DeFi Project Spotlight: Raydium, Solana’s Top Automated Market Maker

Raydium is a decentralized exchange on Solana that functions unlike any other exchange. It uses liquidity pools but also acts as the biggest market maker on Solana’s order book-based exchange, Serum.

Raydium Explained

Raydium Protocol is Solana’s top automated market maker.

However, it works differently from other decentralized exchanges in that it acts as a market maker for Serum.

To understand why Raydium functions the way it does, it’s worth considering the project’s team. The group had worked together for several years before launching the decentralized exchange in early 2021. The team worked together in a quant trading algorithmic market-making firm on some of the top crypto exchanges.

Raydium’s story has parallels with the story of Sam Bankman-Fried, the billionaire founder of the FTX exchange and Alameda Research and a big supporter of the Solana ecosystem. Both Bankman-Fried and the Raydium team were traders, which shines through in the exchanges they build. Alpha Ray, the founder of Raydium, affirms that Bankman-Fried has been a big help to Raydium. They explain:

“Sam is a big investor in both Solana and Serum, and to make these work he needs a thriving ecosystem on Solana so he’s very helpful. He devotes a lot of his time, and FTX’s resources to help the ecosystem.”

One of the main advantages to centralized exchanges compared to their decentralized counterparts is the ability to create limit orders (although limit orders have been made possible on Uniswap V3 by following a certain technique). Orders need an order book rather than a liquidity pool. Traders prefer to specify the price at which they’d like to trade their assets, which isn’t possible with liquidity pools.

Raydium’s exchange was built on the philosophy of allowing the best of both worlds. When a user enters a trade, it will either be made using Raydium’s own liquidity pools or routed to the decentralized order book Serum depending on where the best price can be found. Alpha Ray explains:

“Serum has an order book system, and Raydium has its own liquidity pools. When users make transactions on our platform, the protocol aggregates liquidity from these two sources, a bit like 1inch on Ethereum.”

Raydium is the biggest market maker on Serum, routing trades from their own users 24/7, making them one of the only DeFi exchanges to have a built-in option for limit orders. The team also has a close relationship with Serum, which means it can quickly troubleshoot any issues that arise.