What is Raydium: An On-Chain DeFi Liquidity Provider
- Raydium aims to solve the liquidity problem in DeFi by creating an AMM that interacts with an on-chain order book on a high-speed and scalable network.
- Benefits of Raydium: Raydium provides a powerful trading experience, an intuitive interface, dual reward farming, and access to high profile IDOs and NFT drops.
- Disadvantages of Raydium: The biggest disadvantage Raydium has is its integration with only one DEX, Serum.
The combination of distributed ledger technology with the legacy financial system is popularly known as decentralized finance (DeFi). In all its glory, DeFi is still far away from reaching widespread adoption. The primary reason is that most protocols are deployed on the Ethereum network, which has grown slow and unscalable.
Considering the network congestion of Ethereum, Serum decided to incorporate the Solana blockchain to build a fully-featured decentralized exchange. The goal was to solve the liquidity problem in DeFi by creating an order book on a high-speed and scalable network. Thus, Raydium was born.
What is Raydium?
Deployed on the Solana blockchain, Raydium is an on-chain liquidity provider to a central limit order book. Unlike other decentralized automated market makers (AMMs), Raydium’s AMM provides on-chain liquidity to Serum’s order book. Raydium utilizes a unique mathematical equation to provide infinite liquidity to traders, making it one of the largest Market Makers on Serum. The platform uses K = Y*X constant function as per the Fibonacci sequence to provide its users up to 20 orders at several prices with spreads as low as 20bps between them.
Raydium’s Best Price Swaps feature determines whether swapping within a liquidity pool or through the Serum order book will provide the best price for users. Raydium uses the Solana network and leverages the Serum DEX’s central order book to facilitate lightning fast trades, shared liquidity with Serum, and includes several yield-farming features.
Benefits of Raydium
A Powerful Trading Experience
Most AMMs access liquidity within their protocols and don’t have access to an order book. As Raydium provides on-chain liquidity to the Serum DEX’s central limit order book, it allows access to the liquidity and order flow of the whole Serum ecosystem, which results in higher capital efficiency for liquidity providers. Moreover, the platform leverages the Solana blockchain’s efficiency to facilitate quick trades at very low fees.
An easy-to-use user interface is necessary for attracting traders and users. Raydium offers a slick UI design to ensure that both beginners and professionals can provide liquidity or trade on the platform without having to navigate a complex setup. Besides, the platform provides users with TradingView charts and the functionality to set limit orders to gain more control over their trades.
Dual Reward Farming
When a liquidity provider (LP) provides liquidity on the platform, Raydium issues an LP token representing the share of that particular LP in a pool. Certain pools that are decided by the Raydium community can farm these tokens to return RAY tokens as rewards. Additionally, projects can incentivize users by adding RAY tokens into a pool to give out in exchange for holding their native tokens.
AccleRaytor is an initiative by Raydium to spearhead the growth of the Solana ecosystem through high-liquidity initial dex offerings (IDOs). It serves as a launchpad for the latest projects to raise capital and drive initial liquidity in a decentralized and interoperable manner while enabling both project and Raydium communities to participate in carefully curated and vetted token offerings.
Tradeoffs of Raydium
The biggest disadvantage Raydium has is its integration with only one DEX, Serum. In order to offer the best and most efficient price for a swap to its users, Raydium should collaborate with other DEXs.
How to Interact with Raydium?
Raydium offers different ways to engage with the platform. First, its swap feature allows traders to exchange two tokens quickly through Serum DEX. It also allows for advanced trading features like limit orders for a better experience. Second, users can stake RAY tokens on the Raydium app to earn additional RAY and participate in IDOs and NFT drops. Lastly, Raydium users can provide liquidity by adding their assets to a particular pool and earn trading fees and dual-yield farming tokens in return.
As Raydium progresses as a foundation for liquidity on Serum, it aims to partner with other DeFi and AMM communities and provide support to build out their products on Solana. This will bring both additional liquidity and faster, more efficient DeFi protocols to the ecosystem.
Therefore, Raydium offers an avenue for continued DeFi evolution, where projects and individuals can easily enter the Solana and Serum universe to leverage its distinct advantages in speed and efficiency. Because at the end of the day, faster transactions, significantly lower fees, and ecosystem-wide liquidity are essential if the people, projects, and protocols in DeFi are to evolve, innovate, and grow.