Original title: "Raydium: King Of Solana De-Fi"
Original author: @0xkyle__
Original translation: zhouzhou, BlockBeats

Editor's note:Solana ecosystem has blossomed in the past few days after Bitcoin hit a new high. SOL has broken through $200, and a number of ecological projects such as JTO, DRIFT, and JUP have performed well, but the most outstanding performance is Raydium, the largest DEX in Solana ecosystem. According to DeFiLlama data, Raydium TVL ranks fourth in the entire network, and its 7-day trading volume is second only to Uniswap. This article mainly talks about Raydium's position and advantages on the Solana blockchain, especially its dominance in meme coin transactions. The article also analyzes Raydium's growth strategy, liquidity management, repurchase mechanism, etc., and explains how these mechanisms help Raydium stay ahead in the Solana ecosystem.

The following is the original content (the original content has been reorganized for easier reading and understanding):

Foreword

The 2024 cycle has so far witnessed the dominance of Solana. The main narrative of this cycle - meme coins, were all born on Solana. Solana is also the best performing Layer 1 blockchain in terms of price appreciation, up about 680% so far this year.

Although meme coins are deeply intertwined with Solana, Solana has regained attention as an ecosystem since its recovery in 2023, and its ecosystem has flourished - tokens of protocols such as Drift (Perp-DEX), Jito (liquidity staking), Jupiter (DEX aggregator) have all reached billion-dollar valuations, and Solana's active addresses and daily transaction volume surpass all other chains.

At the heart of this thriving ecosystem is Raydium, Solana’s leading decentralized exchange. The old saying, “selling shovels during a gold rush” perfectly describes Raydium’s position. While meme coins are attracting a lot of attention, Raydium is quietly driving liquidity and trading behind the scenes to support this activity. Thanks to the continued influx of meme coin trading and broader DeFi activity, Raydium has solidified its position as critical infrastructure in the Solana ecosystem.

At Artemis, we believe in an increasingly fundamentals-driven world - therefore, the purpose of this article is to construct a fundamentals report that highlights Raydium's place in the Solana ecosystem. We take a data-driven approach and aim to analyze Raydium's place in the Solana ecosystem from first principles.

Raydium in a nutshell

Launched in 2021, Raydium is an automated market maker (AMM) built on Solana that supports permissionless pool creation, ultra-fast trading, and yield earning. Raydium's key differentiator is its structure - Raydium is the first AMM on Solana and launched the first hybrid AMM in DeFi that supports order books.

When Raydium launched, they adopted a hybrid AMM model that allowed liquidity from idle pools to be shared with centralized limit order books, while normal DEXs at the time could only access liquidity in their own pools, which meant that liquidity on Raydium also created markets on OpenBook that could be traded on any OpenBook DEX GUI.

While this was a major differentiator in the early days, the feature is currently closed due to an influx of mainly long-tail markets.

Raydium currently offers three different types of pools, namely:

· Standard AMM Pools (AMM v4), formerly known as Hybrid AMMs

· Constant Product Exchange Pools (CPMMs), supporting Token 2022

· Centralized Liquidity Pools (CLMMs)

When every swap is made on Raydium, a small fee is charged depending on the specific pool type and pool fee tier. The fee will be allocated to liquidity providers, Raydium token buybacks, and the treasury.

Here are the transaction fees, pool creation fees, and protocol fees that we have recorded for different pools of Raydium. Here is a quick breakdown of each term and its corresponding fee level:

·Transaction fee: The fee paid by traders when exchanging

·Buyback fee: A percentage of transaction fees used to buy back Raydium tokens

·Treasury fee: A percentage of transaction fees allocated to the treasury

·Pool creation fee: A fee charged when a pool is created, intended to prevent abuse of the pool. The pool creation fee is controlled by the protocol multi-sig and is used for protocol infrastructure costs.

