While the Decentralized Finance (DeFi) takes the decentralized concept of blockchain and applies it to the world of finance. Build... market is growing at a rapid pace, it’s still considered to be in its infancy, with developers in the space finding themselves face-to-face with several challenges. First, DeFi transactions tend to be slow and expensive: for example, Ethereum’s blockchain is saturated, and depositing ETH within a liquidity pool will set you back over $100. Second, liquidity pools are fragmented between different protocols which compete with one other. And finally, without an order book, the trading experience is limited: not only are you unable to place limit orders, but you’re also obliged to provide liquidity on either side of an exchange pair. Rising to the occasion is Raydium, which provides excellent solutions to combat these limitations.
What Is Raydium?
Raydium is a decentralized AMM (automated market maker) on the Solana blockchain. It draws directly from the order book of Serum, Solana’s largest Decentralise Exchange (DEX) is a crypto exchange platform that is built upon blockchain technology and negates the need ... (decentralized exchange), to run its swap system.
The main advantages of an AMM built on Solana are speed and affordability. In addition, Raydium interacts directly with the Solana ecosystem and with Serum for greater liquidity.
The enthusiasm around DeFi is an indication of the growing interest in DEXs operating the AMM model. DEXs such as Maker, Compound, Uniswap, Aave, and SushiSwap are attracting an increasing number of investors. Despite having only been launched in February 2021, Raydium has gained significant popularity — and for good reason.
Automated Market Makers (AMMs)
In financial markets, liquidity isn’t only provided by traders. Market makers are also responsible for compensating for the lack of organic liquidity. They help to ensure smoother exchanges by providing liquidity in a dynamic manner.
An automated market maker (or AMM) is a protocol that ensures the liquidity of a digital market, especially in crypto exchanges. An AMM is a decentralized exchange that automatically sets an asset’s purchase and sale price. AMMs are widely used within predictive markets (e.g., Augur and Gnosis), and in decentralized finance protocols, such as Uniswap. Different algorithms are used, depending on the types of markets. In the decentralized finance (DeFi) world, AMMs ensure access to liquidity via liquidity pools. Unlike in conventional trading, there are no order books. Instead, assets are traded with a liquidity pool, an aggregate of liquidity provided by users of the protocol.
Three agents are involved in these protocols:
- Traders who wish to trade assets with each other
- Liquidity providers who bring assets to traders in exchange for fees
- Arbitrageurs who are responsible for keeping the price of assets consistent on the AMM in relation to external markets, while generating profit.
What Is RAY?
RAY is the native utility token of the Raydium ecosystem. Its initial supply, launched on February 21, 2021, was capped at 555 million tokens. The development team was allocated 20% of the total supply, locked for up to three years so developers cannot sell them. One-third of the supply of RAY tokens (188 million) can be mined. Block rewards are projected to be halved every six months. At the same time, 0.03% of the transaction fees made on the platform will be sent as a reward to stakers.
Here’s how the RAY tokens are distributed:
- Maximum quantity in circulation: 555,000,000 RAY
- Liquidity Mining Reserve: 34%
- Partnerships & Ecosystem: 30%
- Development Team: 20% (locked between 1 and 3 years)
- Liquidity: 8%
- Community: 6% (locked for 1 year)
- Advisors: 2% (locked between 1 and 3 years)
Allocation of Raydium’s RAY token
What Can RAY Tokens Be Used For?
The RAY token allows its holders to generate interest and intervene (albeit in a limited way) in the governance of the protocol. RAY holders generate interest (0.03% of trading fees) via staking.
RAY also allows you to participate and vote on proposals and amendments for its community. RAY token owners can vote on the issues submitted to the community. The amount of RAY a user owns determines the voting power they have.
How Does Raydium Work?
Raydium is an AMM that has two fundamental properties. First, it provides access to Serum’s order book. Second, its algorithm is based on a constant function, CFAMM (constant function automated market maker). Note that its architecture is anchored within Solana and Serum.
Constant Function AMM
Constant function AMM algorithms, also known as “constant products,” use a function that ensures that each asset in the token reserve remains constant, regardless of the trades made.
Raydium’s AMM model uses the constant function K = Y * X.
X and Y represent the number of tokens in mining and liquidity reserve tokens, and K is the constant product.
Any two tokens are considered stateless in the AMM, meaning there is no information regarding their current prices or values; hence the exchange can provide infinite liquidity to traders. Raydium uses this equation with the price data from the order books to provide a maximum of 20 orders with various prices with spreads as low as 20 basis points. Using the constant product ensures that the transactions are cheaper.
Market Making on Raydium
Raydium’s core innovation is the use of an order book within its AMM. Raydium uses the Solana blockchain, which is based on a major innovation, the proof of history (PoH). This consensus offers several advantages:
- Facilitation of up to 65,000 Transactions per second (TPS) is the number of transactions a blockchain network can process each second or the number o... (TPS) and speedy block times of 400 milliseconds (i.e., four-tenths of one second).
