The Beginner’s Guide to Project Serum

When we talk about innovation in blockchain – and more specifically in Decentralized Finance (DeFi) – we often end up talking about the latest projects on Ethereum. Of late, we’ve also been seeing some great projects on the Binance Smart Chain (BSC). But those two aside, we rarely get to know of innovation in the DeFi space.

Feels like something’s missing, right?

To fill that emptiness, we have the amazing Project Serum to talk about in this blog. Built on the Solana blockchain, the project boasts of unprecedented speeds and low transaction costs.

But before we talk about it in detail, here’s a list of everything you’ll find in the blog:

  1. What is Project Serum?
  2. What is the Solana Blockchain?
  3. What is the SRM Token?
  4. What is the SerumBTC Token and the SerumUSD Token?
  5. What is Serum Swap?

Feel free to skip to the section(s) of your choice.

And with that out of the way, let’s jump right into it!

What is Project Serum?

Project Serum is a decentralized exchange (DEX) built by the team behind FTX Exchange. Built on Solana, the ecosystem brings unprecedented speed and low transaction costs to the DeFi space.

The platform aims to fix the centralized vulnerabilities that currently exist in the DeFi space. And it aims to do so in the same permissionless and trustless way that most traders on existing DEXes are comfortable with.

Since it runs on a central limit order book, the platform is highly scalable, cheap, and fast. And that is something the creators of the platform take great pride in.

Another fact about the platform that its creators take great pride in is the fact that it is completely decentralized. In fact, even the seed protocol used on the platform is decentralized.

To add to its decentralized nature, the platform allows and promotes non-custodial trading. This means that you don’t have to deposit your coins at any centralized exchange. Instead, the coins remain in your own wallet. You don’t have to rely on the exchange’s wallet for the custody of your coins. It also offers support for cross-chain trading.

Going the trustless way, there is no requirement for KYC on the platform. The resulting experience is something none of the centralized exchanges can even think of offering. 

The price, speed, and usability that Serum offers leaves the regular traders on centralized exchanges with no reason to not give the platform a chance.

And to make things even better, the platform is more than capable of being completely interoperable with Bitcoin and Ethereum. That is saying something because it is native to Solana. This fact alone gives the platform a huge advantage if and when it is compared with the DeFi DEXes like Uniswap, Balancer, and even the Binance DEX.

Most traders are almost always up for trading cryptocurrencies other than the usual ERC-20 tokens—which is what most DeFi platforms offer as of now. This gives Serum an edge over those platforms.

Node operators too can benefit a lot from the platform. Serum offers incentives to them for participating in staking on the platform. With the help of a referral system with inflation, trading, and leaders, the platform aims to have something in store for everyone involved.

What is the Solana Blockchain?

Solana is an open-source project that is implementing a web-scale blockchain. The Solana blockchain provides secure, scalable, and fast decentralized apps and marketplaces.

The system currently boasts of supporting 65,000 transactions per second (TPS) with a block time of 400ms. It is worth noting here that it isn’t the upper bound. In fact, on a standard gigabit network where the transactions are no more than 176 bytes large on average, the system can support up to 710,000 TPS.

On the other hand, if you manage to use it on a 40-gigabit network, you can see a staggering 28.4 million TPS.

The distributed system technique called Optimistic Concurrency Control says that a centralized database can replicate itself while maintaining high availability and not compromising much on the transaction rate.

Solana demonstrates that, when on an adversarial network, the same theoretical limits apply to the blockchain. The only thing that needs to be taken care of is the right way to share time in the case of nodes not trusting one another. 40-ish years of research in the field of distributed systems finds itself useful in the world of blockchain when the nodes can trust time.

In Solana’s own words:

“The goal of the Solana architecture is to demonstrate there exists a set of software algorithms that when used in combination to implement a blockchain, removes software as a performance bottleneck, allowing transaction throughput to scale proportionally with network bandwidth.”

What is the SRM Token?

The SRM token is the governance token of Serum. While the native SRM token is based on the Solana blockchain, there also exists an Ethereum or ERC-20 version of the token. The supply of SRM is capped at 10 billion tokens.

The SRM distribution has been done in a simple way. About 20% of all the tokens have been given to the team behind Serum and the Advisors on board. 22% of all the tokens have been set aside for the project contributors. About 4% of all the tokens have been allotted to act as locked seed and to be distributed to auction purchasers. 

Moving on, 27% of all the tokens have been locked in the Partner and Collaborator Fund. And that leaves us with the final 27% funds that have been set aside for the Ecosystem Incentive Fund.

All of the fees you end up paying on the platform go to SRM burn. If you happen to hold SRM, you get up to 50% of all of the fees on the platform. 

If you are able to collect 1 million SRM tokens, you can stack them together to form 1 MegaSRM or MSRM. Holding 1 MSRM would give you a flat 60% discount on fees.

Coming to staking SRM, that’s something you can do on nodes. Each node must have a minimum of 10 million SRM of which there should be at least one MSRM.

One of the uses of these nodes is also to provide insurance for cross-chain transactions. Doing so rewards the nodes with a portion of the fees charged for the transaction. 

There’s a pool of SRM tokens that have been kept aside to reward those involved in staking activities in each node. Since SRM can be staked as well as be used to pay for fees, SRM holders get as much as 50% off on all trading costs. 

Talking more about nodes, every single one of them has a leader. The leader is the one who creates the node. And for doing so, the leader gets a portion of all the rewards given to that node.

Nodes are also important because they perform certain important duties that optimize the throughput and performance of the Serum ecosystem. Based on how the nodes execute their duties, they’re rewarded and penalized.

The role of SRM tokens as governance tokens comes in when we talk about certain parameters like future fees that don’t hold large security risks. While most of the ecosystem is immutable in the case of Serum, these parameters call for a governance vote using SRM tokens.

Being a native token of the Solana blockchain, the SRM token exists as an ERC20 token on the Ethereum blockchain, and as an SPL token on the Solana blockchain.

To ensure that the team remains for the long haul, 90% of all the SRM tokens are designed to be held for a long time (preferably locked up).

What is the SerumBTC Token and the SerumUSD Token?

The Serum ecosystem is powerful. One of the examples of its power is a truly permissionless, decentralized BTC token called SerumBTC.

What happens here is that Serum creates a series of smart contracts for BTC. These contracts can then be given a Solana or ERC20 token that represents a long position that would turn into 1 BTC on the said day (long position). SerumBTC then rolls its holdings over to the next week and it keeps on doing so. As a result, SerumBTC never expires.

Much like SerumBTC, SerumUSD uses lines of code to move holdings from one week to the next.

What is Serum Swap?

Serum Swap is an Automated Market Maker built on Serum.

Much like other AMMs, Serum Swap allows users to join pools and trade.

What makes Serum Swap stand out, however, is the fact that it is really fast. It takes the platform just 1 second to add or remove a pool or to settle a trade. And guess what the gas fees are? Roughly $0.00002 per trade! That’s it!

Takers are charged a flat 0.30% of the total transaction value, of which, 0.25% goes to the liquidity providers (LPs), 0.4% goes to SRM burn/buy, and 0.01% goes to the GUI hoster.

Before You Go…

Project Serum is already done with the first two phases as per their roadmap. And there’s already enough traction on the platform to call it a major success. There’s something in the Serum ecosystem for everyone and that makes it really useful for all.

That said, what happens to the platform in the future is something only time will tell.