Figure 1. Raydium Fee Structure

DEX Ecosystem on Solana

Figure 2. TVL on Solana

Now that we have analyzed how Raydium works, we will evaluate where Raydium fits into the Solana DEX ecosystem. Needless to say, Solana has already climbed to the top of the L1 chains in the 2024 cycle - looking at Ethereum, Solana is the third highest chain by TVL, behind Tron (second) and Ethereum (first).

Figure 3. Daily Active Addresses, Daily Transactions, TVL, and DEX Volume by Chain

Solana continues to dominate metrics related to user activity, such as Daily Active Addresses, Daily Transactions, and DEX Volume. The increase in activity and currency liquidity on Solana can be attributed to several different factors, most notably the “meme coin boom” on Solana.

Solana’s high speed and low cost in settlement, combined with the smooth user experience it provides for Dapps, has led to the growth and prosperity of on-chain transactions. Tokens like BONK and WIF have reached multi-billion dollar market caps, and with the emergence of Pump.fun, a meme coin launch platform, Solana has become the de facto place for meme coin trading.

Solana is far and away the most widely used Layer 1 during this cycle, and continues to lead other L1s in terms of trading activity. As a direct beneficiary of increased activity, this means that DEXs on Solana are performing extremely well - more traders means more fees, and thus more revenue for the protocol. However, even among DEXs, Raydium has managed to capture a significant market share, as evidenced by the following data:

Figure 4. SolanaDEX Volume Market Share

Currently, Raydium ranks first among other SolanaDEXs and has the highest volume of all DEXs. Raydium accounts for 60.7% of the total volume on SolanaDEX, thanks to Raydium's support for a variety of activities - from meme coins to stablecoins.

One way Raydium achieves this is by providing pool creators and liquidity providers with multiple options when creating new markets, and users can choose constant product pools for price discovery at the time of initial issuance. Or choose to provide liquidity more tightly within a centralized liquidity pool - this allows initial price discovery for long-tail assets to happen on Raydium while remaining competitive in markets such as SOL-USDC, stablecoins, LST, etc.

Figure 5. Liquidity across SolanaDEXs

Also, Raydium remains the most liquid DEX at the time of trading, with the caveat that DEXs often face economies of scale as traders tend to cluster on the most liquid exchanges to avoid slippage on trades. Liquidity breeds liquidity - this creates a positive cycle where the largest DEXs attract the most traders, which in turn attracts liquidity providers who profit through fees, which in turn attracts more traders who want to avoid slippage - and the cycle continues.

Liquidity is often overlooked when comparing DEXs, but it is critical when evaluating top performers — especially considering that traders on Solana are trading meme coins, which are not only extremely illiquid, but also require a common rallying point. If liquidity is fragmented across DEXs, it will lead to a poor user experience and frustration with each purchase of a different meme coin.

Examining Meme Coins vs. Raydium

Raydium’s popularity is also due to the resurgence of meme coins on Solana, specifically the meme coin launching platform launched by Pump.Fun, which has generated over $100 million in fees since its inception earlier this year.

There is a direct link between Pump.Fun’s meme coin and Raydium - when a token issued on Pump.fun reaches a market cap of $69,000, Pump.fun automatically deposits $12,000 worth of liquidity into Raydium. Continuing with the emphasis on liquidity, this means that Raydium is actually the most liquid platform for trading meme coins.

It’s like a virtuous cycle, pump.fun connects to Raydium > meme coins are issued here > people trade here > it gets liquidity > more meme coins are issued here > it gets more liquidity, and the cycle repeats itself.

Figure 6. Trading volume of Pump.Fun generated tokens on DEX

Therefore, Raydium is considered to follow the power law principle, and almost more than 90% of the meme coins generated by Pump.Fun are traded on Raydium. Like a large shopping mall in a city, Raydium is the largest "shopping mall" on Solana, which means that most people will choose to "shop" in Raydium, and most "merchants" (tokens) also want to open stores there.

