Hello everyone, I’m Kingson. I am going to analyse Jupiter Aggregator in depth with you. Thank LJQZZZ for translating this article into English.
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1. Why is Jupiter built on Solana?
1.1 Solana network performance allows it to handle professional transactions
“Solana is the Nasdaq of blockchain,” reads the first slide of Solana’s seed round promotion.
What is Nasdaq speed? Nasdaq exchange can process 500,000 transactions per second. Technically, Solana’s system architecture, which is completely different from other chains, leads to its higher speed and lower cost. Bitcoin can process about 7 transactions per second (7 TPS), while Ethereum can process 30 transactions per second (Eth 2.0 will greatly improve its performance), however, Solana can currently process 65,000 transactions per second.
This is power of Solana, stemming from utilization of innovative Proof of History (PoH) timing formula to facilitate its Proof of Stake (PoS) protocol structure, which is a decentralized timing source. It is “the realization of the arrow of time in mathematics”. It may sounds puzzling, but it means that transactions on Solana are verifiable without all nodes agreeing at the same time, which makes Solana’s speed.
There are still some shortcomings in DeFi, like low efficiency, high transaction fee and long processing time for transactions on Ethereum. Although these are inevitable costs of achieving decentralization, they have troubled users. The reason why Jupiter is built on Solana, besides Solana’s lower gas cost, is that users can enjoy an efficient, zero-delay and smooth aggregator exchange experience. With Solana’s powerful technology, swap can be done in less than one second on Jupiter.
1.2 Strong a support for developers
Solana may have the best technology in blockchain, attracting developers to build applications. The goal of its founders is to get a piece of the pie from NYSE and Nasdaq.
On February 20, according to data from blockchain analysis company Santiment, the number of active developers on Solana has surpassed that on Ethereum, making Solana the one with the most developers. According to the latest ranking, the chains with the most active developers are: 1. Solana；2. Ethereum；3. Cardano；4. Polkadot；5. Cosmos；6. Terra；7. Avalanche；8. Polygon；9.Fantom。
When you build applications on Solana, you will get strategic supports from Solana. What are these strategic supports? There is an ecosystem built on Solana to ensure that developers have the tools and resources they need. Additionally, Solana is good at helping new companies grow. The services currently provided are:
- Smart contract auditing. Solana Labs trains and assists third-party auditors to audit projects and ensure projects’ safety, while most projects on other chains need to pay for such auditing services themselves.
- Solana library. Solana maintains what resembles an open-source library that companies can run by build front ends and businesses around. This open-source library includes stake pools, governance protocols, token, name services (like Ethereum’s ENS), and token swap projects (on which Saber is built).
- Solana capital. Solana invests in projects on its ecosystem, and Solana Labs will introduce projects to investors and those who may be helpful.
1.3 Widespread adoption of order book dex
There are currently two common DEX mechanisms in the market, namely the order book model and the automatic market maker model (AMM). As we said earlier, Solana’s vision is to become the Nasdaq of blockchain, which can handle high-frequency transactions and have a good trading depth. Obviously, if Solana wants to realize its vision, it should meet these professional financial needs. Solana network performance makes it possible, so the next is to own one or more markets with excellent liquidity, which requires a suitable market-making mechanism.
The order book model is ideal for Solana. Serum, launched in August 2020, is the leader of the order book exchange, which is unique in that it utilizes the order book on central blockchain as its decentralized exchange technology. Instead of using traditional centralized control, it builds a decentralized order book exchange on Solana through a fully programmed order book and distributed ledger to improve transparency, which makes trading more efficient and user-friendly than automated market maker (AMM) protocols such as Uniswap.
The order book is one of the most computationally intensive parts of DeFi, so the order book DEX cannot be built on a chain with limited throughput like Ethereum. In other words, only Solana is currently suitable for building an efficient order book DEX. The order book, the best choice for large orders, can effectively display the real-time price of tokens and help reduce the risk of slippage, making it popular among institutional and individual traders.
When there are some order book DEXes on Solana, Jupiter can aggregate these DEXes, and with the help of them, better trading depth and lower slippage can be obtained, thus bringing more favourable prices to users. If the same token in the same amount and price is traded by swap aggregator, the token needs less liquidity on Solana than on any other chains, because of the capital efficiency improvement brought by the adoption of multiple order books. Although Uniswap V3 has improved the efficiency of traditional AMM DEXes to a higher level, the throughput of Ethereum is a flaw and and never achieve the pursuit of speed. With the combination of Solana’s high-speed network and the order book mechanism, users can gain a dual experience of speed and trading depth.
2. Advantages of Jupiter
2.1 Split trade
The working principle of split trade is that if the liquidity is dispersed in different DEXes, Jupiter will split the order into two orders and finish them in one transaction. The split parts are determined dynamically to maximize the number of token you will receive. Jupiter is the first and currently the only aggregator with split trade, which will provide better prices for tokens with high trading volume or dispersed liquidity.
