Aver’s Introduction to Serum and Decentralized Exchanges (DEX)
Over the past twelve months, Decentralized finance (‘DeFi’) has seen explosive growth with DeFi holding an all-time high of $100B in cryptocurrencies last August.
To support this continued growth, DeFi developers are looking for alternatives to Ethereum, which is experiencing some difficulties. Ethereum, once the dominant blockchain with most DeFi developers, is starting to lose its market share dominance. What was once 100% of the DeFi market, Ethereum’s market share has now fallen to around 70%.
Serum has laid the foundation for advanced and highly flexible exchanges built on Solana. Aver leverages Serum as the basis of its exchange — which means that for the first time, prediction multidimensional, on-chain smart contracts can be traded at speed and scale through a DEX, enabling peer-to-peer trading of event predictions and risk.
What Is a Decentralized Exchange (DEX)?
A “centralized” asset exchange allows buyers and sellers to exchange crypto assets — such as cryptocurrencies, tokens, and contracts. These exchanges are “centralized” because they rely on a middle man or third party to process and manage transactions between buyers and sellers. All parties to a transaction rely on and must therefore trust this middle man to properly handle their assets.
Unlike a “centralized” exchange, a “decentralized” exchange (DEX) avoids the third party or middle man altogether. A DEX establishes a buyer-to-seller or a peer-to-peer trading platform that enables the exchange of one type of token for another type of token.
What is Serum?
Serum is a decentralized exchange (DEX) and ecosystem that provides lightning-fast transactions per second (TPS). And, it achieves these transaction speeds with very low gas or transaction costs.
Serum is an open-source, permissionless on-chain platform for trades to take place. Trading is completed utilizing smart contracts (or ‘programs’ in Solana parlance) on the Solana network instead of being done on a centralized platform. Importantly, Serum does not require that a third party retain control over private keys, trading parameters, user information, or fund security.
How does it achieve such cost-effective transaction speeds? Serum is based on the Solana decentralized blockchain architecture.
Solana is an extremely fast and secure, open-source blockchain. It differentiates itself from other blockchains by processing transactions as they arrive into the network, rather than processing these transactions in a block by block fashion.
To achieve its processing rates, Solana utilizes a novel blockchain structure that implements both a Proof of History (PoH) coupled with a Proof of Stake (PoS).
Since its initial release, Solana’s price has been nothing short of meteoric, hitting an all-time high of $256 last November. With a market cap of just over $36 billion, Solana now ranks in seventh place among the largest cryptocurrencies by total value.
The high throughput that Solana achieves through its innovative ecosystem makes it ideal for decentralized applications (dApps) like the Serum DEX. Simply put, it offers a more scalable platform with lower transaction costs.
What Problems does Serum Solve?
In light of the popularity of DeFi and the growth of DEX’s that rely almost exclusively on Ethereum, users and developers have been challenged by volatile gas fees and slow transaction rates. Serum meets these challenges head-on, while also enabling other key features, such as offering cross-chain transactions and providing a decentralized automated order book run by smart contracts.
Over 70% of all DEX’s utilize Ethereum but these experience slow transaction times and high gas fees. To combat slow processing times and high gas fees, Serum opted to run on the Solana open-sourced blockchain.
Solana is a huge attraction to dApp developers because of its network performance. Solana can handle up to 50,000 transactions per second (TPS), while Ethereum can only handle about 15–45 TPS.
Solana charges a transaction or gas fee of only $0.00025 per transaction. Compare that to Ethereum’s gas fees which can range anywhere from about $6 to about $250, depending on the network congestion.
DEX’s running on Ethereum are currently too expensive and slow to support an order book due to its system limitations. These exchanges must therefore utilize Automated Market Maker’s (AMM) which have certain inherent limitations, such as dealing with liquidity and slippages.
In contrast, Serum provides users with an on-chain order book. This enables participants the freedom to choose the price, the size, and the direction of trades. For example, Serum offers stop orders and limit orders typically included in centralized exchanges (CEXs) but are currently not available with most DEX providers.
Moreover, by offering an order book format, Serum also makes it easier for CEX users to make the transition to a DEX.
What is the Current State of Serum?
Based on transaction volume, Serum currently ranks as the fifth-largest DEX in the world. Over the last 24 hours, more than $550 million in transactions flowed through Serum.
And Serum’s market acceptance in the DeFi marketplace will probably continue to grow. For example, as the second largest cryptocurrency exchange in the world, Coinbase recently began listing Solana’s ecosystem’s tokens. So, this will probably create greater exposure to Solana and its SPL tokens (which includes Serum).