchain to allow for low-cost and high-speed transactions. It is a high-performance, permissionless blockchain based on Proof of History (PoH). Currently, it can handle 65,000 transactions per second with 400 millisecond block times. The protocol is designed to scale together hardware and bandwidth improvements, with capacity expected to double every 2 years. This is what sets Solana apart from its competitors, it is built to be scalable for DEFI users of today and the future.
A Bridge for DeFi
Raydium offers DeFi and AMM projects a clear path for bridging platforms and liquidity with the evolved capabilities of Solana and Serum.
Raydium will be integrated into Project Serum, which is a decentralized exchange that supports trustless cross-chain trading. Despite being natively implemented on Solana, it will be interoperable with Ethereum via the wormhole bridge.
Unlike other AMMs, Raydium provides on-chain liquidity to a central limit order book, meaning that pools have access to all order flow and liquidity on Serum.
WHAT CAN RAYDIUM DO THAT NO OTHER CAN?
Orderbooks: The orderbook shows available bid and offer prices between market participants. They give market participants the ability to express the number of tokens they are willing to trade at any price. Through the power of Serum, Raydium brings orderbooks back to AMMs.
While the exchange itself is decentralized, the orderbooks are centralized on Serum. This means the orders submitted to the orderbook by Raydium can be transacted against by anyone on Serum and vice versa. This is unlike other AMMs which lack an order book to aggregate across liquidity pools. Raydium leverages existing Serum orderflow as well as supplies the liquidity in its own pools, benefiting the entire ecosystem.
Market Making: This is a core feature of Raydium. It takes all the tokens accrued in its liquidity pools to place orders on the orderbook according to the constant product invariant. The tokens locked in it to create a series of orders at different price points and sizes to provide liquidity. It creates orders using the constant product invariant. The equation used has the special property that it is stateless and given any two tokens, without any information about their relative prices or value, it can provide “infinite” liquidity to traders. Raydium utilizes this equation and prices orders on the orderbook according to the Fibonacci sequence to provide up to 20 orders at a variety of prices.
Coin Swaps: For users who do not require the orderbook but enjoy cheap gas and low trading fees, Raydium has implemented this feature for users who just want to swap their tokens.
While this is a standard feature available on other AMM platforms, the speed and efficiency at which it is executed will save significant costs for traders. For liquidity providers who frequently reallocate their assets to different pools the cost savings of swapping tokens will be significant, allowing for more opportunities and edibility to take advantage of yield earning opportunities on Raydium.
Farming: Liquidity providers will be able to generate additional rewards for contributing. Key pools will be incentivized with RAY tokens.
Dual Reward Farming: The Raydium community will govern the pools which receive farming rewards. Tokens which want to reward users for providing liquidity can also add additional reward tokens. For certain pools decided by the Raydium community, these tokens can be farmed to return additional Raydium as rewards. In addition to this, projects can sponsor certain pools by adding tokens to a reward pool to further incentivize users.
This helps new projects in two ways: users are further incentivized to hold project tokens and receive additional rewards while they provide further liquidity for these projects.
WHAT IS THE USE OF THE RAY TOKEN?
Staking: Holders will be able to stake RAY tokens to generate additional yield earned from trading fees. Staking will be available for RAY holders via https://raydium.io/#/ .
All you need to get started is an SPL wallet. A list of DEX supported wallets can be found on: https://serum-academy.com/en/wallet-support/
Addition of multipliers on Yield: In V2 of Raydium, this will the enable double pools feature. This will enable the pool to bootstrap liquidity.
An example of this would look like:
- Stake RAY in chosen liquidity pool.
- Receive RAY + Token (X) as a result.
Governance: RAY holders will be able to vote on community proposal and amendments. This will allow RAY holders to have a say on the development of Raydium.
RAY token distribution is as follow:
- 6% Community and family sale
- 8% Liquidity
- 34% Mining reserve
- 20% Team
- 2% Advisors
- 30% Partnership and ecosystem
The total supply is: 555,000,000 RAY
WHERE CAN I GET RAYDIUM?
As of writing this article, there are currently two exchanges to purchase Raydium (RAY).
- FTX: https://ftx.com
WHAT ARE BONFIDA POOLS?
These are VC Pools that are established to offer participants the opportunity to purchase tokens at a discount on IEO price. Participants receive a pool token that represents their share of the pool.
After a year the RAYPOOL token will be able to redeem for RAY tokens.
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None of the above is financial advice.
Bonfida does not provide services to personal accounts of current residents of the United States of America, Cuba, Crimea and Sevastopol, Iran, Syria, North Korea, or Antigua and Barbuda.
FIDA is not offered within the United States or prohibited jurisdiction.
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