While Bitcoin continues to set new historical highs and the market is thriving, Solana is not falling behind, recently reaching the 200 mark. The largest decentralized exchange on Solana, Raydium's token RAY, also surged by 57% within two days, prompting holders to call for a return of the bull market. This article will analyze the third-quarter research report on Raydium written by the crypto research organization Messari, discussing Raydium's features and various data.

In March, Raydium officially overtook Orca to become the largest DEX in Solana

Raydium is an AMM (automated market maker) decentralized exchange (DEX) on Solana, which means liquidity providers can earn trading fees while trading in liquidity pools. RAY holders can also stake RAY to earn additional RAY tokens. The protocol was launched in 2021, with investors including Coinbase Ventures.

Raydium offers concentrated liquidity market maker (CLMM) pools, a mechanism that allows liquidity to be concentrated in specific price ranges. Raydium also provides the Burn & Earn feature, which allows token teams that create liquidity pools to permanently lock CLMM liquidity. The 'burn pool' mentioned when speculating on meme coins actually refers to this. However, the Burn & Earn feature allows liquidity pool creators to earn profits while giving up their tokens, increasing their willingness to burn.

Before March 2024, Orca was the leading DEX in Solana's trading volume. It was the first company to offer concentrated liquidity pools, which provide traders with lower slippage and higher fee income for liquidity providers, but on the other hand, this design amplifies the risk of impermanent loss. Solana launched CLMM in November 2022, and from March 6, 2024, its daily trading volume surpassed Orca.

Messari optimistically predicts that Raydium can maintain high trading volumes

Source: Messari

First, looking at the trading volume, the average daily trading volume of 785 million USD in Q3 2024 shows a remarkable growth of 133 times compared to 5.9 million USD in Q3 2023. However, this figure is a 14% decrease compared to the 918 million USD in Q2. In fact, since the first quarter of this year, the average daily trading volume has been more than a hundred times that of last year's Q3 for three consecutive quarters. Various signs indicate that such trading volume levels may have become the norm for Raydium.

Much of this growth can be attributed to the meme craze, as pump.fun simplified the token issuance process, allowing users to start trading by simply selecting a token name, symbol, and image. Once a token reaches a market cap of 69,000 USD through pump.fun, it will automatically be listed on Raydium with a liquidity pool of 12,000 USD.

(Venture Partner Adam Cochran: 'The meme craze is coming to an end.' Data reveals Pump.fun's token issuance success rate is only 1.4%)

Meme coins account for 15% of trading volume on Raydium

Next, looking at the trading content, meme coins are the second largest asset by trading volume on Raydium, which aligns with the previous description. In the third quarter, Raydium's total trading volume was approximately 96.963 billion USD, with the following trading volume shares:

Native Assets: 72.81% Meme Coins: 15.26% Stablecoins: 10.00% Governance Tokens: 0.52% Liquidity Staking Tokens: 1.00% Game Tokens: 0.04% Others: 0.37%

Source: Messari

However, stablecoins and liquidity staking tokens are the only two tokens with trading volume growth. Stablecoin trading volume increased by 19% to 9.7 billion USD compared to the previous quarter, while liquidity staking token trading volume grew by 24% to 970 million USD. In contrast, the top two tokens by trading volume (native token SOL and meme) both saw declines. Native SOL trading volume decreased by 12% to 70.6 billion USD, while meme trading volume fell by 53% to 15.6 billion USD.

Raydium rises to the third largest exchange, with a quarterly trading volume increase of 130%

Raydium's share of trading volume among all DEXs increased by over 130% quarter-on-quarter, reaching over 10%. In the third quarter, only Aerodrome on the Base chain saw a larger trading volume increase than Raydium among the top six DEXs. Raydium's trading volume surpassed Orca in the third quarter, becoming the third largest DEX, second only to PancakeSwap and Uniswap.

Messari's report points out that Raydium's success not only represents the advantages of the protocol itself but also reflects the increase in trading volume of Solana itself. In the third quarter, Solana's DEX trading volume ranked second only to Ethereum, making it the second largest public chain by trading volume.

The circulating market cap of RAY tokens increased by 4%, and the team tokens have been fully unlocked

Looking at the RAY token section, the circulating market cap of RAY tokens increased by 4% in Q3, reaching 486 million USD. At the same time, Solana's circulating market cap increased by 6%. Of the maximum supply of 555 million RAY, about 34% or 188.7 million is reserved for mining, with an annual supply of about 1.9 million. The team and community are allocated about 25.9%, which will be fully unlocked by February 2024.

Additionally, RAY has three other functions:

Staking RAY to earn RAY tokens as rewards: Currently, the annualized return for staking RAY is about 5%.

RAY liquidity provider rewards: Raydium rewards liquidity providers in specific liquidity pools with RAY tokens.

Governance: Creating a proposal in Raydium requires at least 1 million RAY, with each token equivalent to one vote for active proposals. As of the end of the third quarter, there have been two proposals.

Protocol revenue hits a new high, with part of the revenue used for token buybacks

In the third quarter, protocol revenue increased by 5%, reaching a historical high of 16 million USD. These fees are used to buy back RAY from the open market, but since the price increase of RAY tokens exceeded the protocol revenue, the amount of RAY bought back in Q3 decreased by 7%.

12% of the liquidity pool's revenue is used for RAY buybacks, and if it is an AMM V4 liquidity pool, the remaining 88% of fees are distributed proportionally to liquidity providers in the pool. CLMM and CPMM distribute 84%, with the remaining 4% allocated to the treasury. The earnings from CLMM and CPMM pools are automatically exchanged for USDC and held in the treasury by the protocol. Additionally, by the end of Q3 this year, Raydium had generated over 161,000 SOL in liquidity pool creation fees.

On Raydium, liquidity pool creators can choose the type of liquidity pool based on transaction fees:

Standard AMM (AMM V4): 0.25% Concentrated Liquidity (CLMM): 0.01%, 0.02%, 0.03%, 0.04%, 0.05%, 0.25%, 1%, 2% Constant Product (CPMM): 0.25%, 1%, 2%, 4%

Multiple upgrades and collaborations in the third quarter help Raydium maintain competitiveness

Looking at the progress of the protocol, in July, Raydium introduced a rebate mechanism that Chinese users are most familiar with. Referrers can copy their unique trading link (Blinks), and whenever someone completes a trade through the Blink link, the referrer can earn 1% of SOL as a reward. In August, more detailed fee tiers were added to CLMM and CPMM liquidity pools, and in September, the Burn & Earn feature was launched, followed by the Teleport feature (cross-chain from Ethereum to Solana) in October.

Significant external collaborations include: On July 6, a partnership with Moongate was established, allowing users to log in to Raydium using Apple, Google, or Ethereum accounts. On July 12, a collaboration with fiat payment gateway Moonpay was launched, enabling users to purchase cryptocurrencies through traditional payment methods.

In summary, Messari believes that the current trading volume level of Raydium will be maintained. Multiple upgrades and collaborations have enhanced the user experience, including Burn & Earn and Blink's revenue sharing, which have increased its competitiveness.

This article reports a 57% surge in two days, Messari: trading volume increases a hundredfold year-on-year, what is driving the rise of Solana's largest DEX Raydium? Originally appeared on Chain News ABMedia.