Author: Joe@Go2Mars
Source: Shenchao TechFlow
As a hot star in the Solana ecosystem, Jupiter has already established a firm foothold in the DeFi field although it was launched not long ago. But on the other hand, without the support of a complete economic model and stable token prices, it is easy to end up in a death spiral, which may have a fatal impact on Jupiter itself.
The Sol chain has been booming in the past week, and the price of Jupiter's token $JUP in the secondary market has almost doubled in the past two weeks, following the pace of Solana.
The research on Jupiter and $JUP in the market is more from the secondary perspective. Behind the impressive (or temporarily impressive) market value performance, in addition to the excellent dog market and community, it is also inseparable from its excellent product design as support. So today, from the product perspective, let’s take a look at Jupiter’s product design ideas.
In the Solana ecosystem, the emergence of Jupiter is not accidental, but a strong proof of technological innovation and user experience optimization among many DEXs. As the most competitive DEX on the Solana network, Jupiter is one of the main choices for Solana trading users.
Jup's three core functions
The key to its products attracting so much attention lies in its three core functions: liquidity aggregator, current price order and DCA/fixed investment. The application of these three innovative technologies not only enhances Jupiter's competitiveness, but also sets a new benchmark for the entire DEX track.
Core Functional Module 1: Liquidity Aggregator
Jupiter's liquidity aggregator technology is one of its core competitive advantages. In the traditional DEX model, the liquidity pool of each exchange exists in isolation. When users exchange assets, they often need to find the best trading pool to obtain the best transaction price. This is not only time-consuming and laborious, but also difficult to ensure the optimality of the transaction due to the dispersion of liquidity. Jupiter's liquidity aggregator technology can span many liquidity pools within the Solana ecosystem, automatically find and aggregate the best liquidity resources through algorithms, and provide users with a one-stop optimal trading path.
Before trading, users can choose to modify parameters such as transaction fees, slippage size, and whether to use direct paths. This means that users can obtain the best transaction price and the lowest slippage in the entire ecosystem on one interface, improving the efficiency and economy of asset exchange. Jupiter transaction aggregation is implemented based on its back-end intelligent routing technology.
On the backend, Jupiter uses complex algorithms to monitor and analyze the entire market's transaction data in real time, including price, depth, slippage and other dimensions. Based on this data, the intelligent routing algorithm can dynamically select the best transaction route for each transaction, ensuring the success rate and cost efficiency of user transactions even in the case of volatile markets. Specifically, once Jupiter obtains market data, its multi-path search algorithm will begin to look for the best transaction path.
This process involves complex calculations because it not only considers the direct trading pair, but also analyzes whether a better trading price can be obtained through a series of intermediate token conversions. For example, if a user wants to exchange from token A to token C, the smart router will not only consider the direct A→C transaction path, but also possible intermediate paths such as A→B→C or A→B→D→C to find the lowest cost transaction solution.
Although the technology behind smart routing is very complex, Jupiter is committed to providing users with a simple and easy-to-use trading experience. The operation of smart routing is completely transparent to users. Users only need to enter the tokens and quantities they want to exchange, and the rest of the work is done automatically by smart routing. This design minimizes the difficulty of user operation, allowing users to easily trade even without a deep technical background.
Core Function Module 2: Limit Order
Jupiter provides traders with a limit order function, which effectively avoids the cost increase and slippage caused by price impact during trading, and circumvents the MEV problem. When the transaction is not fully completed, the limit order can be partially completed and the tokens of the completed part can be obtained. When proposing a transaction, users can choose the order validity period, exchange price and exchange quantity to execute their own trading strategies more accurately. 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. This function makes the actual experience provided by Jupiter to users closer to centralized exchanges.
Core Function Module 3: DCA Fixed Investment
Dollar-Cost Averaging (DCA) is an investment strategy that allows investors to spread the purchase cost over a preset price range through multiple investments within a specific time interval. This method can help investors reduce the risk of investing at a single price point. To conduct DCA fixed investment in Jupiter, users only need to set the purchase frequency (Jupiter provides a minimum frequency of minutes and a maximum frequency of monthly), the purchase price range, the total time period, and the assets they want to purchase. After the fixed investment, the user's tokens will be transferred to the account related to the fixed investment, and the transaction will be automatically executed according to the preset price range and transaction frequency.
After the fixed investment is completed, the tokens are automatically transferred back to the user's wallet, and the protocol charges a fee of one thousandth of the fixed investment. The controllable cost price, low fees, and fully managed trading process make DCA a good choice for traders to accumulate assets in a bear market. However, in a bull market, this mechanism is relatively obscure, so the overall demand for this function is still relatively small.
