- What is Serum? Serum is (aims to be) a completely decentralized trading and derivatives DEX offering all essential trading tools that centralized exchanges provide but in a trustless system.
- Note: IEO is on Friday, August 7 if you’re interested. This is not a sponsored post.
The liquidity mining AKA yield farming exuberance has brought massive success to the DeFi space in 2020. However, most DeFi-based decentralized exchanges (DEXs) are still not on par with centralized exchanges in terms of performance, usability, and completeness. Serum claims to have the solution.
DEXs have vastly improved from what they used to be. Today, we have decent liquidity thanks to liquidity miners, as well as usable interfaces.
But these things are not enough to entice power traders — those that do high-volume trades regularly.
Instead, DeFi DEXs have become havens for speculators trying to make money off yield farming. There’s absolutely nothing wrong with that. But, DEXs will never be able to fully compete with centralized exchanges, let alone surpass them, if it doesn’t eliminate its current drawbacks.
Crypto DeFi and Crypto CeFi Comparison
All of DeFi: 600 thousand users
Coinbase: 35 million users
Binance: 13-15 million users
And Serum is here to revolutionize DEXs by offering the same level of service as centralized exchanges but in a completely decentralized system. Yes, they claim to be “pure DeFi”, meaning they are more decentralized than any DeFi platform today.
The Serum project is to be launched by FTX, a leading crypto exchange, and derivatives platform.
What is Serum (SRM)?
Serum claims to be a “completely decentralized” derivatives DEX that offers cross-chain trading, leverage, and a full trader toolset. It boasts the same speed and user experience as traditional institution-grade exchanges.
Serum will run on a scalable blockchain called Solana but will also be interoperable on Ethereum blockchain. Furthermore, Bitcoin will also be supported via its cross-chain feature.
One notable feature of the protocol is that it’s not native to the Ethereum blockchain like most DeFi protocols are. This begets both positive and negative opinions from the community. Many would praise the project team for choosing a more scalable blockchain than today’s Ethereum.
But the again, a huge percentage of DeFi users are die-hard Ethereum supporters. This is evidenced by the fact that the top 36 DeFi platforms, save for the Lightning Network, are native to Ethereum.
What is Solana?
Solana is the chosen chain for the Serum ecosystem for its scaling capabilities. It is a high-throughput blockchain that allows transaction speeds of up to 50,000 transactions per second (tps). This is incomparable to Ethereum’s measly 15 tps capacity at present.
Solana allows its network to scale without the use of sharding. Instead, it introduces a new type of consensus mechanism called Proof of History, which works along with Proof of Stake. It also uses a tool called Proof of Replication to “account for the cost of storing the blockchain history.”
But this doesn’t explain it manages to scale that high without sharding. At least, not for a non-developer. If one thing is certain, there are trade-offs always.
No blockchain is perfect. And Solana has likely traded off one feature for another. And based on the above, the founder and CTO tried to find optimal tradeoff between usability and scalability.
The question is, what feature did Solana had to give up to achieve 50,000 tps?
But whatever the case, it is still important that some DeFi protocols try out other blockchains besides Ethereum. We never know, Serum might be on to something when they decided to choose Solana. After all, this network could rival Visa in terms of transaction capacity.
Solana’s native asset is SPL token, which is the standard Serum token (SRM) is built on.
What Makes Serum Special?
Serum boasts several advantages over current DeFi protocols. Let’s explore what makes this platform exceptional.
Bankman-Fried had said that the “core” of DeFi should be decentralized and trustless. Yet he sees many DeFi platforms making compromises since centralization is too efficient to pass up.
But Serum has none of that. It doesn’t use oracles for centralized price feeds and neither does it require tribunals that need to be trusted. According to Bankman-Fried, there are “powerful procedures” to create trustless trading.
One thing that isn’t specified is how the system runs in a decentralized manner. If they are not gonna use oracles for price feeds, how are they gonna get the price feeds? One way or another, a DEX needs to have price feeds streamed in the system in order to function.
There must an alternative way but so far there isn’t any info on that yet. This post will be updated once we have the answer.
Fast and Low-cost
The DeFi movement has helped Ethereum gain wider adoption in the industry. It has raised ETH’s value, but also the gas fees. As more people use Ethereum-based DeFi protocols, the network has experienced congestion from time to time.
As a result, transactions have become slower and the gas fees more expensive.
