Explain in detail the automated market maker Raydium protocol

In less than a year, we’ve seen decentralized finance (DeFi) evolve from a buzzword to an entire ecosystem that sets new standards for personal financial sovereignty and trust. DeFi represents the future direction of decentralization and cryptocurrency. It allows everyone the freedom to use tools traditionally reserved only for large banks, corporations, venture funds and trading houses, without sacrificing autonomy.

Ethereum brings decentralized exchange, lending and earning to anyone with an internet connection. Furthermore, it does this through the transparency, interoperability and immutability of the blockchain. However, the current state of DeFi is far from perfect.

Traditional blockchains are not ready to embrace DeFi

Although there are huge opportunities in DeFi, it is largely constrained by the old blockchain.

• DeFi transactions are expensive

Recently, we have witnessed the soaring gas fee, and the income of a transaction can't even cover the transaction fee at all. The slow transaction speed in turn made the situation worse: users kept increasing the gas price, causing failed transactions to multiply. Interacting with DeFi has become very expensive, and ordinary users are being left far behind.

• fragmented market

The liquidity of the automatic market maker (AMM) on Ethereum is fragmented, and the liquidity pool of a certain agreement is isolated from other agreements. Due to the lack of a central order book that aggregates various liquidity pools, the competition for liquidity among various AMMs is fierce, and users cannot enjoy the liquidity held on other platforms. This is also true for sharded blockchains such as Eth2.0 and Polkadot.

• limited functionality

Due to the slow transaction speed and high gas fees, the basic functions of many centralized exchanges (such as limit orders) are difficult to effectively implement on Ethereum DEX.

The birth of Raydium, the vision of a new industry standard

During the DeFi heat wave of summer 2020, Serum launched a decentralized exchange that supports on-chain order books. It is built on Solana, a high-speed blockchain with extremely low transaction costs. This new paradigm presents a huge opportunity to solve the biggest problem in DeFi through a fast and efficient AMM, which can now leverage existing Serum order flow and provide liquidity from its own capital pool to the rest of the ecosystem.

With this in mind, our team started working on it, and Raydium was born.

Raydium Protocol: Embracing the Ecology of AMM

Unlike other AMM platforms, Raydium can provide on-chain liquidity to the central limit order book, which means that Raydium users and liquidity pools can access the order flow and liquidity of the entire Serum ecosystem, and vice versa. All of these functions are realized by building on Solana, an extremely fast and efficient blockchain.

Raydium currently uses a constant function K = Y/X. This equation has the special property of being stateless, providing traders with "unlimited" liquidity for any two given tokens without providing any information about their relative prices or values. Raydium leverages this equation and prices orders on the order book according to the Fibonacci sequence, offering up to 20 orders at each price (with spreads between them as small as 20bps). This is an optimized solution, and the exchange order can be realized through a Solana transaction. In the future, we expect to use other liquidity provisioning models to take advantage of oracles and improve liquidity.

Additionally, liquidity providers are able to earn rewards from transaction fees. Key liquidity pools will be motivated by RAY tokens as liquidity rewards. Projects that want to reward users for providing liquidity can also add other reward tokens. When new projects are launched, they can utilize Raydium to create new trading markets and provide them with instant liquidity. In this way, the project can be easily up and running, providing traders with the opportunity to easily purchase tokens.

Raydium's prospects

The Raydium team has over two decades of combined experience in market making, arbitrage and high frequency trading in both cryptocurrency and traditional markets. In the summer of 2020, they started building Raydium.

completed

Q4 2020

• Conception and project initiation

• Develop protocol and iterate on testnet

Q1 2021

• Complete liquidity pool and staking development

• Mainnet launch

expected function

Q1 2021

• Website and platform launch

• Q2 2021

Q2 2021

• Q3 2021

Q3 2021

• Using External Oracles to Improve Market Making Strategies

• Governance Model Ideas for Collaboration with Partners

Evolution is imminent

As Raydium gradually becomes the foundation of Serum's liquidity, it aims to collaborate with other DeFi and AMM communities and expand their other functions in Solana products. This will bring more liquidity and faster and more efficient DeFi protocols to the ecology.

By adding external oracles, Raydium is able to bring more flexibility and functionality to future releases. In addition, combined with several new lending protocols launched by Serum, Raydium is able to increase margin trading, thereby releasing more liquidity of assets on the chain.

Raydium provides a transformative paradigm that enables projects and individuals to quickly enter the Solana and Serum ecosystems to take advantage of their unique advantages in speed and efficiency. In the crypto industry, faster transactions, very low transaction fees, and the liquidity of the entire ecosystem are critical to attracting DeFi participants, projects, and protocols. Looking forward to seeing you in the Raydium ecosystem.

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