$3.1 billion in TVL and rising
One of the rising stars in the blockchain space has been Solana, which has seen its Total Value Locked (TVL) grow to more than $3.1 billion across its DeFi dapps. In addition, the native SOL token broke the $100 value barrier, putting emphasis on the attention the blockchain gets from both users and developers.
The growing DeFi ecosystem of Solana has brought a variety of interesting and high-profile dapps, adding billions of dollars of value to the wider ecosystem. In this article, we will dive into some of these decentralized applications, but let’s take a look at what Solana is.
Founded by former Qualcomm, Intel, and Dropbox engineers, the Solana blockchain aims to capitalize on Ethereum’s gas fee woes. In addition, the platform significantly speeds up transactions and reduces fees, whilst still maintaining a truly decentralized vision. Solana is an open-source project implementing a new permissionless blockchain able to achieve 50,000 transactions per second. Making it one of the fastest blockchains on the market.
From the off, based on these aspects it would be fair to say that Solana is set up to deal with the majority of decentralized applications tracked by DappRadar. From across various categories such as DeFi, Gaming, and NFTs. Now, after the network has had some time to establish itself since our original introductory article it’s time to dive into the growing world of Solana dapps.
For the purpose of this article, we will expand on the top 5 Solana dapps ranked by their respective total value locked (TVL). Or in other words, how much value is locked inside each protocol’s smart contracts across its farms and pools. Additionally, a deeper look at their respective tokens. Importantly these dapps all have TVL over $100 million. Showing to some degree the adoption of each dapp within the wider DeFi community. Moreover, we are focussing attention on Solana as a protocol to watch with a growing community and highly useful dapps.
With a total value locked of just over $1 billion, or a third of the total TVL in the entire Solana ecosystem, Raydium is the king of Solana hill right now. Raydium is a decentralized exchange that functions unlike any other exchange. It uses liquidity pools but also acts as the biggest market maker on Solana’s order book-based exchange, Serum.
To better understand why Raydium functions the way it does, it’s worth considering the team. The majority of the team are traders, which is clearly reflected in the design and functionality of the exchanges they build. One of the main advantages of centralized exchanges compared to their decentralized counterparts is the ability to create limit orders. Orders need an order book rather than a liquidity pool. Order books allow traders to specify the price they would like to trade their assets, which isn’t possible with liquidity pools.
Nonetheless, Raydium’s exchange was built on the philosophy of allowing the best of both worlds. When a user enters a trade, it will either be made using Raydium’s own liquidity pools or routed to the decentralized order book Serum depending on where the best price can be found.
Solana’s cheap fees were a key factor behind Raydium’s decision to build on the network. While many DeFi projects started flocking to Ethereum in the summer of 2020, the need for extremely low gas fees forced Raydium to look for alternatives. Solana was the perfect fit.
Looking at the price of RAY to date, we see a strong entry at $7.10 followed by a series of peaks and troughs that saw the price settle at around double its debut, or around $14. Then the market crash in May took effect pushing the price all the way down to $2.52 by the end of July. Then a resurgence, leading through to today where we see the price at $10.96 at the time of writing.
Serum is a decentralized exchange (DEX) protocol and ecosystem that brings high speed and low transaction costs to the decentralized finance sector. Ecosystem partners can build with Serum’s on-chain central limit order book to share liquidity and power markets-based features for institutional and retail users. As mentioned, Raydium operates this way. More specifically, Serum DEX’s on-chain central limit order book and the matching engine provide liquidity and price-time priority matching to traders and composing projects. Users benefit from this exchange model through the ability to choose the price, size, and direction of their trades. Composing projects benefit from Serum’s existing architecture, bootstrapped liquidity, and matching service. Moreover, the ultimate vision behind Serum is to drive the global mass adoption of DeFi. One conceptualization of this goal includes the milestones of reaching 1 billion users and $10T of on-chain value.
SRM is the utility and governance token of Serum DEX. Moreover, If you hold SRM in your wallet, you receive a discount on platform fees. SRM is native to the Solana blockchain as an SPL token and is also available on the Ethereum blockchain as an ERC20 token. An interesting mechanic is that users can create MegaSerum (MSRM). It consists of 1,000,000 SRM stacked together. Users can create 1 MSRM by locking up 1 million SRM, and you can redeem the MSRM back out for 1 million SRM. However, there is a limit of 1,000 MSRM, so in reality, they are scarce. Users generally receive benefits for holding SRM and larger benefits for holding MSRM.
