Note: This research report was first published on the official website of TouDengCang on 2024-01-30
Jupiter is a trading aggregator built on the Solana network. Jupiter was launched in October 2021. Since then, it has become the most popular trading front-end for Solana users, aggregating more than half of Solana's trading volume. The development of Jupiter's trading aggregation function has reached its ceiling. The protocol launched the Launchpad platform Jupiter Start and the incubator Jupiter Labs to expand horizontally. Jupiter has a large user base and resources, and the quality of the projects on the Launchpad platform is guaranteed to a certain extent. And its Jupiter Labs derivatives projects have high TVL and trading volume. In summary, we choose to focus on Jupiter.
Investment Summary
Jupiter is a trading aggregator built on the Solana network, with a user interface similar to 1inch. The protocol provides trading aggregation, limit orders, and fixed investment functions. Jupiter aggregates more than half of Solana's trading volume, and there is little room for further development in trading aggregation. The protocol has expanded horizontally and launched Jupiter Start and Jupiter Labs, which are similar to launch platforms. As of January 15, 2024, the protocol has not announced financing information.
Jupiter's transaction aggregation function is close to its peak, and there is little room for the proportion of transactions aggregated on the Solana network to increase. Jupiter has always been the only competitive transaction aggregator on the Solana network. With a good trading experience and user interface, the protocol has developed to date, with a 24-hour transaction volume of approximately US$460 million. Conservative estimates show that its aggregated transaction volume has exceeded 50% of the total transaction volume of the Solana network, and there is little room for further improvement.
Jupiter Start, as a project promotion program launched by Jupiter, has great potential with the support of resources and user base. Jupiter launched Jupiter Start, which is similar to a launch platform. Currently, the key functions Launchpad and Atlas have not been launched, but Jupiter has a huge user base of the Solana network, coupled with its own Jupiter Labs project resources and cooperative projects, the quality of the Jupiter Start project is guaranteed to a certain extent, and this function is worth paying attention to.
The Jupiter Labs project is a fork version of other chain star products, which has great potential under the promotion of Jupiter. The two projects temporarily launched by Jupiter Labs are derivatives and LSD stablecoins, which are very similar to GMX V1 and Lybra in form. The derivatives project is currently in the use stage, with an average daily trading volume of nearly US$90 million (limited by TVL). It can be seen that under the promotion of Jupiter, Jupiter Labs' products have attracted market attention and attracted more users and funds. The subsequent LSD stablecoin protocol has made small innovations in lending rates and redemption mechanisms, filling the gaps in Solana's related fields.
In general, Jupiter has no competitors in Solana's trading aggregation sector, and has aggregated more than half of the trading volume, making DEX the underlying liquidity protocol on Solana. With a huge user base and project resources, its horizontal expansion of Jupiter Start and Jupiter Labs also have strong market potential, and Jupiter Start and Jupiter Labs may have a linkage effect. Based on the above conditions, we choose to focus on Jupiter.
Note: The final assessment of [Attention]/[Don't Attention] by TouDengCang is the result of a comprehensive analysis of the current fundamentals of the project according to the TouDengCang project assessment framework, rather than a prediction of the future price increase or decrease of the project token. There are many factors that affect the price of tokens, and the fundamentals of the project are not the only factor. Therefore, just because the research report determines it as [Don't Attention], it cannot be assumed that the price of the project will definitely fall. In addition, the development of blockchain projects is dynamic. If the fundamentals of a project that we have determined to be [Don't Attention] undergo major positive changes, we may adjust it to [Attention]. Similarly, if a project that we have determined to be [Attention] undergoes major malignant changes, we will warn all members and may adjust it to [Don't Attention].
1. Basic Overview
1.1 Project Introduction
Jupiter is a transaction aggregator built on the Solana network. Jupiter aggregates more than 50% of the transaction volume on the Solana network and is the first choice for user transactions. The development of its aggregation function has reached its ceiling, and the protocol is expanding horizontally for further development. Jupiter has launched two major functions, the launch platform Jupiter Start and the incubator Jupiter Labs, to increase its influence.