Figure 7. Solana DEX volume (30 days) vs. Raydium volume (30 days) (red = meme coins, blue = non-meme coins)

Figure 8. Raydium volume by token type

It’s important to note that while Pump.Fun depends on Raydium, the reverse is not true — Raydium doesn’t rely solely on meme coins for volume. In fact, according to Figure 8, the top three trading pairs in the past 30 days were SOL-USDT/USDC, accounting for over 50% of total volume. (Note: the two SOL-USDC trading pairs are two different pools with different fee structures.)

Figures 7 and 9 also support this view. Figure 7 shows that in terms of trading volume, SOL-USDC far exceeds all other DEX trading pairs. Although Figure 7 shows the trading volume of all DEXs, it still shows that the trading volume in the ecosystem is not entirely driven by meme coins.

Figure 9 further shows Raydium's trading volume by token type, and we can see that "native tokens" account for the largest market share, over 70%. Therefore, while meme coins occupy an important position in Raydium, they do not constitute the entirety of the whole.

Figure 9. Pump.Fun Revenue

Figure 10. Raydium Revenue

That being said, meme coins are highly volatile, and pools with higher volatility typically generate higher fees. So while meme coins may not necessarily contribute that much to Solana’s liquidity pools in terms of trading volume, they are significant contributors to Raydium’s revenue and fees.

This is particularly evident when looking at the data for September — since meme coins are cyclical assets, they tend to underperform in “bad markets” as risk appetite decreases. Pump.Fun’s revenue thus fell 67% from an average of $800,000 per day in July and August to around $350,000 in September; Raydium’s fees fell by the same amount during this period.

Figure 11. Raydium’s TVL over time

But like everything else in crypto, the industry is highly cyclical, and it’s normal for metrics to slip during bear markets as risk recedes. Instead, we can focus on TVL as a measure of the true antifragility of a protocol — while revenue is highly cyclical, fluctuating as speculators come and go, TVL is a metric that can signal the sustainability of a decentralized exchange (DEX), reflecting its ability to stand the test of time.

TVL is similar to the “occupancy rate” of a shopping mall - while fashion trends ebb and flow, and mall usage may vary from season to season, as long as the mall’s occupancy rate is above average, we can measure its success.

Similar to a well-utilized shopping mall, Raydium’s TVL has remained stable over time, indicating that while its revenue may fluctuate with market prices and sentiment, it has demonstrated its ability to serve as a workhorse product in the Solana ecosystem and become the best and most liquid DEX on Solana. Therefore, while meme coins do contribute partially to its revenue, trading volume is not always dependent on meme coins, and liquidity still flocks to Raydium regardless of the season.

Raydium vs Aggregators

Figure 12. SolanaDEX Transaction Sources

While Jupiter and Raydium do not compete directly, Jupiter acts as a key aggregator in the Solana ecosystem, routing trades through multiple decentralized exchanges (DEXs), including Raydium, ensuring that trades are routed in the most efficient way. Essentially, Jupiter acts as a meta-platform, ensuring that users get the best price by pulling liquidity from various DEXs such as Orca, Phoenix, Raydium, etc. Raydium, in turn, acts as a liquidity provider, supporting many of the trades routed by Jupiter by providing a deep liquidity pool for Solana-based tokens.

Figure 13. 24-hour Jupiter volume by AMM

While the two protocols work closely together, it is worth noting that Raydium’s share of organic volume directly contributed is slowly increasing, while Jupiter’s share is gradually decreasing. At the same time, Raydium accounts for almost 50% of all market maker volume on Jupiter.

This demonstrates Raydium’s success in building a more robust, self-sufficient platform, able to attract users directly rather than relying on third-party aggregators like Jupiter.

The increase in direct volume suggests that traders are finding value in using Raydium’s native interface and liquidity pools, and that users are seeking the most efficient and comprehensive DeFi experience without going through an aggregator. Ultimately, this trend highlights Raydium’s independent capabilities as a major liquidity provider in the Solana ecosystem.

