If you’re a part of the Solana ecosystem, then you need to about Serum.. without it, many of the dApps we know and love would cease to exist!
Serum is spearheaded by crypto wunderkind Sam Bankman-Fried, with support from The Solana Foundation, FTX, Alameda Research, and the Serum Foundation. It launched on August 31, 2020.
Serum is the first on chain central limit order book (CLOB) with a high speed matching engine, in crypto. It aims to bring the centralized exchange experience to the blockchain, with full limit order books, sub second finality, and low transaction costs.
Serum DEX is the core infrastructural piece that Solana liquidity “bottoms out” to. This means many popular dApps such as @raydium, @atrix, and @psyoptions use Serum for its liquidity, pricing, data, and trade execution.
In the traditional finance world as well as centralized exchanges (CEX’s), liquidity is provided via a central orderbook. In comparison, the majority of liquidity provided in DeFi stays locked in Automated Market Makers (AMM).
In AMM’s, the risk of slippage depends on the slope of its (x * y = k) price curve and total value locked in the pool. Units of liquidity are spread across the price curve, even at prices that are unlikely to be traded at. This can lead to valuable liquidity being wasted.
AMM’s warrant users provide liquidity on both sides of the pool (ie: USDC – UNI), which can lead to impermanent loss and capital inefficiency. It also prohibits limit orders, forcing the user to always swap at market price. For more on AMM’s, read:
Serum aims to solve these problems by using a “continuous order book” structure that can handle deeper liquidity, larger trades, and allows limit orders. Unlike AMM’s, Serum matches bids and asks in real time from active buyers and sellers, similar to a CEX.
Order books are familiar to market makers. This structure allows market makers like Alameda to deploy liquidity into DeFi with comfort. Market makers are an integral part of the marketplace ecosystem. The more liquidity an ecosystem has, the quicker it can evolve.
In addition to deeper liquidity, larger trades, limit orders, and superior capital efficiency, Serum also aims to be the most composable DEX in the crypto ecosystem.
Where traditional AMM structures fragment liquidity, Serum creates a liquid interface where dApps can compose with one another as if they were native, sharing all of Serum’s benefits. This is a key innovative differentiator between Serum and other major DEX’s.
By utilizing Serum for liquidity and trade execution, dApps can create seamless interoperable relationships with one another.
raydium.io is an AMM who sources its swaps through Serum’s CLOB. This unique AMM-CLOB relationship reduces Raydium’s slippage and capital inefficiency
Now that we’ve established the novel interoperability Serum offers, talk about $SRM, the protocol’s native token. $SRM, like many POS protocols, can be staked to earn fees from trading and governance rights affecting the future of the protocol.
Below is a graphic of Serum’s initial token supply. (Source: @projectSerum) In order to run a Serum node, you exchange 1,000,0000 SRM for 1 MSRM (MegaSRM).
The majority of fees earned from the DEX go towards a buy and burn of SRM. You can see the breakdown of how trading fees are delegated below. Unfortunately for US residents, Serum DEX and $SRM staking are not available due to looming regulatory decisions.
All in all, Serum is a unique and novel financial primitive that is the first to bring central limit order books to the blockchain. Serum has surpassed $10B+ in trading volume since inception and is an integral piece to many thriving Solana dApps.
We at Solana Insiders suggest you keep a close eye on Serum. If Solana gains mass adoption, $SRM’s success is imminent. Until next time insiders!
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