1.2 Basic Information
2. Project Details
2.1 Team
The main members of the team are Meow and Ben Chow, who founded Jupiter in May 2021. They are also members of Meteora, the liquidity platform on Solana.
Co-founder — Meow: Co-founder of Jupiter, builder of Meteora, the DEX on Solana.
Co-founder — Ben Chow: With many years of experience in interactive design and product development, he is a member of the founding team of social gaming company Hive7 and co-founder of several companies. In May 2021, Ben and Meow founded Jupiter Aggregator.
2.2 Funding
Jupiter has not disclosed any financing.
2.3 Code
Jupiter is audited by OtterSec, which has audited well-known projects such as Solana, Aptos, Sui, Wormhole, etc. (mostly well-known Solana projects and US projects). OtterSec has rich auditing experience and a certain reputation in the industry.
2.3 Products
As a trading aggregator built on the Solana network, Jupiter is one of the main choices for Solana trading users. It currently provides four major functions: trading aggregation, limit orders, DCA/fixed investment, and Jupiter Start. At the same time, Jupiter Labs has launched independent projects in conjunction with the community and users, currently including perpetual contract products and LSD stablecoins.
2.3.1 Transaction Aggregation
Like most trading aggregators, users can select trading pairs and enter the trading amount in Jupiter, and Jupiter will automatically find the best exchange path among the supported decentralized exchanges. For tokens that only have liquidity on individual DEXs, trading aggregation can directly find liquidity. For tokens with large trading volumes, trading aggregation may provide better trading prices/slippage through multiple paths. Before trading, users can choose to modify parameters such as transaction fees, slippage size, and whether to use direct paths.
Jupiter's trading interface is relatively neat (similar to 1inch), and the trading experience is good. In the settings, you can adjust the language, block browser and RPC node to adapt to different needs and avoid single point failures. Jupiter currently supports 29 applications with trading functions. DEX must meet certain conditions to be integrated into Jupiter, mainly including liquidity and security audits. DEX needs at least $500,000 in liquidity to ensure a certain trading volume demand, and secondly, the code needs to be audited to ensure security.
Jupiter aggregates most of the trading volume on Solana, partly due to user interface issues. The most liquid DEX on Solana is Orca, which accounts for $190 million in liquidity. The second is Raydium. Except for Raydium's own protocol token RAY, Orca exceeds Raydium in liquidity of other mainstream tokens. However, Orca's own trading volume is often not as good as Raydium (Orca's trading volume mostly comes from Jupiter aggregation). Orca's trading interface is not a conventional Uniswap-like operation interface, but a method where you can choose buy/sell and then enter the quantity, which is not in line with the user's operating habits. Secondly, WIF is not included in Orca's whitelist (you need to enter the contract address to search). Although Orca can meet users' small transaction needs, the trading experience is far inferior to Jupiter.
Figure 2-1 Orca trading interface [1]
Secondly, the overall liquidity of Solana tokens is not strong. Using an aggregator for large transactions can reduce slippage losses to a certain extent. For example, using SILLY to exchange one million USDC for SOL has a slippage loss of nearly 1.22%. Using Jupiter has a slippage loss of nearly 0.4%, which means that the aggregator can reduce slippage losses/price impact by 0.8%.
Figure 2-2 Orca SOL/USDC large transaction display
In general, the main reasons for Jupiter's large-scale application are user interface, liquidity and airdrop. After getting used to using aggregators, users will first use aggregators instead of DEX for transactions, which has a certain user stickiness.
2.3.2 Limit Order
Jupiter also provides a limit order function, which avoids the cost increase and slippage caused by price impact during trading (there is no MEV problem). When the transaction is not fully completed, the limit order can be partially completed and partially traded tokens. When trading, users can choose the order validity period, exchange price and exchange quantity. The protocol cooperates with Birdeye and TradingView. Birdeye provides on-chain price data of tokens, and Jupiter uses TradingView's technology to display data in charts. The overall trading experience is very similar to that of centralized exchanges.