Raydium VS Other Solana DEXes

Finally, below is a comparison chart of Raydium vs. other SolanaDEXes (including aggregators), built using the Artemis plugin.

Figure 14. Comparison of Raydium with SolanaDEX

Figure 15. Comparison of Raydium with Popular DEXs

In Figure 13, we compared Raydium with the most popular DEXs on SOL, mainly Orca, Meteora, and Lifinity - these four DEXs together account for 90% of Solana’s total DEX trading volume, and we also included Jupiter as an aggregator. Although Meteora does not have a token, we still include it for comparison purposes.

We can see that Raydium has the lowest market cap/expense ratio and fully diluted market cap/expense ratio of all DEXs traded. Raydium also has the most daily active users, and the TVL of other DEXs is over 80% lower than Raydium - with the exception of Jupiter, which we consider to be an aggregator rather than a DEX.

In Figure 14, we compare Raydium to other more traditional DEXs on the chain - it can be seen that Raydium has more than double the annualized DEX volume of Aerodrome, but has a lower market cap/revenue ratio.

Raydium’s Token Economics

Here is a breakdown of Raydium’s token economics:

Note: Team and Seed rounds (25.9% of total) are fully locked up in the first 12 months after the Token Generation Event (TGE) and unlocked daily from month 13 to month 36, ending on February 21, 2024.

The Raydium token has multiple use cases: Holders of RAY can stake their Raydium tokens to earn additional RAY. Additionally, it is also a mining reward used to attract liquidity providers, allowing for thicker liquidity pools to form. Although the Raydium token is not a governance token, a governance method is currently being developed.

While the popularity of issuing tokens has declined after the DeFi summer, it is worth noting that Raydium has a very low annual inflation rate and its annualized buybacks outperform in DeFi. Currently, the annualized issuance is about 1.9 million RAY, of which RAY staking accounts for 1.65 million of the total issuance, which is very small compared to the issuance of other popular DEXs at their peak. At current prices, RAY issues about $5.1 million worth of RAY per year. This is very small compared to Uniswap, which has an issuance of $1.45 million per day before full unlocking and an annual issuance of $529.25 million.

As we remember, every time a trade is made in Raydium's pool, a small transaction fee is charged. According to the documentation: "Depending on the fees of a particular pool, these fees are allocated to incentivize liquidity providers, RAY buybacks, and the treasury. In summary, 12% of all trading fees, regardless of the fee tier of a particular pool, go to buybacks of RAY." This fact, combined with Raydium's trading volume, produces some pretty amazing results.

Figure 16. Raydium cumulative trading volume

Figure 17. Raydium Buyback Data

Raydium, with a cumulative trading volume of over $300 billion, has successfully bought back approximately 38 million RAY tokens, valued at approximately $52 million. This is equivalent to 14% of its current circulating supply. Raydium's buyback program is leading the way in the entire DeFi space, helping Raydium stand out among all Solana DEXes.

Raydium's Advantages

Overall, Raydium has a clear advantage among all Solana DEXes and is best positioned to continue to grow as Solana continues to grow. Raydium's growth story over the past year has been remarkable, and with the increasing dominance of meme coins in the crypto market, especially the recent craze around AI meme coins (such as GOAT), its growth momentum seems to show no signs of stopping.

As the primary liquidity provider and automated market maker (AMM) for Solana, Raydium has a strategic advantage in capturing market share of the emerging trend. In addition, Raydium’s commitment to innovation and ecosystem development is demonstrated through its frequent upgrades, strong incentives for liquidity providers, and active engagement with the community. These factors indicate that Raydium is not only ready to adapt to the changing DeFi landscape, but also to lead the trend.

Ultimately, Raydium, as an important infrastructure in the rapidly evolving blockchain ecosystem, seems poised for good growth in the future if it continues on its current trajectory.

Disclaimer: This article does not constitute a trading recommendation.

Original link: Artemis Research

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