Three times in one month, why did RAY increase so sharply?
Data Analysis of Solana’s DeFi King Raydium
Original title: "Raydium: King Of Solana De-Fi"
Original author: @0xkyle__
Original translation: zhouzhou, BlockBeats
Editor's note: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 Solana's dominance, and 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 ~680% year to date.
While meme coins are deeply intertwined with Solana, Solana has regained attention as an ecosystem since its 2023 recovery, with its ecosystem thriving — tokens for protocols like Drift (Perp-DEX), Jito (liquidity staking), Jupiter (DEX aggregator), and others have all reached billion dollar valuations, and Solana’s active addresses and daily transaction volume have surpassed all other chains.
At the heart of this thriving ecosystem is Raydium, Solana’s leading decentralized exchange. The old saying “selling shovels in the gold rush” perfectly describes Raydium’s position. While meme coins are attracting a lot of attention, Raydium is quietly driving liquidity and transactions behind the scenes to support this activity. Raydium has solidified its position as critical infrastructure in the Solana ecosystem, thanks to continued inflows from meme coin trading and broader DeFi activity.
At Artemis, we believe in an increasingly fundamentals-driven world - therefore, the purpose of this article is to construct a fundamentals report highlighting Raydium's position 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 Brief Introduction
Raydium, launched in 2021, is an automated market maker (AMM) built on Solana that supports permissionless pool creation, ultra-fast trading, and yield earning. The key difference of Raydium 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 ordinary 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 the influx of mainly long-tail markets.
Raydium currently offers three different types of pools, namely:
· Standard AMM Pool (AMM v4), formerly known as Hybrid AMM
· Constant Product Swap Pool (CPMM), supporting Token 2022
· Centralized Liquidity Pool (CLMM)
Whenever a swap is made on Raydium, a small fee is charged depending on the specific pool type and pool fee tier. The fee will be distributed to liquidity providers, Raydium token buybacks, and the treasury.
Below are the transaction fees, pool creation fees, and protocol fees for different pools on Raydium that we have recorded. Here’s 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-signature and is used for protocol infrastructure costs.
Figure 1. Raydium Fee Structure
DEX Ecosystem on Solana
Figure 2. TVL on Solana
Now that we’ve analyzed how Raydium works, let’s evaluate Raydium’s place in 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 coin liquidity on Solana can be attributed to several different factors, the most notable of which is the “meme coin boom” on Solana.
Solana’s high speed and low cost for settlement, combined with the smooth user experience it provides for Dapps, has led to the growth and prosperity of on-chain trading. With tokens like BONK and WIF reaching multi-billion dollar market caps, and the emergence of Pump.fun, a meme coin launchpad, 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 the increase in activity, this means that DEXs on Solana are performing extremely well - more traders means more fees, which in turn means 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 Trading Volume Market Share
Currently, Raydium ranks first among other SolanaDEXs and has the highest trading volume among all DEXs. Raydium accounts for 60.7% of the total SolanaDEX trading volume, 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, users can choose between constant product pools for price discovery at the time of initial issuance. Or choose to provide liquidity in a more tightly bounded range in a concentrated liquidity pool - this allows initial price discovery for long-tail assets to take place on Raydium while remaining competitive in markets such as SOL-USDC, stablecoins, LST, etc.
Figure 5. Liquidity among SolanaDEX
Also, Raydium remains the most liquid DEX at the time of trading, and it is important to note that DEXs generally face economies of scale as traders tend to cluster on the most liquid exchanges to avoid slippage. 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 rally point. If liquidity is fragmented across DEXs, it will lead to a poor user experience and frustration when purchasing a different meme coin each time.
Examining Meme Coins vs. Raydium
Raydium’s popularity is also due to the resurgence of meme coins on Solana, specifically the meme coin launch 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 coins and Raydium - when the tokens issued on Pump.fun reach a market cap of $69,000, Pump.fun will automatically deposit $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.
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.
Figure 6. Trading volume of Pump.Fun generated tokens on DEX
Thus, 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. Just 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, with Figure 7 showing that SOL-USDC far exceeds all other DEX trading pairs in terms of trading volume. 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 volume by token type, and we can see that “native tokens” account for the largest market share, over 70%. So while meme coins have an important presence in Raydium, they do not make up 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 greater volatility typically generate higher fees. So while meme coins may not necessarily contribute that much to Solana’s liquidity pools in terms of volume, they are significant contributors to Raydium’s revenue and fees.
This is particularly evident when looking at the data for September - as meme coins are cyclical assets, they tend to underperform in "bad markets" as risk appetite declines. Pump.Fun's revenues therefore 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 fades. Instead, we can focus on TVL as a measure of the true antifragility of the protocol - while revenue is highly cyclical and fluctuates as speculators come and go, TVL is a metric that can mark 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 rise and fall, and the use of a shopping mall may vary from season to season, as long as the occupancy rate of a shopping mall 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 staple 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 transactions through multiple decentralized exchanges (DEXs), including Raydium, ensuring that transactions are made in the most efficient path. Basically, Jupiter acts as a meta-level platform that ensures users get the best prices by pulling liquidity from various DEXs like Orca, Phoenix, Raydium, etc. Raydium, on the other hand, acts as a liquidity provider, supporting many of the trades routed by Jupiter by providing deep liquidity pools for Solana-based tokens.
Figure 13. 24-hour Jupiter volume by AMM
While the two protocols work closely together, it’s worth noting that the share of organic volume directly contributed by Raydium 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 that is able to attract users directly rather than relying on third-party aggregators like Jupiter.
The increase in direct trading volume shows that traders are finding value in using Raydium’s native interface and liquidity pools, and users are looking for 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 we built using the Artemis plugin between Raydium and other SolanaDEXes (including aggregators).
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/fee ratio and fully diluted market cap/fee ratio of all DEXs traded. Raydium also has the most daily active users, with other DEXs having TVLs over 80% lower than Raydium - with the exception of Jupiter, which we consider an aggregator rather than a DEX.
In Figure 14, we compare Raydium to other more traditional DEXs on-chain - it can be seen that Raydium has over 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 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: RAY holders can stake their Raydium tokens to earn additional RAY. In addition, 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.
Although 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 buyback has outperformed in DeFi. Currently, annualized issuance is around 1.9 million RAY, with RAY staking accounting 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 is issuing 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 transaction fees, regardless of the fee tier of a particular pool, go toward buybacks of RAY." This fact, combined with Raydium's trading volume, produces some pretty amazing results.
Figure 16. Raydium cumulative transaction volume
Figure 17. Raydium repurchase data
Raydium, with a cumulative trading volume of over $300 billion, has successfully repurchased 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 continued dominance of meme coins in the crypto market, especially the recent meme coin craze around AI (such as GOAT), its growth momentum seems to show no signs of stopping.
As Solana's primary liquidity provider and automated market maker (AMM), Raydium has a strategic advantage in capturing market share of emerging trends. Furthermore, 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 way.
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 trading advice.
Original link: Artemis Research
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
BTC breaks through $94,000
The ZKasino project borrowed 12.38 million DAI from Aave again in the past 2 hours to go long on ETH
MicroStrategy founder reiterates he will not sell BTC
Bitcoin Frontier Fund to Invest in Teams Building on sBTC