Figure 2-3 Jupiter limit order function demonstration
2.3.3 DCA/Fixed Investment
DCA (Dollar Cost Averaging) is also called the dollar cost averaging method, also known as fixed investment. It is a method of spreading the purchase cost by investing multiple times within a certain period of time. Jupiter provides a minimum frequency of minutes and a maximum frequency of months for fixed investment. Users can choose the fixed investment frequency, total time period and fixed investment price range.
Figure 2-4 Jupiter fixed investment interface display
At the beginning of the fixed investment, the tokens will be transferred to the relevant account of the fixed investment token, and trading operations will be carried out at regular intervals (trading may vary from 2 to 30 seconds to prevent MEV). After the transaction is completed, the fixed investment account will close automatically and transfer all tokens to the wallet. The protocol charges a fee of 0.1% for fixed investment. Fixed investment is suitable for accumulating tokens in a bear market and gradually selling tokens with weak liquidity, but the overall demand is low.
2.3.4 Jupiter Start
Jupiter will set up its own project promotion platform, Jupiter Start, which is committed to promoting the development of new projects while protecting the interests of investors. The process of Jupiter Start is divided into five sections: social introduction, education, pre-launch, Launchpad and Atlas. The community introduction will last for a week, mainly introducing the concept, economic model, etc. of the project and conducting community discussions. Education will put individual projects on a part of the website, based on some qualified users earning tokens by reading materials and operating on the chain. Pre-launch allows users to place limit orders and DCA operations before liquidity is added.
Currently, community introduction, education and pre-launch functions have been launched, and the Launchpad and Atlas (not yet specified) functions are worth looking forward to. Given that Jupiter Labs' projects will issue their own protocol tokens, its Launchpad project is likely to be a derivative project.
2.3.5 Jupiter Labs
Jupiter Labs is independent of Jupiter. Jupiter Labs' projects will eventually operate independently, and Jupiter users and communities will receive certain priority use rights and token incentives. Currently, Jupiter Labs has launched perpetual contracts and LSD stablecoins.
Jupiter Perpetual
Jupiter Perpetual is a derivatives protocol similar to GMX V1 launched by Jupiter Labs, which is currently in use. Protocol users are mainly divided into liquidity providers and traders. The liquidity provided by liquidity providers is exchanged for a basket of tokens (currently including BTC, ETH, SOL, USDC and USDT). The tokens with higher weights in the pool are mainly SOL and USDC, that is, the main trading target is SOL.
When a trader conducts leveraged trading, the trader borrows tokens from the pool to establish a leveraged position. The derivative trading user does not need to bear the transaction slippage, but only needs to pay transaction fees and borrowing fees, which depend on the utilization rate of the token. The liquidity provider receives 70% of the transaction fees and all borrowing fees. In turn, the liquidity provider also bears the risk of loss caused by the trader's profit and token depreciation. Since the end of 2023, the price of JLP has been fluctuating around $1.8.
Figure 2–5 JLP data [2]
LST stablecoin
Jupiter Labs' LST stablecoin protocol XYZ has not yet been launched. According to its documentation, the protocol is similar to Lybra V1. Users can mint interest-bearing stablecoins SUSD (without borrowing interest) by staking SOL. The protocol obtains staking income through the pledged LST, and the income will be distributed to SUSD holders and the protocol's governance tokens. The main feature of the protocol is that when the LST yield is higher than the SOL borrowing rate, SOL LST will be pledged in the lending protocol and used to borrow SOL and exchange it for LST, using leverage arbitrage to maximize the return. Secondly, among the possible additional mechanisms, the protocol uses a redemption mechanism to ensure the stability of the SUSD price. Frequent redemptions may affect the borrower's position, especially when the market volatility oracle is delayed (SUSD holders exchange SUSD for the borrower's LST). The protocol reduces the impact on borrowers by introducing a small price range governance token redemption method. When the price of SUSD is between $0.95-1, the protocol may use SUSD to redeem governance tokens to reduce the frequency of borrowers being redeemed.