- Minimal fees, on average $0.00001 per transaction.
- Interoperability with Ethereum.
Serum’s order book is entirely on-chain, and this integration benefits both ecosystems. Raydium’s liquidity pools can feed Serum’s order book, and vice versa (i.e., Serum users can access Raydium liquidity pools). Raydium uses its liquidity pools to strategically place its orders in Serum’s backlog. The objective is to establish a reliable order match and a fair price for the asset traded.
To add liquidity to a pool, you need two tokens. Both tokens have to be deposited at equal value in a pool. In exchange, you receive LP (liquidity provider) tokens, which represent your participation in the pool.
Raydium distributes liquidity in the order book at different prices and in different quantities, according to market demand. Specifically, the protocol relies on the Fibonacci sequence to place up to 20 orders at a time. In the future, Raydium will integrate other liquidity-providing models into its architecture, notably through the use of oracles.
The Crypto Swap
One classic feature of any AMM is the ability to exchange assets with others on the fly. With Raydium, this process is quick and fuss-free.
Like any AMM, Raydium features Swap, an essential tool in DeFi, and it couldn’t be easier to use. With Swap, you can exchange two tokens by first selecting the token you already have, followed by the token that you want. This is the first milestone in the use of DeFi and yield farming. Depending on your needs, you can swap all the tokens you have, or only a portion of them.
The Raydium Ecosystem
Thanks to Solana’s technical capabilities, the ecosystem built around the Raydium project offers a decentralized, liquid, and inexpensive trading experience. Raydium achieves this dynamic perfectly by combining Serum’s order books with their AMM protocol.
Raydium rewards liquidity providers with 0.03% of all transaction fees. Raydium issues a token that allows the percentage of the pool that each user owns to be traced.
Yield farming allows anyone to invest their tokens by taking advantage of the best returns of DeFi. You can, of course, deposit your newly acquired LP tokens in pools before maximizing your yield. This process is called yield farming, or liquidity mining. When a liquidity provider (LP) provides liquidity on the platform, Raydium issues an LP token representing that particular LP’s share in a pool. Some pools decided by the Raydium community can farm these tokens to return RAY tokens as a reward. Projects can also encourage users by adding RAY tokens to a pool to be distributed in exchange for holding their native tokens.
To bring liquidity to Raydium, you’ll need a functional Solana wallet for the tokens you want to place in the liquidity pools. There’s now a native version of USDT on Solana. So, if you want to transfer USDT to a Solana wallet, you can withdraw your USDT from your wallet at no cost. Once your wallet has enough USDT, you need to connect it to Raydium in order to proceed with the next step.
If you want to farm the RAY/USDT pair, you’ll need an equal amount of RAY and USDT tokens. To participate in yield farming, you’ll need LP tokens acquired in the previous step to deposit in the farm pool, corresponding to the tokens you’ve already deposited. You can then start farming tokens. Note that these tokens aren’t blocked, and can be withdrawn at any time.
Note: Before you begin farming, it’s important to read and fully understand the mechanics of impermanent loss, lest you be taken by surprise upon your exit from any pool.
The AcceleRaytor feature has been added to the Raydium platform, serving as an outlet for new projects to further expand the Solana ecosystem. Thanks to this system, projects that collect initial liquidity and sufficient capital can easily complete their launch. AcceleRaytor adds all carefully selected token pre-markets to its platform to enable a fair and decentralized output.
Raydium’s AcceleRaytor, much like PancakeSwap’s IFO (Initial Farm Offering), allows projects to launch and raise funds directly on their protocol. The AcceleRaytor offers the possibility for project leaders linked to Solana to have access to financing quickly and efficiently. It was designed to operate based on a two-pool model, which rewards projects that take advantage of the program. The model allows project access to a wider crypto community while rewarding RAY token holders.
Raydium and the Solana Blockchain
As mentioned above, Raydium is built on the Solana blockchain, allowing it to interact seamlessly with other DApps in the Solana ecosystem. It benefits from the Serum decentralized exchange’s fast trading, shared liquidity, and other features. Raydium’s customizable user interface displays a graphic charter worthy of the best traditional exchange platforms, while embedding a module dedicated to Raydium. This allows limit or stop orders to be placed.
Raydium uses PoH to ensure the security and continuity of the network, resulting in one of the lowest costs per transaction in the crypto sphere.
The Raydium Community
There are several ways for Raydium users to participate in the community and earn RAY tokens. One of these is Project Raydiate, through which community members get rewarded for completing interactions on social media and taking part in content creation challenges.
There are also exclusive Raydium team groups, where dedicated community members become “RAYgional Ambassadors.” These ambassadors earn RAY coins on a monthly basis for their contributions. A few examples of contributions include creating and translating content, and interacting with social media users.
Is Raydium Scalable?
Yes, Raydium is scalable. To understand why, we need to look at how Solana and Serum work, because Raydium’s architecture and AMM functionality are tied to both Solana and Serum.