Jup's other ecological modules
Upstream incubator: Jupiter Labs
A lab that operates independently from Jupiter, which will operate independently in the future and is committed to promoting innovative projects. Jupiter users and community members enjoy certain priorities, including priority use and token incentives. Currently, Jupiter Labs is focusing on two major project areas: perpetual contracts and LSD stablecoins.
Derivatives Protocol: Jupiter Perpetual
It is a derivatives protocol launched by Jupiter Labs. Its model is similar to GMX V1 and has entered the actual use stage. The protocol defines two main participants: liquidity providers and traders. Liquidity providers provide funds to the pool, which are converted into a basket of tokens, mainly including BTC, ETH, SOL, USDC and USDT, among which SOL and USDC have a higher weight and become the main trading objects.
When traders conduct leveraged trading, they use the tokens in the pool to establish leveraged positions. They do not need to worry about trading slippage, but only need to pay transaction fees and borrowing fees, the latter of which is calculated based on the utilization rate of the token. Liquidity providers receive 70% of the transaction fees and all borrowing fees, but they also bear the risk of losses caused by traders' profits and token depreciation.
LST Stablecoin Protocol XYZ
The project has not yet been launched. The protocol is similar to Lybra V1, allowing users to mint interest-bearing stablecoin SUSD without borrowing interest by pledging SOL. The income obtained through LST staking will be distributed to SUSD holders and governance tokens. The special thing is that when the LST yield is higher than the SOL borrowing rate, a leveraged arbitrage strategy will be used to maximize the return.
In addition, the protocol has introduced a redemption mechanism to maintain the price stability of SUSD, although this may have an impact on the borrower's position, especially when the market fluctuates. To alleviate this problem, the protocol may adopt a strategy of using governance tokens to redeem SUSD within a small price range. 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. However, this solution may result in the vast majority of redemptions being redeemed with governance tokens. If the price continues to be below $1, it will cause a more serious increase in token issuance.
Return to the $Jup economic model
The JUP token is a governance token in the Jupiter ecosystem, allowing token holders to vote on key ecosystem decisions, covering topics such as launch projects, dispute lists, and grants. The Jupiter team promises that token distribution will strictly adhere to the roadmap, and any transfer of tokens in cold wallets must be notified six months in advance. The initial circulation supply is adjusted to 1.35 billion, and the future circulation will be managed through the community multi-signature wallet to ensure the healthy development of the Jupiter ecosystem.
After the High-Rise Building: Jup's Thoughts on Ecological Prosperity
Compared with other DEXs in the Solana ecosystem, Jupiter has advantages in transaction efficiency and user experience. Although projects such as Raydium, Orca, and Serpent are also competing for market share, Jupiter still aggregates more than 50% of the trading volume on Solana, making DEX a true underlying liquidity protocol on the Solana network. However, with limited room for further growth in trading volume, Jupiter has chosen a long-term strategy of horizontal expansion in the DeFi sector to broaden the breadth of its business. Jupiter Start may be the main direction for Jupiter to expand its territory.
Currently, Jupiter Start only has introduction, education and pre-launch functions. The core function of Jupiter Start, LFG Launchpad, has not yet been launched, but the first round of launchpad voting was launched on March 7. The top three projects are Zeus Network (cross-chain communication), SharkyFi (NFT lending protocol) and UpRock (DePIN). Jupiter has a large user base and a strong traffic effect. Considering its own resource advantages, the projects it launches are likely to be of higher quality.
On the other hand, Jupiter Labs, a financial innovation product incubation platform launched by Jupiter, fills the gap in related projects on Solana and still has great potential with the support of Jupiter. The project demonstrates an in-depth exploration of the fields of financial derivatives and stablecoins, aiming to bring new impetus to the DeFi field under the Solana ecosystem. However, while these innovations increase returns, they also bring additional risks, such as protocol risks and oracle quotation risks, which require the construction of a sound economic model, appropriate incentive mechanisms, and dynamic redemption strategies to maintain the balance of the system.
As a hot star in the Solana ecosystem, Jupiter has established a firm foothold in the DeFi field despite its recent launch. Its user-centric product design concept, comprehensive and innovative product features, and smooth trading experience have successfully captured the trust of users and become the DEX with the largest trading volume on the Solana chain. In addition, the Jupiter team strives to break through the problem of traditional DEX being constrained by the development of public chains, and actively explores a broader development space horizontally, which gives Jupiter the potential to grow into a starry sea.
However, the potential problem that arises is that when exploring derivatives and stablecoins, whether as an incubator or a self-developed product, there will be greater risks. Due to the nature of such financial products that use leverage to achieve high returns, if there is no sound economic model and stable token price support, it is easy to end up in a death spiral, which may have a fatal impact on Jupiter itself.
