A Quick Overview of the Main DeFi Protocols in the Serum Ecosystem: How Does FTX Leverage Their Combined Advantages?

This article was published on BlockTempo.

Since the launch of the Serum protocol at the end of last year, the Serum ecosystem has gradually matured, including Serum front-end Bonfida, AMM liquidity integration Raydium, offline map app Maps.me, and prime brokerage protocol Oxygen.

This article will briefly introduce the functions of each DeFi protocol in the Serum ecosystem, and finally summarize the roles each protocol plays in the Serum ecosystem, piecing together the current state of the "Serum Universe" created by FTX founder SBF (Sam Bankman-Fried).

The following are the members of the Serum ecosystem that will appear in this article:

• Serum -- Decentralized Exchange
• Raydium -- AMM Protocol
• Bonfida -- Front-end Platform
• Maps.me 2.0 -- Application Scenario
• Oxygen -- Prime Brokerage Protocol

Decentralized Exchange Serum

The first gem of the Serum universe is the decentralized exchange (DEX), which is the Serum protocol, launched by Sam Bankman-Fried, founder of the FTX exchange and market maker Alameda Research.

Generally speaking, most DEXs use an "automated market maker (AMM)" mechanism, which relies on mathematical models, such as "x * y = k". The advantage is that it does not rely on traditional market makers to provide liquidity; however, the disadvantages are also evident, as insufficient liquidity can lead to significant "slippage," and users cannot place limit orders to buy or sell in advance like in CEXs (centralized exchanges), which protects assets and may even incur impermanent loss.

The emergence of AMMs is not only due to decentralization but also because of the scalability limitations of underlying architectures (such as Ethereum). If traditional "order book mechanisms" were used, it would result in excessively high transaction fees and delayed trading speeds.

Serum addresses this issue through the scalability of the Solana blockchain, allowing users to trade based on an "order book" mechanism. In addition to enabling limit orders, high trading speeds and low fees also make high-frequency trading possible.

According to the white paper, Serum not only has cross-chain trading protocols but will also issue Serum USD, backed by a basket of stablecoins, to avoid single points of failure. Therefore, in the long run, Serum's future benchmark model should be a "decentralized version" of the FTX exchange, becoming a spot and derivatives trading platform on Solana.

However, Serum alone is far from sufficient; a complete DeFi ecosystem must include optimized front-ends, lending protocols, synthetic asset protocols, and more, thus creating what the community refers to as the Serum universe.

Raydium AMM Protocol

Although the Raydium protocol is also a trading protocol, it differs from Serum in its direction as a derivatives trading platform. Raydium focuses more on using the "AMM" mechanism to create liquidity for the entire ecosystem.

Raydium currently uses the mathematical model "K = Y/X" and places orders on the Serum order book based on this model to achieve liquidity sharing. For any two specified tokens, it can provide "infinite" liquidity to traders without providing any information about their relative prices or values.

Key liquidity pools will use the RAY token as liquidity incentives. Projects wishing to reward users for providing liquidity can also add other reward tokens. New projects can also use Raydium to create new trading markets at the start of their initial trades, providing instant liquidity to the trading market.

The most valuable aspect of DeFi is "composability," allowing different protocols to connect and integrate, thereby increasing on-chain asset liquidity.

However, the liquidity of current AMM protocols is fragmented, meaning that the liquidity of funds locked in specific DeFi protocols is very limited. The Raydium protocol can provide on-chain liquidity to the central limit order book, representing that Raydium can access the order flow and liquidity of the entire Serum ecosystem.

Bonfida Front-end Platform

According to Bonfida's official website, Bonfida is also a DEX, but from the white paper's introduction, Bonfida is not a DEX; it is more like the front-end platform for Serum. The white paper states:

The functionality of the Bonfida platform enhances and optimizes the connection between Serum, Solana, and users. Bonfida is the most complete "flagship front-end" for Serum and is also the first to provide users with on-chain Serum DEX trading data analysis.

