The Raydium Protocol 🧬

Raydium is an on-chain order book AMM powering the evolution of DeFi

Ethereum brought decentralized trading, lending, and yield earning to anyone with an internet connection. Furthermore, it did that while ensuring transparency, interoperability, and immutability through the blockchain. However, the current state of DeFi is far from perfect.

Legacy Blockchains are not Ready for DeFi

  • 💸 DeFi transactions are expensive
    In a short time, we have seen gas fees jump to a level that completely wipes out potential earnings. Slow transactions exacerbate this as users bid up the price of gas, with failed transactions multiplying losses. As interacting with DeFi becomes prohibitively expensive, we are once again seeing common users left behind.
  • 🧩 Market fragmentation
    The nature of automated market makers (AMMs) on Ethereum means that liquidity is fragmented, and liquidity pools on one protocol are walled off from those on others. Without any central order book to aggregate across pools, competition by AMMs for liquidity is intense and users see no benefit from liquidity held on other platforms. This will also be true for shard-based blockchains, like eth2 and Polkadot.
  • 🧮 Features are limited
    Many trading features considered standard on centralized exchanges, like limit orders, are difficult to implement efficiently on Ethereum decentralized exchanges (DEX) due to slow transaction speeds and prohibitively high gas fees.

💡 The Vision for a New Industry Standard

With this in mind, our team got to work, and Raydium was born.

🧬 The Raydium Protocol: An Ecosystem Sustaining AMM

Raydium currently uses constant function K = Y*X. This equation has the special property that it is stateless and given any two tokens, without any information about their relative prices or value, it can provide “infinite” liquidity to traders. Raydium utilizes this equation and prices orders on the order book according to the Fibonacci sequence to provide up to 20 orders at a variety of prices with spreads as small as 20bps between them. This is an optimized solution to fit the exchange instructions onto a single Solana transaction. In the future, it’s expected that other liquidity providing models will be employed to take advantage of oracles and increased liquidity usage.

Additionally, liquidity providers will be able to generate rewards from trading fees for contributing. Key pools will be incentivized with RAY tokens as farming rewards. Projects that want to reward users for providing liquidity can also add additional reward tokens. When new projects launch, they can utilize Raydium to create a new trading market and provide immediate liquidity to it. This way projects can get up and running and give traders a chance to effortlessly buy in.

🗺 What’s ahead for Raydium?

Q4 2020

  • Ideation and project scope
  • Development of the protocol and iteration on testnet

Q1 2021

  • Development of liquidity pools and staking completed, mainnet launched
  • Website and platform launch
  • Development of cross-chain swap

Q2 2021

  • Research on additional market making models and features in partnership with other protocols

Q3 2021

  • Leverage of external oracles for improved market making
  • Governance model ideation in collaboration with partners

🐛 Evolution is Imminent

With the addition of external oracles, Raydium will be able to incorporate additional flexibility and functions for future versions and features. In addition, several newly-launched borrow/lending protocols on Serum could give Raydium the ability to add margin trading, unlocking even more liquidity from on-chain assets.

Raydium offers an avenue for evolution, where projects and individuals can swiftly enter the Solana and Serum universe to leverage its distinct advantages in speed and efficiency. Faster transactions, significantly lower fees, and ecosystem-wide liquidity are essential if the people, projects, and protocols of DeFi are to evolve. We hope to see you on the other side.

If you want to know more about Raydium, check out our website, follow us on Twitter, and join our Telegram to get in on the conversation.

Raydium is an on-chain order book AMM powering the evolution of DeFi.