SERUM’s Edward Zuo: The Future of DeFi on Solana – When Will Leveraged Trading Reach DEX? (Interview)

Project Serum is a financial ecosystem that aims to bring unprecedented speed and low transaction costs to Decentralized Finance (DeFi). It is centered around a decentralized exchange (DEX), which is built around a central limit order book and matching mechanism that are fully on-chain.

Serum’s ecosystem partners can join this on-chain orderbook to share liquidity and match orders from both institutional and retail users.

Serum was founded originally by Sam Bankman Fried (SBF), CEO of one of the most prominent centralized crypto exchanges FTX. It is currently deployed on the Solana Blockchain.

CryptoPotato was able to speak with Edward Zuo (Senior Advisor at Project Serum) during BreakPoint 2021 in Lisbon. We discussed the current state of Serum and the challenges that it faces, as well as the future plans for the project.

The Order Book That Will Power a Financial Superstructure of dApps

Zuo explains that Project Serum is the underlying liquidity infrastructure needed for Solana-based applications that require trading-related features and could benefit from Serum’s central limit book. “It’s the first decentralized order book-based exchange to be fully deployed on-chain.

Serum is a set of fundamental primitives designed to bring about a fully functional, centralized exchange experience for all DeFi.

Because you can create a DEX with Serum, it is unique. It can be used to build multiple DEXes. DeFi composability allows users to compose with Serum markets in order unlock amazing synergies or bootstrap liquidity for their protocol.

Edward Zuo, Serum. Source: LinkedIn

Imagine what happens when multiple applications use the same software. You can see how large that pool of capital grows. This simple, yet elegant model can be used to scale up DeFi.

You now have developers building dApps. It doesn’t mean you have to reinvent the wheel each time someone makes a new protocol. Therefore, order matching is not something that you need to do. Now you can focus on other important aspects of your project such as building a risk engine, marketing, or other partnerships.

Serum is able to power a superstructure of financial apps on Solana. We hope to quantify the time and convenience this saves developers.

It’s built on Solana which provides features such as sub-second settlement and low transaction costs. Serum can deliver the same user experience as centralized exchanges.

Solana and DeFi, bring Solana to the rest of The World

Serum was launched in 2020 and aims to be the first decentralized platform with fast transaction executions and low fees.

Serum seems to have created something that no one else has done before and it did so in a relatively short amount of time. Are the current Project Serum team members the same as the original founding team?

Project Serum was founded originally by FTX Research and Alameda Research. They are still contributors to Serum and many other projects. Serum has attracted many ecosystem supporter and contributors through its grantmaking and its DAO.

Many volunteers are also involved simply by looking at what Serum does. It helps that Serum is open source. All the information is available. People just get involved.

Sam Bankman-Fried, CEO of FTX. Source: Bloomberg

My guess is that Serum’s most active users include both newcomers and contributors from September 2020.

This is also reflected in the increasing number of developers and the diversity of those contributing to Serum.

What are your long-term and mid-term goals one year after the launch?

“We are taking all necessary steps to get Solana and DeFi out to the rest of world.

This is why I keep referring to the issue of scaleability and fully functional centralized Exchange experience. It’s the ultimate convenience for retailers and developers. DeFi can be used by everyone to bring the benefits to them and let them benefit without worrying about technical issues.

These are both long-term goals and ambitious milestones. There are several steps that can be taken to get there, I believe. The first is to obtain institutional capital. Institutional adoption of DeFiwhich Solana could provide that.

Without this institutional capital, DeFi will not go anywhere

Zuo says, “There are many ways we’re doing it: One is to continue letting market makers and high-frequency traders feel more comfortable coming onto-chain and letting them do what they want on Serum. Without this institutional capital, DeFi goes nowhere.” It’s a fact.

Familiarity is just one issue for these players. Another issue is regulatory. While we are still waiting for regulatory clarity, it is clear that all institutions must comply with existing compliance and regulatory requirements.

You can see that these institutions are looking for players who have an ever-increasing appetite to be exposed to DeFi. However, if they trade with the wrong counterparty we all understand these risks fairly well. They must be cautious and want to comply. It’s great to see ecosystem players like Solana and Serum finding ways that DeFi can be institutionalized and allowed for new players.

Raydium is the AMM that first appeared on Solana. Their initial goal was to settle trades on the Serum order book and their platform.

Raydium’s daily volume exceeds that of Serum DEX. This volume is comprised trades from Raydium, Mango Markets and Bonfida. Recently, we saw Raydium platforms with higher volumes. Are you adamant that AMMs are preferred by users over order books?

“Automated market makers are a different kind of market than a central limit book. Each type has its own pros and cons. Raydium offers a unique experience that reduces slippage. But how can they do this? They can offer their customers the best of both worlds by writing with Serum and sending orders directly to Serum’s order book.

Raydium is just one of many popular GUIs that are built on Serum. The latter powers Raydium as well as many other apps that add value and traffic to Serum.

This could mean that Serum’s user experience is not as polished as one would expect from a central exchanged experience.

