Why we invested in Project Serum

A Billion Person Vision for Blockchain

DeFi TVL compared to traditional markets is small, but growing. However, the Solana/Serum vision extends to payments, social media, and other “mass appeal” applications as well.

Enter Project Serum

Key Advantages: Orderbook design allows greater capital efficiency

Daily DEX volume has recently been below $3B, versus peak volumes in the $200B range for CEX, and $558B for US Equities Market Volume. Source: https://duneanalytics.com/queries/4388/8550
  • Rather than “passive” AMM liquidity, orderbook liquidity is “active” because the orders represent a desire to execute at a certain price.
  • The “active” nature of an orderbook appeals to a wider group of users (e.g. market makers).
  • The introduction of limit orders on orderbooks takes away possibilities for “impermanent loss” which is a byproduct of trading both sides of a market passively.
  • The switch from AMM to orderbook results in a market with deeper liquidity, ability to handle larger trades with lower slippage and allows participants to actively control positions via hedging.

Key Advantages: Composability allows protocols to begin building with a fully fledged financial infrastructure

Serum, a key building block that leverages the Solana L1, powers numerous applications that compose with Serum’s CLOB.

Key Advantages: Solana performance

The high-performance of Solana makes it a natural L1 to support mass appeal applications

Key Disadvantages

When measured purely on speed, Serum has too high a latency to support some TradFi institutional use cases. However, it is ideal for applications with lesser speed requirements and/or those that operate better with near instant settlement. Additionally, it is important to note that even some equities and derivatives trading (for example, Robinhood-type platforms) are not very latency sensitive.

Roadmap

Governance/Team

Serum node list. Source: https://twitter.com/ProjectSerum/status/1312176559185301504

Ecosystem Development

The high-performance of the Solana blockchain unlocks additional “design space” which allows better primitives to be built, like Serum. This performance initiates a positive feedback loop that could result in mass appeal applications clustering around the Solana/Serum ecosystem.
In a short amount of time, the Serum/Solana ecosystem has exploded; while not all projects listed directly interact with Serum, most do. Source: https://twitter.com/solanians_/status/1402843464841064451

Ecosystem — Projects building and composing with Serum

Bonfida

Mango Markets

Decentralized Gaming — Star Atlas, Aurory, OpenEra, DefiLand, etc…

Oxygen

Oxygen will use Serum as a building block to achieve their vision of being an on-chain prime broker with borrow/lend, yield generation, and structured products production.

Mercurial Finance

Psyoptions

Raydium

  • Raydium is unique because it places orders on the Serum orderbook using liquidity from its liquidity pools. This means that Raydium is a “pure” market maker taking locked tokens to “create a series of orders at different price points and sizes to provide liquidity.”
  • This liquidity, posted to Serum, can be accessed by anyone using Serum orderbooks. In practice, “approximately 50% of swaps” from Raydium customers ended up on Serum orderbooks with the other 50% of small transactions being sent to internal pools (https://twitter.com/burglol/status/1386218173851004929).
  • Much was made of Serum’s decision to depreciate their front end swap UI (https://twitter.com/projectserum/status/1385488823656742912), but this was a healthy development for Serum made possible by the strong building from projects like Raydium. It allows both projects to focus on their strengths: Serum focuses on improving their infrastructure, Raydium on creating a strong and differentiated experience for their customers, all while $SRM burns increase.
  • Future Raydium integrations with best-in-class projects like SushiSwap should further enhance customer experience while deepening Serum’s orderbooks (https://raydium.medium.com/100-days-of-raydium-453863c684f6).

Tokenomics

  • Reduced fees — up to 50% off
  • Participation in weekly “buy and burns”
  • “Specialized” governance (such as future fees)
  • Staking
  • Payment of platform fees
  • 1 $MSRM is required to run a node
  • Holding $MSRM increases fee discount to 60%

Demand Side

SRM burn metrics at time of writing.

Supply Side

Serum’s 7-year unlock schedule maximizes long-term incentives for stakeholders. Source: https://projectserum.com/#/srm-token-summary

Supply and Demand Dynamics

Coinmonks Buyback/Flow Model Framework. Source: https://medium.com/coinmonks/buyback-flow-model-a-way-to-model-crypto-buybacks-through-the-srm-case-study-cf8ca92a0e2f

Conclusion

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A team of former consulting, Wall Street, private equity, government, and corporate veterans accelerating the blockchain revolution

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