7 April 2021
Over the last 12 months, there have been few individuals in the crypto space that have created a buzz with developers and traders, alike” more than Sam Bankman-Fried. The founder of the popular derivatives exchange, FTX, and quant-trading firm, Alameda Research, Bankman-Fried has extended his brand in the space by introducing a series of projects and tokens that have been widely adopted as “Sam coins:” Serum, Raydium, and FTT (the native token for the FTX trading platform).
Serum is an exchange, token and ecosystem all in one. Built on the Solana blockchain, it’s focus is on providing users with an extremely fast, stable and scalable platform. As a decentralized exchange, it is completely permissionless.
One of the key differences between Serum and other decentralized exchanges built on Ethereum is its on-chain order books. Most Ethereum-based DEX’s implement liquidity pools as the back-end infrastructure for users to trade against. While this provides great liquidity for trading, it often harms liquidity providers who take on risk and impermanent losses due to price fluctuations. By decentralizing order books, Serum has all of the features of a centralized exchange - but in a decentralized environment.
Anyone who has used a DEX before knows that they are expensive to use. Each transaction requires a gas fee paid to “miners” to record your trade on the public blockchain. On platforms like Ethereum, these fees are often $40 or more for a single trade - rendering DEX’s unusable for the average investor. This is why Solana was designated as the platform of choice upon which to build Serum.
Solana’s block time is a lightning-fast 400ms, making it incredibly scalable and efficient. As such, transaction costs on Serum are near zero ($.00001), which drastically lowers the bar of entry.
Another Solana-based DEX, Raydium is an AMM (Automated Market Maker) with a twist. Traditional AMM’s only support trading with their own liquidity pools, but that isn’t the case with Raydium. This AMM-based DEX is built on top of Serum - incorporating its on-chain order book at the core of its protocol. Raydium LP’s are simultaneously providing on-chain liquidity to the limit order book of the Serum DEX, exposing RAY LP’s to the liquidity of the entire Serum ecosystem. This means that Raydium users enjoy all of the benefits brought by Serum and more - including collecting trading fees and farming rewards.
For those who prefer a centralized trading experience, FTT is the token of choice. It is the self-described “backbone of the FTX ecosystem” and incorporates a carefully designed incentive scheme to maintain a growing demand. This carefully designed economic model includes fee discounts for FTT holders, fee rebates for maker trades, FTT token staking, and buybacks/burns. The latter in that list is the most powerful.
One-third of all fees generated by FTX markets are used to purchase FTT off of the open market and permanently remove it from circulation. For a token with a fixed supply cap, this feature makes FTT deflationary. These buybacks occur on a weekly basis, with each purchase and burn publicly available on the FTX website. Buybacks date back to 8/1/2019. At the time of writing, 10,618,719 FTT tokens worth nearly $400M has been destroyed forever. In about a year and a half, 10% of all unlocked FTT tokens have been burned. At that rate, FTT will only become increasingly rare with time.
Above the successful and ambitious projects that Bankman-Fried introduces, it’s hard to not root for him. He identified a unique arbitrage opportunity in the Asian markets and built his empire that many speculate accounts for 10% of all cryptocurrency trading at any given time. While the size of the trading doesn’t warrant admiration, his commitment to donating sizable amounts of earnings to charities and nonprofits can quickly help him earn favor in the investing world.
So why am I ending this piece with a description of Bankman-Fried? In the highly competitive world of cryptocurrency, it’s easy to dissociate projects and tokens from their creators. And while many of the most hyped projects in the space opt to keep their founders anonymous, we should celebrate those who are pushing the blockchain and crypto world forward. Time will tell what success FTX, Serum, and Raydium will hold; however, it’s exciting to witness it all at the ground level.