But Serum claims to have none of those problems. In fact, it runs as fast as centralized exchanges like Binance and Bitfinex. Furthermore, its transaction fees are also substantially lower than ETH’s.
And all these are made possible by the Solana blockchain.
Insitutional-grade UI and UX
Not only is as fast and cheap as centralized exchanges, but it also offers the same level of user experience (UX). You can expect Serum to have the same trading toolset including order-books, cross-chain swaps, leverage, etc. Features like no limit orders and bids and offers are also available.
When it comes to user interface (UI), DeFi has come a long way. However, they are still not on par with traditional trading platforms. It might interest casual traders and yield farming speculators, but not veteran traders.
These types of people require a complete trader toolset that most DEXs don’t offer. This is what makes Serum an exciting addition to DeFi as it is the first DEX to offer the level of service that power traders require.
Serum DEX Features
The Serum DEX provides several features that are non-existent in most DeFi platforms.
Uniswap has popularized trading without order-books through AMM (Automated Market Maker). AMM is an “okay” substitute as it allows people to trade albeit with a few disadvantages. But a professional trader would still need order-books.
Why? It allows you to decide the the price, size, and direction of your trade. Someone who makes a living trading desperately needs these options in order to have as much control of the variables as possible.
The reason why most DeFi platforms do not adopt order-books is that Ethereum is too slow and expensive to handle the necessary operations. Thankfully, Serum runs on Solana, which could handle thousands of bids and offers at a time.
Serum’s cross-chain integration will enable users to trade ETH, ERC-20 tokens, BTC, and SPL tokens, and more. And what sets it apart from other protocols offer cross-chain swaps is that it doesn’t rely on any third-parties to manage the swap.
Since FTX is also a derivatives platform, it is expected that it’s DEX, Serum, should have leverage trading capabilities.
Serum has custom crypto contracts support, which enables users to place leveraged positions in any products that the system has a market for. And these contracts can be tokenized and moved across the network.
With Serum, users can do leverage trading in a fully public and non-custodial system, all with superb performance.
Most exchanges have their own token standard and so does Serum.
SRM is the native asset of the Serum ecosystem. It also serves as a governance token based on a limited governance model. Being decentralized, most of the elements of the Serum ecosystem are immutable.
However, some parameters without significant security risks, like future fees, can be modified via SRM token votes.
All of the net fees of the Serum DEX will be regularly used to buy and burn SRM tokens, most likely to decrease supply and increase demand and market value.
SRM Use Cases
- Holding SRM gives up to 60% discount off all fees
- Paying for trading fees in the platform
MegaSerum (MSRM) is, simply put, 1 million SRM tokens stacked together. Their website says that it is “a scarce asset that gives increased utility to core believers in Serum.”
The Serum system allows users to earn money holding SRM and MSRM tokens via staking. Staking is a process of participating in validating transactions by putting your tokens on the line.
In order to qualify as a validator, you need to hold at least 10 million SRM and 1 MSRM. Once you’ve staked your tokens, you will be eligible to receive a portion of the fees for any cross-chain transaction you provide insurance for.
The Serum ecosystem has token wrapping abilities that allow it to create wrapped tokens like SerumBTC and SerumUSD.
Wrapped tokens are tokens that represent an underlying token that is non-native to the blockchain it is currently hosted on. A popular wrapped token is WBTC, an ERC-20 token that holds BTC that is locked under an Ethereum smart contract.
SerumBTC is a fully trustless SPL and ERC-20 token.
SerumUSD is also a decentralized token that represents a dollar. The website claims that it is a “solution to the onchain stablecoin dilemma,” which is a stablecoin that is pegged to the US dollar without relying on a bank account.
It is unclear how this is made possible. Unless you are a developer, their whitepaper explanation might as well be gibberish.
My Take on Serum
Serum appears to be a very promising addition to the DeFi ecosystem. But more than that, it could potentially be the solution that would make DEXs truly compete with centralized exchanges.
Coinbase alone has 35 million users while all of DeFi hasn’t even reached the 1 million mark. There is enormous opportunity for Serum if they can deliver. So I’m very excited about Serum.
Despite being a die-hard Ethereum supporter, I’m glad that FTX chose Solana for the base layer of the Serum protocol. Plus, SRM is also cross-listed as an ERC-20 token.
It’s great that many projects are coming up with different ways to solve the problems crypto faces today. Let’s see if Serum could truly deliver its promise of a revolutionary DEX.
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