“Well, Serum wants people to be able to build whatever they like, regardless of whether it’s a DEX, a derivatives protocol, or any other kind of trading app.

Derivatives can be very interesting, as Serum Core (a recent upgrade by Bonfida), unlocks a lot of flexibility for developers who build these products.

There are many teams that have created amazing derivatives and risk-hedging tools that will bring more value to the Serum and Solana ecosystems. This is something to be excited about. It’s more than just a few key players. It’s about offering a complete range of products for everyone who comes to Serum.

Leveraged trading on the DEX

Leverage trading is a topic that often comes up when discussing derivatives. It has become very popular among crypto and Bitcoin traders.

Leverage trading volume is higher than spot trading at the moment. Zuo responds that he expects to see leverage trading on Serum in the near future.

“There are people who build things like margin solutions. This is what makes Serum so fun because everyone sees their place in the ecosystem.

Primitive items like an on-chain order books (that’s Serum), wallets and AMMs are all yours. Okay, cool. What’s next?

It sounds like borrowing-lending is the next step. Then there are margin services that will allow leveraged trading. Perpetual futures would be a good next step. Your futures require margin. You now have not only futures on crypto, but cross-chain underlying if you add bridges, or real-world underlying if you bring in Oracles.

It’s more than just about Serum doing all the things – it’s also about what Serum inspires. While it helps us all get there, we trust the wisdom, knowledge, and guidance of our community.

SRM’s enormous supply problem

SRM has a total supply of 10 billion. However, the circulating supply is approximately 130M. According to Coingecko, the Serum’s fully diluted value is around 80 billion US dollars.

The exchange currently pays 100% of fees to traders. The volume of transactions on the Serum Exchange is too high to warrant a fully diluted valuation.

We must remember that the project was built in the best interests of token holders and the community. However, it is impossible to ignore the large non-circulating supply. What do you think of the project’s future? Is there a plan to address this problem?

There are many reasons governance was established. It is part of the community’s wisdom. So the question is, “What is up for governance?” What are you eligible to vote? There are many important aspects to Serum, and it’s all possible.

For example, it could be about the fees parameters. It could also be about the default settings of the GUI. This could relate to the tokenomics, the form of utility, and governance of SRM tokens.

These issues have been discussed for many years. These issues are important to Serum’s community as well as its contributors and volunteers. SRM is important for grant-making and other crucial initiatives that Serum undertakes to support and guide ecosystem development.

People have strong, passionate, well-founded and sometimes very mixed feelings about tokenomics. This is to be expected. This is the case for many projects. Serum provides a forum for people to talk about this and come up with the ideas that will make the community feel most empowered and excited. These things are not always easy to do and can take some time.

Is it not a risk to the Serum in the short-term?

It all depends on who you ask. Some people are extremely bullish about the volume SRM can generate. Others are more cautious, which is fine. We bring it up in the forum for discussion.

The NFT Craze is impossible to predict.

Blockchain’s greatest virtue is its flexibility. Project Serum can use Solana’s blockchain in a permissive way. Likewise, dapps have the ability to use Serum’s order book to settle trades.

What do you think the future of the Serum ecosystem will look like? What will it look like five years from now?

It’s a great question. I won’t let myself drift too much. You will see that these are two very different questions when you compare what an ecosystem requires and what it might end up doing.

It seems fair to say we will need risk hedging solutions in the future. These solutions are being demonstrated by many people. We will also require more sophisticated wallet solutions, and TradFi-like options for non-crypto native user – perhaps something like borrow-lending. This interface could also be a kind of interfaces such as a bank account with fixed period yield generation.

These ‘obvious things’ are being built by people, including oracles, borrowing, bridging and margin services, options and futures, as well as perps and futures. These things are easy to predict. However, it is impossible to predict other things such as the NFT craze.

The model derivatives can be earned on top of NFTs, and any augmented reality or interactive apps supported by Web3 innovations. You can’t always predict some of these things, so it’s best for the community to help direct resources to the right places to build these cool things.

Everyone Should be able to use DeFi

Zuo says, “I look forwards to a world in which these different dApps (whether they’re financial or other services) are all kind of powered primarily by Serum and Solana, but their users don’t necessarily DeFi native.”

So, how do we get there? It is possible to call it ‘uninformed flows’.

I could not give you a great lecture about how the internet works. Although I am not an expert on the internet, it is something I find very useful. I love the internet. The next wave of apps will offer more benefits for users and be easier to use.

It is difficult to master the UX challenge. The app should be easy to use and pick up. This is true regardless of whether the app is e-commerce, mobile gaming, or any other. It’s not about pushing new technologies on people. It’s about convincing people to use the technology without even realizing it.”

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Marla Brooks

Marla Brooks – Financial Analysis My name is Marla Brooks, and I am the mainstream behind the””  for the powerful and most delicate insights into the latest activities in the financial analysis category. I started my journey as an independent financial consultant. I had approximately nine years of experience in this field. I am free soul so; my passion for exploring the world has taken me to the nations across the globe and given me the chance to report for a portion of the best news associations. Currently, I am a full-time editor as experienced in finance and started to use my abilities.

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