Introduction to Serum
Market Meditations | April 20, 2021
What Is It?
Project Serum is a decentralized exchange known for unparalleled speed and scalability and inexpensive transaction fees. It is built by the team at FTX under the Serum Foundation and officially launched in August of 2020. The project, however, is completely permissionless which means that anybody can become a part of and contribute to the blockchain and no one person or group (including the Founders) have any special, unfair control.
What’s a decentralized exchange (DEX) you may ask?
- In centralised finance, you rely on a middleman like a broker (e.g., Robinhood, eToro, etc) to secure and exchange your funds.
- A DEX replaces this middleman with the blockchain, connecting you directly with other users and giving you control over your assets.
- As the world of DeFi continues to explode and the Total Value Locked continues to increase, the need for better projects increases each day.
What Makes It Different?
Serum is one revolutionary project in the crypto and DeFi industry because it combines the trustless, permissionless, non-custodial and fully decentralized aspects of other DEXs with a convenient user interface that those who use centralized exchanges are familiar with. We’ve taken a screenshot of the Serum DEX this morning and pasted it below. You’ll notice that this looks quite similar to other exchanges you use, but is packed with a powerhouse of features under the surface.
Serum has 3 primary benefits: On-chain order books (sleek and familiar user interface), Speed (sub second trading and settlement) and Cost (relatively lower transaction costs)
Now let’s take a look at some of the core components of Serum in more detail:
1️⃣Cross Chain Swaps and Cross Chain Contracts
One of the biggest challenges with DeFi is in swapping tokens between two people effectively and securely. If I have 1 ETH and you have 1 BTC and we’d like to exchange, who sends the token first? Most protocols rely on arbitrators (independent nodes) that carry out the swap. Serum, however, allows users to exchange assets between chains trustlessly. They do so by using over 100 validators.
Similarly, one of the challenges with leverage trading is the need for a third party to facilitate. Serum, however, allows users to trade with leverage in a public and decentralized fashion by means of custom cryptocurrency contracts available for any product Serum has a market for.
One of the advantages of building Serum on Solana as opposed to other blockchains is that it is faster and cheaper to do so. For example Bitcoin can process 7 TPS, Ethereum 30 TPS, Binance Smart Chain 300 TPS, and Cosmos 10,000 TPS. In terms of fees, with Solana it costs about $10 for every 1 million transactions as opposed to Ethereum which would cost $300,000. In that same vein, however, Solana’s full cross-chain integration allows users to trade not only SPOL tokens (the token standard on the Solana blockchain), but also BTC, ETH, and ERC20. This is different from other DEXs.
One of the key components of DeFi is the concept of an Automated Market Maker. Automated market makers remove the need for middlemen by using blockchain based liquidity pools to ensure there’s volume and liquidity. This is made possible by way of liquidity providers and liquidity pools. Serum’s fully decentralized automated limit orderbook includes several optimizations to find and match buyers and sellers quickly and inexpensively.
4️⃣$SRM, SerumBTC and SerumUSD
$SRM is Serum’s governance token built on the Solana blockchain. There is, however, an Ethereum (ERC-20 version) so as to not sacrifice interoperability. Whilst much of the Serum ecosystem is immutable (i.e. cannot be changed), some things such as fees, for example, can be modified based on the collective vote of $SRM holders.
SerumBTC and SerumUSD are fully trustless, ERC-20 or Solana wrapped BTC tokens and decentralized wrapped stablecoins respectively. A wrapped token is simply a cryptocurrency token pegged to the value of another crypto.
For beginner traders, the concept of a DEX can be intimidating especially if this is your first experience. Serum is a great tool to get started given its familiar user interface. Likewise, for advanced traders looking to trade with or without leverage quickly and at a fraction of the cost found whilst using other blockchains, Serum may just be the solution you need.