2.2 Smart routing
Multiple routing is the ability to find all the routes, direct or indirect, for a trading pair across all markets aggregated. Normally, the best prices are not found in a direct market with great liquidity, but rather in an intermediary market with low price efficiency.
For example, if you want to trade USDC-SOL, you might check the price of the USDC-SOL pool on Raydium and Orca, however, Jupiter will not only check this price, but all indirect routes, such as USDC-CRP-SOL or USDC-SPWN-SOL shown below. Of course, the optimal route will change for different trading amount and market activity.
Jupiter is able to route through any token, which allows Jupiter to take advantage of markets with low price efficiency and the long tail effect of liquidity.
2.3 Powerful Jupiter SDK
Jupiter currently provides SDK (Jupiter Core, Jupiter React-Hook) that allows developers to use some custom features in the app, so that other DeFi projects can easily integrate Jupiter into their projects and charge a trading fee as a part of revenue for these projects.
3. Use experience comparison
3.1 Exchange comparison of mainstream tokens
Conditions: The price fluctuation is small, the same time and trading amount, the amount is 2 million dollars, and the error time is less than 15 seconds.
BTC:On 1Sol, $2 million can be exchanged for 51.4619 BTC, and the second option is 51.3885 BTC.
On Jupiter, $2 million can be exchanged for 51.5121 BTC, and the second option is 51.4642 BTC.
soETH:On 1Sol, $2 million can be exchanged for 734.572 ETH, and the second option is 732.549 ETH.
On Jupiter, $2 million can be exchanged for 734.572 ETH, and the second option is 734.06 ETH.
SOL:
On 1Sol, $2 million can be exchanged for 22190.1 SOL, and the second option is 22140.2 SOL.
On Atlas DEX, $2 million can be exchanged for 22151.22 SOL, and no second option.
On Jupiter, $2 million can be exchanged for 22190.56 SOL, and the second option is 22184.75 SOL.
Summary: Jupiter has slight advantages in the large-value exchange of mainstream tokens.
3.2 Exchange comparison of popular altcoins on Solana
Conditions: The price fluctuation is small, the same time and trading amount, the amount is 100 thousand dollars, and the error time is less than 15 seconds.
ORCA:
On Atlas DEX, $100 thousand can be exchanged for 37210.72 ORCA, and no second option.
On Jupiter, $100 thousand can be exchanged for 37254.26 ORCA, and the second option is 37203 ORCA.
Ray:
On 1Sol, $100 thousand can be exchanged for 35250.7 RAY, and the second option is 35208.02 RAY.
On Atlas DEX, $100 thousand can be exchanged for 35225 RAY, and no second option.
On Jupiter, $100 thousand can be exchanged for 35304.8 RAY, and the second option is 35297 RAY.
Summary: For the exchange of altcoins on Solana, Jupiter has obvious advantages compared to the other two aggregators. As mentioned above, Jupiter, through its multiple routes, can make full use of the markets with low price efficiency to get the best price for trading pairs.
4. Future development
Growth status
Jupiter is currently the key liquidity aggregator on Solana and handles a large portion of the token exchanges on Solana. Since last October, Jupiter’s weekly and monthly trading volume have been steadily increasing. Affected by the general downturn in the cryptocurrency market in early 2022, the trading volume on many chains is declining, but Jupiter’s trading volume hit an ATH in January and keep stable in the following weeks. It means Jupiter has its stable user base due to its excellent technology and user experience.
Governance token
Jupiter has not issued its governance token yet, but will issue one in the near future to capture its value.
Cross-chain deposit
There are still many bottlenecks in the development of DeFi, like order book DEX cannot be effectively applied on Ethereum due to its network performance issues, while AMA model’s liquidity capital efficiency is low. How can we improve capital efficiency in this situation? Cross-chain. Although Ethereum domains in the total locked value, other chains have begun to challenge it one after another.
A large number of ERC-20 tokens can be transferred through cross-chain bridges, and Solana can become a middle hub for its better swap experience. Serum, which is mentioned above, was trying to attract the token flow from Ethereum in 2020. It is an order book DEX that can achieve full interoperability with Ethereum. Users can use Serum’s cross-chain services or cross-chain bridge to deposit tokens into Serum and enjoy its efficient trade.
Jupiter aggregates most of these DEXes on Solana. In the future, Jupiter can continue to work with cross-chain bridges, such as Wormhole and Allbridge, and attract more tokens to Solan for better transactions. The market is still potential. There will be more tokens from other chains transferred to Solana through cross-chain bridge. Jupitor is the top aggregator on Solana, who can easily capture the traffic of these tokens and facilitate the liquidity of them through aggregation. The powerful Solana blockchain basic technology will bring great prosperity to its excellent ecosystem.
Portions of this article are quoted from Packy McCormick, image source Taylor
The above is the in-depth analysis of Jupiter I brought. If you want to know more about DeFi, Metaverse, Gamefi, Nft and other new ways of playing, you can follow my Twitter. Thank you for your likes and attention. Your likes and concerns are My motivation for progress.