What Is Raydium (RAY)?
Raydium (RAY) Explained
Raydium is an automated market maker (AMM) built on the Solana blockchain that shares liquidity with the Serum decentralized exchange.
As an AMM, Raydium enables digital assets, such as cryptocurrencies, to be traded in a permissionless way through the use of liquidity pools, which have emerged as one of the main tools of Decentralized Finance (DeFi). Liquidity pools rely on individuals, referred to as liquidity providers, who lock their assets in a liquidity pool smart contract. These locked assets can then be utilized as the trading pair within a given market for traders on the decentralized exchange.
By bringing together the flexibility of an AMM with the reliability of Serum's more traditional order book mechanism, Raydium supports the fast, liquid and low fee trading of digital assets on Solana with an additional source of liquidity.
Users who provide liquidity to Raydium are incentivized with rewards in RAY, the utility token of the Raydium ecosystem. In turn, RAY can be staked in the platform to earn additional cryptos.
If you want to keep up to date with the Raydium team, you can check out their blog.
Who Created Raydium?
Raydium’s core development team goes by a series of pseudonyms. AlphaRay runs the project’s strategy and business development, drawing from a background of algorithmic trading in commodities. XRay is Raydium’s chief of technology. They are joined by GammaRay, StingRay, and RayZor, each of whom contributes across marketing, trading, and computer security initiatives.
The team first became involved in DeFi in the late spring of 2020 and decided to address the challenges they saw in the DeFi systems at the time. They began planning a novel DeFi solution by writing code and exploring various partnership opportunities for their AMM until they ultimately teamed up with Serum.
The Raydium mainnet launched in February 2021.
How Does Raydium Work?
Traditional asset exchanges, like stock markets, maintain a centralized record of all buy and sell orders called an order book. On one side of the order book are buy orders, which includes the quantity of an asset at a specific price that a market participant would like to purchase. The other side of the order book contains sell orders, which include the quantity of an asset at a specific price that a market participant would like to sell.
The order book serves as a central means of matching market makers (sellers) with market takers (buyers), thereby facilitating trading activity and ensuring liquidity in that specific market. The Serum decentralized exchange, which Raydium supports, uses smart contracts to enable this buy and sell order matching process.
Liquidity Pools (LP)
The advent of blockchain technology, and, more recently DeFi, has popularized a new, distinct method of trading using automated market makers (AMMs) and their liquidity pools.
Through AMMs like Raydium, users buy and sell assets against a pool of assets supplied by liquidity providers. The assets held in liquidity pools serve as the opposite side of the transaction, against which buy and sell orders are executed.
One of the first and most popular platforms to utilize the AMM model was Uniswap on the Ethereum network. Raydium says they chose to build their solution on the Solana blockchain to address the high gas fees, slower execution time, lack of limit orders and lack of overlapping liquidity in existing AMM platforms on Ethereum.
Beyond the core exchange offering, Raydium offers “dual reward farming” which allows liquidity providers to earn additional yield on the LP tokens they earn as a reward for providing assets to the liquidity pools that power the exchange. Raydium also allows its users to stake their RAY tokens in order to earn an additional reward collected from platform trading fees.
Raydium and Serum Integration
Raydium integrated their AMM mechanism with the order book functionality of Serum to address the benefits and shortcomings of both order book and AMM based exchanges. The ability to utilize liquidity from either the AMM of Raydium or the order book of Serum should afford traders a more efficient and cost effective decentralized exchange trading experience.
When users contribute to one of Raydium’s liquidity pools, the AMM converts their tokens into limit orders on Serum’s order book for anyone to trade against. When a user makes a swap, Raydium compares prices between Serum’s order book and Raydium’s AMM in order to execute the most cost effective trade for the user.
In addition to its exchange and yield earning platforms, Raydium has also created a fundraising platform called AcceleRaytor. This serves as a launchpad to help new projects raise capital and build within the Solana ecosystem.
Why Does RAY Have Value?
The Raydium token (RAY) is used to pay for transaction fees and fund rewards on Raydium. RAY can be staked or deposited into liquidity pools on the Raydium platform in order to earn additional rewards. Every time a trader swaps assets using a Raydium liquidity pool, a 0.03% fee is paid out in RAY to those who are staking tokens in that pool.
Holders of RAY tokens will also be able to have a limited role in governing the development of the project in the future and as the platform develops.
As with other cryptocurrencies, there is a maximum supply of RAY tokens and the supply is capped at 555 million RAY.
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Why Use RAY?
Decentralized exchange users that have experienced high gas fees, slow transaction execution or limited trading pair options may wish to use the Raydium platform.
Investors may find value in Raydium’s focus on the Solana ecosystem as well as their unique strategy of connecting an automated market maker to the Serum order book based decentralized exchange in order to deliver added trading liquidity.
Those looking to earn additional rewards on their cryptocurrencies may find value in RAY and the various ways they can generate rewards from staking and yield farming on the platform.