Raydium is a decentralized exchange (DEX) running on the Solana blockchain and is known for its unique hybrid automated market maker (AMM) mechanism. By connecting directly to Solana’s central limit order book, Raydium enables a seamless trading experience and liquidity provision. This article will take a deep dive into how Raydium works, liquidity provision, yield farming, token economics, and its influence in the cryptocurrency ecosystem.
How Raydium works
The core of Raydium lies in its efficient trading mechanism. Users can take advantage of Solana’s fast transaction speeds to quickly and cost-effectively exchange tokens within Raydium’s liquidity pool. Traders simply connect their wallet, select the tokens they want to exchange and confirm the transaction, seeing the new balance in their wallet almost instantly. With a weekly exchange volume of approximately $2.1 billion, Raydium ranks among the top decentralized exchanges.
Providing liquidity: On Raydium, users can earn trading fees by providing tokens to liquidity pools. Users simply select the "Liquidity" option, connect their wallet, select a pool and deposit their tokens. After establishing a liquidity position, users will receive liquidity rights represented in the form of NFT. This process not only maintains liquidity but also generates revenue from transaction fees. Currently, Raydium’s total value locked (TVL) has reached $1 billion, ranking among the top decentralized exchanges.
Create a liquidity pool
Raydium provides three types of liquidity pools to meet the needs of different users:
CLMM Pool: Suitable for advanced market makers with concentrated liquidity and higher capital efficiency.
OpenBook AMM Pool: A permissionless pool where users can conduct real-time transactions after setting the market ID, starting price and initial liquidity.
Ecosystem Farm: Incentivize liquidity providers by connecting farms to AMM IDs.
These options provide users with flexible liquidity management solutions, supporting more than 4,827 markets.
Raydium’s fee structure
Raydium charges a small trading fee from swap transactions, which is used to incentivize liquidity providers, support the buyback of RAY tokens, and the financial operations of the protocol. The specific fees are as follows:
Standard AMM pool: Transaction fee is 0.25%; 84% goes to liquidity providers, 12% goes to RAY buyback, 4% goes to treasury.
CP Swap Pool: Trading fees are 4%, 2%, 1% or 0.25%.
CLMM Pool: Trading fees range from 2% to 0.01%.
Additionally, the cost of setting up a pool varies from 0.4 SOL for a standard AMM pool to 0.15 SOL for a CP swap pool.
RAY Token Economics
RAY is the native token of Raydium. As the core of the operation of the entire ecosystem, its economic design is as follows:
Total supply: 555 million RAY.
Mining Reserve: 34% (188.7 million RAY) is used for mining rewards.
Buyback Program: 12% of transaction fees are used to buy back RAY.
Team & Ecosystem Development: 30% for partnerships and ecosystem development, 20% for the team.
As of now, Raydium has only conducted one token airdrop in 2021 and has no plans to conduct another airdrop.
Raydium AcceleRaytor
Raydium’s AcceleRaytor is a launch platform that helps new projects raise funds and establish initial liquidity on the Solana blockchain. The project team and the Raydium community can jointly participate in the planning of the token issuance. Participants can inject funds into specific fund pools in exchange for new tokens, and the allocation of funds is based on a lottery model. This mechanism not only supports emerging projects, but also strengthens Raydium’s ecosystem.
Raydium’s partnership with Pump.fun: Raydium’s partnership with Pump.fun brings mutual benefits to both platforms. Pump.fun is an innovative token creation platform and Raydium will add liquidity to its token when its token market cap reaches $69,000. This integration ensures stability and trust in token trading while also increasing Raydium’s trading volume and circulation.
Since the beginning of 2024, the total number of new tokens on the DEX has increased from 17,000 to 140,000 per week, with more than 100,000 of them coming from Solana. This growth demonstrates Raydium’s important role in promoting the development of the Solana ecosystem.
in conclusion
Raydium is a versatile and powerful DeFi platform in the Solana ecosystem where users can exchange tokens, provide liquidity, and participate in project launches. By leveraging the speed and low cost of the Solana blockchain, Raydium has become the solution of choice for casual users and developers. Although controversial in discussions within the cryptocurrency space, Raydium’s partnership with Pump.fun has undoubtedly played an important role in driving new token economics and liquidity.
As the DeFi ecosystem continues to evolve, Raydium will continue to be an important platform for users and developers, and is expected to become one of the most widely used protocols in 2023-2024.