While using leveraged arbitrage to increase returns, it also brings additional protocol and oracle quotation risks to borrowers and SUSD holders. Borrowers need higher governance token incentives to maintain a certain amount of SUSD minting. Governance token redemption in a small price range can greatly alleviate the impact of redemption on borrowers' positions, but it also brings new problems. Governance token redemption in a small price range will result in the vast majority of redemptions being governance token redemptions. If the price continues to be below $1, it will cause a more serious increase in token issuance.
Figure 2-6 XYZ operation logic [3]
Summary: Jupiter provides transaction aggregation, limit orders and fixed investment functions. The overall trading method is very similar to 1inch. The fixed investment function can set the price range, time and frequency, which is an additional function. Jupiter Start's Launchpad function and Atlas function have not been launched yet, which may be the focus of subsequent development. Jupiter Labs, launched by the protocol, is incubating two new protocols, derivatives and LSD stablecoins. The new protocols will operate independently in the future and give Jupiter users and communities certain priority rights and incentives.
3. Development
3.1 History
Table 3-1 Prisma Finance Events
3.2 Current situation
3.2.1 Business Data
Jupiter is the only competitive trading aggregator on Solana, and a large part of the trading volume on the Solana network is conducted through Jupiter. In terms of trading volume in November and December, the total trading volume of DEX on the Solana network was 8 billion and 28 billion US dollars respectively, while the trading volume aggregated by Jupiter in these two months was 3.9 billion US dollars and 17 billion US dollars respectively. In terms of trading volume, Jupiter guides more than half of the DEX trading volume on Solana, that is, users use Jupiter to trade more than the front end of DEX, truly realizing the existence of DEX as the underlying liquidity protocol.
Figure 3-1 Jupiter monthly transaction data[4]
Currently, Jupiter has aggregated the liquidity of 29 protocols, among which the top five protocols in terms of transaction volume generated through transaction aggregation are Orca, Raydium, Phoenix, Lifinity and Meteora. The top five protocols account for nearly 90% of Jupiter's transaction volume. Among them, Meteora is worth mentioning. Meteora's team members also include Meow and Ben Chow. The predecessor of the protocol is the decentralized exchange Mercurial Finance. After the FTX crash, Mercurial Finance announced that it would stop operating and snapshot token holders to obtain 20% of Meteora's tokens. Jupiter will launch tokens/add liquidity on Meteora. Meteora has already started an incentive plan for liquidity providers (allocating 10% of tokens to LPs before adding liquidity).
Figure 3-2 Jupiter DEX transaction volume data
3.2.2 Scale of social media
As of January 15, 2024, Jupiter has a large community size and a high level of Discord activity, mainly discussing issues such as JUP airdrops and Meteora liquidity.
3.3 Future
Jupiter currently does not have a clear roadmap. Considering that the protocol is about to issue tokens, further action should be to establish a DAO for protocol governance. Jupiter Start's Launchpad and Atlas functions will be launched in the future. As a star project on Solana, Jupiter has a large user base, and Jupiter Start can also obtain certain resource advantages.
Summary: Since Jupiter was launched in October 2021, it has gained a lot of trading volume. With the collapse of FTX, Orca has become the DEX with the highest TVL (the trading experience provided by the user interface is slightly insufficient), and Raydium has a higher TVL and liquidity of some local dog tokens. Jupiter has won the favor of more users with its ease of use and comfortable user interface. As of January 15, 2024, more than 50% of the trading volume occurs on Jupiter. The subsequent Launchpad function is worth looking forward to.