Currently, Bonfida has five functions:

1. Bonfida Serum Web Front-end (GUI): Bonfida DEX primarily serves as the front-end for Serum, providing users with a good trading experience and featuring a built-in wallet.
2. Serum API: Provides data storage for all Serum trading data. The Serum API is currently used by data platforms such as CoinGecko, CoinMarketCap, and many leading decentralized exchange market makers.
3. Serum Integration Dashboard: Bonfida integrates all components of the Serum ecosystem, including the Serum front-end, trading protocols (Swap), lending, and staking, providing users with a one-stop trading experience.
4. Bonfida Algorithmic Trading: Users can use technical indicators to build trading strategies for algorithmic trading, and these trading strategies can also be made available for other users to subscribe to.
5. Solible: A Solana NFT trading platform.

Maps.me 2.0

Maps.me is an offline map application that has accumulated 140 million users since its launch. Users can download maps before traveling, allowing them to query maps, local hotels, and restaurants within the app even when local data is exhausted, making it a highly relied-upon application for hiking and travel enthusiasts.

In addition to planning trips, users can also complete accommodation and restaurant reservations within the app. However, due to partnerships with third-party payment platforms, high fees must be paid. Statistics indicate that travelers incur an average of $17 in exchange losses for every $100 spent during international travel, including remittance fees and third-party platform fees.

Recognizing the potential for DeFi ecosystem development, Maps.me will integrate a wallet into the app, allowing users to make reservations for accommodations, book restaurants, and pay for meals directly in the wallet without going through any intermediary platforms, resulting in almost "zero exchange loss" (only blockchain fees need to be paid).

Due to its large user base and global reach, Maps.me chose to join the Serum ecosystem, as Solana's efficiency and low fees can meet the demands of frequent transactions. On the other hand, the conversion between stablecoins from different countries requires significant liquidity and trading pairs, and fiat currencies and stablecoins also need exchange channels.

More importantly, Maps.me will also integrate with the soon-to-be-launched Oxygen protocol, allowing users to trade tokens themselves or collateralize assets into Oxygen's liquidity pools to earn "passive income," or lend out other assets to maximize capital efficiency.

Oxygen Protocol

The Oxygen protocol is a decentralized prime brokerage protocol that mimics traditional financial prime brokerage services designed specifically for "institutional investors." This service primarily connects various market participants, including hedge funds, pension funds, insurance companies, asset managers, and liquidity providers. Users can trade directly within this framework, matching their asset collateral and borrowing (e.g., securities) needs, thereby maximizing the efficiency of their capital usage.

The Oxygen protocol is a lending protocol based on a "pool structure." The pool contains assets from many individuals, and through a permissionless, low-cost, and scalable prime brokerage service protocol, Oxygen democratizes lending, making capital usage more efficient for DeFi users.

The application scenarios for Oxygen include:

1. Earning income: Users deposit funds to earn returns.
2. Borrowing: Users can borrow assets from the pool and pay interest to the pool.
3. Trading: Users can trade within the pool and with the decentralized exchange Serum.
4. Synthetic products: Assets collateralized in the pool can be used to trade more complex structured synthetic products.

From the above application scenarios, Oxygen resembles a one-stop DeFi solution, essentially combining Compound + Synthetix + Uniswap. Users only need to place their funds on the Oxygen platform to meet their needs for lending, collateralizing assets, synthetic assets, and trading.

It is worth noting that the Oxygen protocol also addresses the current low efficiency of capital usage in DeFi protocols. This is because, although DeFi protocols are composable, funds collateralized on a single platform cannot flow to another platform. On the other hand, users who use borrowed stablecoins to purchase or synthesize other assets face the risk of exchange loss, and managing assets across multiple protocols incurs significant management costs.

In the Oxygen protocol, users can re-collateralize assets, and the borrowed assets can generate income while also using the borrowed assets to increase returns. Continuing the consistent approach of the FTX exchange, when users want to borrow other assets, they can use the total value of "all assets" in their account as collateral, meaning the risk of liquidation or margin calls is reduced, achieving "cross-asset collateralization within the same account."