Solana is a powerful and permissionless blockchain that tries to solve the scalability problem sans sharding. This makes Solana a good go-to for DApps that require a high data rate. Solana relies on a new PoH timestamp algorithm, which automatically strings together transactions that take place within a fraction of a second.
However, the scalability of Solana is made possible primarily thanks to Solana’s Sealevel. This is Solana’s runtime environment, which makes it possible to modify the state of the blockchain according to the instructions programmed within autonomous contracts. Unlike its predecessors, however, Solana can execute tens of thousands of smart contracts in parallel.
On the Ethereum virtual machine (EVM), the instructions form a stack, of which only a single contract can change the state of the blockchain at a time. This is not the case with Solana as overlapping transactions can be executed simultaneously, while transactions that require the same state of the blockchain can also be executed in parallel.
How Much Does a RAY Coin Cost?
As of this writing, the RAY coin is trading at $9.46, down from its all-time high of $16.94 which was recorded on September 12, 2021.
Raydium’s RAY token price. Source: CoinMarketCap — Raydium
RAY Market Cap
At the time of this writing, Raydium has a The market capitalization (or market cap) of a cryptocurrency is a measurement of its market value. In other words, it... of approximately $661 million from a total Circulating supply is the number of cryptocurrencies or tokens that are publicly available and circulating in the crypto... of 69,899,584 RAY. It has large daily trading volumes, with a 24-hour trading volume of about 100 million RAY.
Raydium’s market capitalization. Source: CoinMarketCap — Raydium
There is a 0.25% transaction fee when trading or making swaps on the Raydium platform. 0.22% is deposited back into the liquidity pool and used as a reward for liquidity providers. The remaining 0.03% is sent to users that are staking the RAY token. Although Raydium users enjoy the hybrid of CEX and DEX, they don’t incur the maker and taker fees that centralized crypto exchanges usually charge.
Like most decentralized exchanges, Raydium doesn’t charge any transfer or withdrawal fees, other than network fees. Network fees are paid to miners of the relevant crypto/blockchain, not to the exchange itself. Note that the network charges vary from day to day, depending on network demand.
DEX servers are distributed all over the world. This is different from centralized exchanges, which normally have geographically concentrated servers. The global distribution of DEX servers reduces the risk of server downtime and makes DEXs virtually immune to attack. If one of the servers ever gets compromised, the impact on the entire network would be minor or even nil.
If you trade on a centralized exchange, you normally hold assets on it until you remove them from your private wallet. A centralized exchange can be hacked, and your funds that are held on that exchange can therefore be stolen. Fortunately, this isn’t the case when it comes to DeFi exchanges like Raydium. If you trade on a DEX, the exchange itself never touches your assets. Thus, even if a hacker were to successfully infiltrate the exchange, they wouldn’t be able to access your assets.
Raydium’s PoH algorithm embeds transaction histories into their data to confirm that a transaction has actually taken place. This may sound a bit complex, but essentially, timestamps are embedded in the transactions via a “verifiable delay function.” This determines which transactions have already been executed before publication on the network.
As with any blockchain, Raydium’s transactions are hashed and used as input for the next transaction. This results in a clear, concatenated sequence of transactions, which can no longer be changed by the one-sided hash functions afterward.
How to Store RAY
Typically, you’ll need a Solana-compatible wallet to store RAY tokens. The best example is the sollet.io wallet. You can also store your RAY tokens in the software wallets provided by crypto exchanges on which RAY is listed.
How to Buy RAY Crypto
As one of the top cryptos in the market, most leading crypto exchanges list RAY crypto as an option. You can also buy RAY directly from their official website.
The Future of Raydium (RAY)
Provided the popularity of DEXs continues to rise, the future of Raydium remains bright. Unlike other AMMs, Raydium provides on-chain liquidity to a central limit order book. This means that funds deposited into Raydium are converted into limit orders, which then sit on Serum’s order books. This is different from other AMMs found on the Ethereum blockchain.
In addition to being fast, inexpensive, and able to access Serum’s order book, Raydium offers some enticing features. It combines the advantages of both decentralized and centralized exchanges. Raydium offers the possibility of setting different order types when trading. It also introduces a new system of yield farming, dual yield, which means you’ll receive farming rewards in both RAY, as well as the project token for the pool you’re staking. In addition to earning RAY, this allows users to receive interest in the two tokens of the pair they choose. The APR rates of the tokens are added together to make a final percentage. Thanks to Solana’s processing of transactions, it can place manifold data in a transaction in communication with exchanges, thus doubling the platform’s speed.
The Bottom Line
Although Raydium has been around for less than a year, it’s managed to reduce the gap between centralized and decentralized exchanges. Thanks to the speed of the Solana blockchain and the liquidity of Serum, the Raydium platform can process 65,000 transactions per second, with blocks created in a mere 400 milliseconds. By offering a plethora of DeFi services and allowing users to earn constant passive income through staking and participating in liquidity pools, Raydium is poised for exponential growth.