On June 1st, 2021, Saber (initially called StableSwap) launched on Solana’s Mainnet Beta network. With a TVL of $751 million, it is the second-ranked protocol on Solana currently. As Solana’s first automated market maker (AMM) optimized for trading pegged assets, the Saber Protocol has seen significant growth. Mainly, because assets from one blockchain can’t natively exist on another, so stablecoins are a simple way to trade into and out of tokens on different blockchains. Like Raydium, due to its speed and scalability, Solana is the ideal blockchain to serve as the settlement layer for Saber’s liquidity network.
The native token of the platform is SBR, and it acts as a governance token with two major functions. Firstly, to gatekeeper the development of the Saber Protocol and collaborate with the community on key parameters like fee models. Secondly, to align incentives between Saber users, liquidity providers, ecosystem partners, and the team. SBR can be earned and rewarded through the same mechanisms as other DeFi protocols. Namely through pooling and staking rewards available on the platform. Interestingly, percentage APYs look juicy but not ridiculous. Leading us to believe Saber is shaping up for a long-term existence rather than a smash and grab.
With a TVL of $341 million at the time of writing SOLFarm is the 4th most active protocol on Solana. It is the first yield aggregation platform built on Solana with auto-compounding vault strategies. Like the other protocols discussed, SolFarm is designed to take advantage of Solana’s low-cost, high-efficiency blockchain, allowing the vault strategies to compound frequently. This allows stakers to benefit from higher APYs without requiring active management. In nutshell, users don’t need to keep coming back to the platform to re-stake their tokens – the platform will automatically auto compound them. Saving considerable time. Vaults supported on SolFarm include Saber, where users can deposit LP tokens into the vault which will auto-harvest rewards and add to LP via selling the rewards and adding LP. Additionally, users can tap into Raydium vaults and deposit LP tokens into the vault and once again receive auto-harvested rewards and add to LP via selling half of the rewards.
The native token of the platform TULIP is designed to move toward a governance model. Currently, on-chain governance is not available but is being developed by the Solana Foundation. Once this is ready, the protocol will shift governance to token holders.
Mercurial Finance (MER)
With a TVL of just over $135 million Mercurial Finance is the fifth-placed protocol and the last one we will explore in this article. Mercurial is building new liquidity systems to try and maximize the utility and yield of stable assets on Solana. As the DeFi ecosystem on Solana grows, there will be many different variants of collateralized, wrapped, and synthetic assets in the space. Mercurial’s most immediate objective is to provide the best liquidity for all the major stable and pegged assets on Solana, which has kicked off with the mainnet beta launch of Mercurial. The focus lies squarely on stable coins, mainly because they represent a major part of the DeFi ecosystem.
The roadmap outlines dynamic vaults, with low slippage swaps for stable coins, while also improving LP profits with dynamic fees and flexible capital allocation. These two major innovations to the usual AMM model come with several benefits for users. Instead of having pooled assets sitting idle in liquidity pools, Mercurial will eventually enable the deployment of pooled assets to yield generating opportunities across the Solana ecosystem through Dynamic Vaults. No longer will LPs have to choose between earning fees or yields from other farms — with Mercurial, both can be done at the same time. Additionally, this protects LPs which encourages more participation, this leads to lower slippage and therefore increased trading volume. Which in turn is hoped will result in more fees in aggregate for the system.
Solana DeFi In Summary
Solana is aiming to solve many historical problems associated with older blockchain technology experiences and presents a new structure for verifying transactions delivered through a more efficient consensus algorithm. With a vibrant community of DeFi developers, rising token price, and associated media hype. We envisage the platform being a strong competitor and something to look out for as it continues to develop its offer throughout 2021. Already, we see a strong DeFi narrative running through the network, mainly as the platform was built with DeFi in mind. Of course, that doesn’t mean we won’t see a more enlarged ecosystem soon catering to other categories. To check out the full extent of the Solana ecosystem click here.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds positions in ETH, BTC, NIOX, AGIX, MATIC, MANA, SAFEMOON, SDAO, CAKE, HEX, LINK, GRT, CRO, OMI, GO, SHIBA INU, AND OCEAN.