What is Raydium?
Raydium is an automated market maker (AMM) built on the Solana blockchain. It leverages the central order book of the Serum decentralized exchange (DEX), enabling lighting-fast trades, shared liquidity and new features for earning yield.
Raydium is similar to Uniswap, but built on the incredibly fast Solana blockchain, and it’s liquidity directly interacts with an on-chain orderbook. Raydium offers DeFi and AMM projects a clear path to bridging their platform and liquidity within the Solana and Serum ecosystem. Raydium can be the backend and frontend of market making protocols — providing liquidity and a trading interface.
Problems with Existing AMM’s & Raydium’s Solutions
Most DEX’s currently exist on the Ethereum blockchain. There are multiple inherent issues that make decentralized trading inaccessible for users.
Expensive transaction fees and slow settlement times. Gas fees have priced out potential earnings for small and medium market participants. The cost to swap, farm, harvest, and unstake could be over $100 on Ethereum. And unless you want to pay extra fees, you’ll find yourself waiting minutes for a confirmed transaction. It’s hard not to miss centralized exchanges.
Raydium solved this. By running on the Solana blockchain, the network is capable of handling 65,000 transactions per second, 400 millisecond settlement times, and transaction fees a fraction of a penny; My last transaction fee on Raydium was $.000075! In contrast, Ethereum handles roughly 30 transactions per second, 15 second settlement times, and average fees of $17.48.
Fragmented market liquidity. Ethereum AMM’s have no central order book aggregating liquidity across pools. The result is that liquidity is fractured amongst protocols — leading AMM’s to compete for liquidity while users see no benefit from liquidity held on other platforms. This will also be true for shard-based blockchains, like Eth2 and Polkadot.
Raydium shares liquidity with the Serum order book, benefiting the entire ecosystem. Trades coming from Raydium can now pull liquidity from any protocol integrated with Serum DEX, and vice versa. This means more fees for liquidity providers, reduced slippage, greater volume, and ultimately a more robust market. A robust market creates “fairer” prices, market stability, and quick entry and exit for trading. Other AMMs lack this.
Structural limitations for trading features. AMM’s, like Uniswap, trade without order books. This was revolutionary but has problems– there are structural limitations for traders and liquidity providers. As the Serum whitepaper explains:
“AMM is a system where there are no limit orders, or even bids or offers; in an orderbook [that Raydium uses], you can decide the price, size, and direction you want to trade…. [with other protocols] there are no limit orders, or even bids or offers… you can’t provide liquidity unless you provide both sides… you can’t provide at a price other than the current market price; and you can’t choose the size to provide there without providing way more behind it.”
Radium’s circumvented this by integrating with the Serum DEX, enabling features you would see on centralized exchanges, while remaining decentralized.
The Raydium Team & Ecosystem
The burgeoning crypto industry has attracted brilliant minds, experienced professionals, and grandiose entrepreneurs. The same can be said about Raydium. With more than two decades of experience in market making, arbitrage, and high frequency trading across traditional and cryptocurrency markets — they are primed for success.
Their strong partnerships with ecoSerum and Solana makes Raydium’s high aspirations all the more plausible. Members include industry titans affiliated with FTX, 3Commas, Multicoin Capital, Compound, and Kyber Network. On Discord, the CEO “AlphaRay” expressed his desire to “go head to head” with the market makers of the New York Stock Exchange. It’s safe to say they are thinking big.
$RAY Token Utility
The Raydium team has provided future use cases for the $RAY token, such as:
- Holders will be able stake $RAY for additional multipliers on yield
- $RAY stakers will be awarded 0.03% of trading fees
- Limited governance, allowing stakers of $RAY to participate and vote on community proposals and amendments
$RAY token’s circulating supply is 20.9 million and has a market capitalization of $180 million. The tokens will be unlocked over 3 years with a hard supply cap at 555 million. By 2023, roughly half the tokens (277.5 million) will be released. Buy and burn programs have been discussed as a measure to retain the tokens value.
SushiSwap is going forward with the “Bonsai” proposal: a partnership that allows Sushi to expand its reach and community to the Solana and Serum ecosystem with the initial and primary feature of creating new SushiSwap liquidity pools (LPs); these LPs shall be built out by Raydium.
The Bonsai partnership signals a huge inflow of assets moving into the Raydium protocol, Serum, and the Solana ecosystem. Capturing a fraction of Sushiswap’s $4.5 billion in TLV will greatly boost Raydium’s $105 million in TLV. A partnership with such a popular Defi protocol should garner public attention, platform usage, and an ultimately– an increase in the RAY token price.
The Bonsai proposal also stipulates the SushiSwap team will ‘exchange RAY at $0.325 per token for an equivalent value of SUSHI at market price ($19.77)’. At $0.325 per RAY, this indicates a FDV for Raydium at $180m, while the RAY would hold a current market price of approximately $55m, roughly a 97% discount on RAY token’s current price at the time of writing.
What are some things that would factor into this evaluation? Tokens on both sides would be locked with a one year cliff and vesting linearly over the following 24 months, so you can’t get current market value for them. From a negotiating perspective — SushiSwap is an established player whereas Raydium is not; Raydium launched in February, 2021; in any risk-reward relationship, higher risk demands a higher reward. Raydium is new and unproven (high risk); Sushiswap wants compensation for that. One must also consider the enormous amount of exposure Sushi’s partnership will give Raydium, and not the other way around.
From a macroeconomic perspective, we are in the midst of an inflationary, debt-driven, negative real-interest rate bull-run. And the US congress has just passed a $1.9 trillion stimulus package! All that drives investors into riskier assets, i.e. crypto. Those “stimmies” got-to-go somewhere. On top of that, wealthy and institutional investors are starting to notice crypto.
In general, the longer the crypto bull market continues, the more crypto rotates from bluechip coins (Bitcoin, Ethereum, etc…) to lower market cap alt-coins (Polkadot, Doge, Raydium, etc…). Raydium ($RAY) is currently ranked #251 on CoinGecko with a market cap of $198 million. There’s room to grow. However, the NFT market mania feels reminiscent of the peak 2017 ICO boom.
Raydium provides a need to the market, has a solid team, and is a part of an innovative ecosystem. This isn’t a pump and dump scheme, Raydium is integrated with Serum — a one of a kind DEX, and Solana — a blockchain that is everything Ethereum wants to be, but already is that way. Sam Bankman-Fried, CEO of FTX & Founder of Serum made a tweet that I embodies my feelings about the Raydium/Serum/Solana ecosystem:
“We chose Solana because their blockchain is 10,000 times faster and 1 million times cheaper than Ethereum. Their team knows what they are doing and are great to work with.”
I’m excited to see how Raydium develops in the future!