Avengers, Assemble!

After listing the DeFi protocols in the Serum ecosystem, it is not difficult to see that Serum has almost completed the important puzzle of building a complete DeFi ecosystem.

Meeting Scalability

Firstly, Serum is built on the Solana blockchain, which satisfies the "order book" mechanism of the Serum DEX, allowing traders to use limit order mechanisms like CEXs, thus avoiding slippage during trading. The characteristics of the order book also allow Serum DEX to trade derivative products in the future.

On the other hand, issuing Serum USD, backed by a basket of stablecoins, also meets the need for a native stablecoin in the Serum ecosystem, helping with asset pricing and avoiding single points of failure.

Optimizing Trading Experience

Bonfida, as the front-end for Serum DEX, optimizes the interface, API data integration, and integrates all components of the Serum ecosystem, achieving a one-stop service. Algorithmic trading can also accommodate more traders, optimizing the trading experience, giving Serum DEX a significant advantage as a derivatives trading venue.

Integrating On-chain Liquidity

While optimizing the trading experience, the Raydium AMM protocol integrates the liquidity of various DeFi protocols through an "improved AMM protocol" and provides on-chain liquidity to the central limit order book, supplying liquidity to the entire Serum ecosystem.

Not only does it integrate liquidity on the Solana blockchain, but previously, Sam Bankman-Fried also proposed to the SushiSwap community to replicate SushiSwap on Solana. If approved, through Solana's cross-chain mechanism, it could attract external liquidity from other blockchains through collaboration with SushiSwap and liquidity mining rewards, thereby strengthening the Serum ecosystem.

Bringing in Real Users

Maps.me's entry into the Serum ecosystem serves to introduce the advantages of DeFi to Maps.me's users, while also bringing a large number of users into the Serum ecosystem. Currently, there are about 1.2 million active wallet addresses in DeFi, and after excluding duplicate addresses, the actual number of active users may be less than 1 million, or even fewer.

In contrast, Maps.me has 140 million users. By attracting real users to use Maps.me's DeFi wallet through "zero exchange loss," and integrating Maps.me's wallet into the Oxygen protocol, users can collateralize assets to earn "passive income" or lend out other assets to maximize capital efficiency.

If just 1% of users (equivalent to 1.4 million users) are brought in, the Serum ecosystem will gain a substantial user base. This represents better liquidity and a broader ecosystem, and Solana's scalability can fully accommodate such a large number of users.

Maximizing Capital Efficiency

On the other hand, the Oxygen protocol's "Compound + Synthetix + Uniswap" one-stop DeFi solution allows users to meet their needs for lending, collateralizing assets, synthetic assets, and trading on a single platform. In this regard, Oxygen complements the "composability" of the Serum ecosystem. Lending and collateralizing assets greatly enhance users' capital efficiency, and the advantage of "cross-asset collateralization within the same account" reduces the risk of liquidation, allowing users to manage their assets better.

The later introduction of the "synthetic assets" feature will allow developers to create structured products tailored for themselves or their clients, while the Oxygen protocol will use an on-chain risk management engine to assess users' liquidity pools.

In the long run, Serum DEX resembles a derivatives exchange, while the synthetic assets created by Oxygen can be listed on Serum DEX, creating a secondary market and liquidity.

With the underlying architecture of Solana's scalability, Bonfida's optimized trading experience, Raydium AMM protocol's integrated liquidity, Maps.me's influx of users, and Oxygen protocol's lending and synthetic assets, the prototype of the Serum ecosystem has already formed. Under the leadership of Sam Bankman-Fried, it is bound to create various topics.

However, at this stage, the Serum ecosystem is still in its early stages. The programming language Rust used for developing smart contracts on Solana is not the programming language that past Ethereum dApp developers are accustomed to, and the front-end wallet is still being improved. These two points indeed increase the usage and development threshold for Serum or Solana, and whether the Serum ecosystem can break through these limitations and operate as a self-sustaining universe remains to be proven by time.