Kyle Samani Is Back: This Time, We're Outperforming CEXs in Efficiency!

Source:Kyle Samani

Compiled by｜Odaily@OdailyChina；Translator｜Azuma（@azuma_eth）

Editor's Note: Kyle Samani, the man who knows how to shill Solana best and the former co-founder of Multicoin Capital who made a high-profile exit from the crypto world some time ago, is back!

Last night, Kyle Samani posted a long Thread on his personal X account. In it, Kyle Samani once again demonstrated his compelling "shilling" rhetoric (non-pejorative here), using "efficiency" – a weak point in the decentralization narrative – as a breakthrough. He detailed how Solana's currently promoted PropAMM will catch up to or even surpass traditional centralized models in terms of efficiency, strongly arguing that PropAMM is one of the most important innovations in market microstructure in recent years, or even decades.

• Related articles: 《The Man Who Shills SOL the Best Exits the Crypto World》；《Is There More to Kyle Samani's Exit?》。

The following is the original content by Kyle Samani, compiled by Odaily.

PropAMM is one of the most important innovations in market microstructure in recent years, and perhaps even one of the most important in decades.

To help understand this conclusion, let's first look at how market makers (MMs) quote prices on traditional centralized exchanges (CEXs).

Market makers typically co-locate physically with the exchange. Each market maker runs an algorithm on a server, connected via a network cable of uniform length (e.g., 50 meters) to another server that runs the exchange's system.

A massive stream of data constantly flows back and forth between the market maker and the exchange. Every time a market maker sends an order to the exchange—whether it's a limit order, a cancellation, or a market order—the exchange needs to broadcast this information to all other market makers; then the other market makers resend their own orders based on the new information; this cycle repeats indefinitely.

Here is a simple diagram.

Now let's look at how propAMM works on the Solana mainnet.

The beauty of propAMM on Solana is that the blockchain itself directly "hosts" the market maker algorithm. This means the system no longer needs billions of messages shuttling back and forth between market makers and the exchange; the market-making algorithm runs directly on the same physical machine as the exchange.

The new diagram is as follows. (Yes, only the Solana blockchain is needed!)

There has long been a common view in the cryptocurrency industry that because decentralized systems require communication between global nodes, they must be slower (have higher latency) than centralized systems.

But if you think about it differently, on-chain hosted algorithms could actually have lower latency than traditional centralized exchanges in finance.

Why is that? The reason is that the latency required for a propAMM to update its price only involves electrons moving within the same physical piece of silicon. For example, if the last market order causes the SOL-USD price to change, this information is immediately visible to all propAMMs and used to price the next market order. Everything happens inside the same piece of silicon; there is no longer a need for two-way communication between servers.

It should be noted that propAMMs do require frequent oracle updates, but this is not a problem and does not change the overall fact I described above.

The most crucial point remains: when the exchange—in this case, the Solana blockchain—directly hosts the propAMM algorithm, the market maker's pricing changes in real-time within the same physical piece of silicon.

propAMM has already become the dominant mechanism for SOL-USDC spot quotes on Solana, with narrower spreads than all major CEXs. I expect this market structure to become the dominant model for on-chain trading this year, including spot, perpetuals, and even prediction markets.

The biggest challenge for propAMM currently is that there is no way to guarantee that the taker gets the best execution, because:

• All propAMM algorithms are not public (which is reasonable, as traditional market-making algorithms are also proprietary);
• The result of routing trades between multiple propAMMs is non-deterministic.

However, this problem can be solved. I expect all relevant aggregator teams to launch solutions this year, such as Jupiter and dFlow on the spot side, and Phoenix on the perpetuals side.

Current propAMMs are still not fully optimized and are constrained by various limitations of the Solana blockchain itself. This year, Solana will roll out a series of major upgrades that will significantly enhance propAMM performance, including:

1. Higher CU (Compute Unit) limits per transaction and larger transaction sizes;
2. Higher CU limits per block;
3. Alpenglow: Reducing slot time from 400ms to 100–150ms;
4. DoubleZero: Reducing global network latency;
5. Application-controlled execution;
6. Multiple concurrent leaders.

If propAMMs on the Solana mainnet can already offer narrower quotes than all CEXs without these upgrades, imagine how powerful they will become as these upgrades are gradually implemented.