4. Economic Model
4.1 Token Allocation
Jupiter's token is JUP, with a total of 10 billion tokens. 40% of the tokens (10% in the first round, a total of 4 rounds) will be used for airdrops, 20% for liquidity and community incentives, and 40% for team and strategic reserves. The agreement promises to allocate 50% of the tokens to the community, and allocates a cold wallet to the team and the community respectively. The initial circulation tokens are expected to be 5% for adding liquidity and 10% for airdrop tokens (there may be an additional 2% of tokens unlocked)
4.2 Token Utility
Jupiter has not yet announced the specific functions of the token JUP. The author believes that in the short term, JUP will be mainly used for community governance. Subsequent new projects of Jupiter Labs may airdrop JUP holders and give priority testing rights. At the same time, Jupiter may imitate 1inch to give pledgers positive slippage income.
5. Follow-up Questions
Jupiter has aggregated 50% of the trading volume on Solana, and the main subsequent development lies in the protocol’s Jupiter Start function and Jupiter Labs.
5.1 Solana DEX Industry Overview
Jupiter has always been the only competitive trading aggregator on the Solana network. Because of its smooth user experience and comfortable user interface, Jupiter has attracted more and more users. Jupiter aggregates more than 50% of the trading volume on Solana, making DEX a true underlying liquidity protocol on the Solana network. With the further development of the protocol and subsequent airdrop plans, the proportion of trading volume aggregated by Jupiter is expected to rise further. Jupiter has occupied almost all of Solana's aggregator market, and further development lies in Solana itself rather than its own further optimization.
5.2 Jupiter Start
In the case of limited further growth in transaction aggregation, Jupiter Start may be another direction for Jupiter to expand its territory. Currently, Jupiter Start only has introduction, education and pre-launch functions, and the core function of Jupiter Start Launchpad has not yet been launched. Jupiter has a large user base and a strong traffic effect. Considering its own resource advantages, the projects launched on it may be of higher quality.
5.3 Jupiter Labs
Jupiter Labs is working with JUP DAO, the Solana community, and Jupiter users to launch new DeFi protocols. Projects in Jupiter Labs will eventually operate independently, but Jupiter users, the community, and coin holders will have early priority access and token rewards, and Jupiter Labs projects may also be launched on Jupiter Start.
Jupiter Labs' current products are derivatives protocols and LSD stablecoins. The derivatives protocol is already in the early stages of use, with liquidity (JLP) limited to $50 million. The protocol is very similar to GMX V1 in general. Another protocol is the LSD stablecoin protocol XYZ, which is similar to Lybra V1 in general, but based on Lybra, it increases the income of stablecoin holders and protocol token holders through interest rate arbitrage (mortgaging LSD to borrow SOL and replacing it with LSD). At the same time, while other stablecoin protocols directly redeem collateral to maintain prices, XYZ uses governance tokens to redeem when there is a small depegging (5%) to maintain the borrower's position, which protects the borrower while increasing the dilution risk of governance tokens.
Summary: Jupiter's own transaction aggregation business has almost reached its ceiling. It has adopted a strategy of horizontal expansion into the DeFi sector, launching the Launchpad platform Jupiter Start and the incubation platform Jupiter Labs. Jupiter has strong resource advantages (its own large number of users and Jupiter Labs projects), and the Launchpad project is worthy of attention. Although its Jupiter Labs has less innovation, it fills the gap in related projects on Solana and still has great potential with the support of Jupiter.
6. Risks
1) Code risks: Jupiter was audited by OtterSec, but there are still code risks.
2) Derivatives project risks: Derivatives projects are still in the Beta stage and may be subject to risks such as oracle attacks that drain the liquidity of the protocol[5].
References
Jupiter official documentation, https://station.jup.ag/docs/
Jupiter Blog，https://station.jup.ag/blog
[1] https://www.orca.so/
[2] https://jup.ag/perps-earn/buy/SOL
[3] https://station.jup.ag/labs/lst-stablecoin/litepaper
[4] https://station.jup.ag/stats/month
Investment Risks and Disclaimer
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