The State Of Solana DeFi | Round Table

This episode of ZeroX Research offers a deep dive into the evolving Solana DeFi ecosystem, revealing how new automated market maker (AMM) designs are capturing significant volume and what the future holds for lending, launchpads, and perpetuals on the high-performance blockchain.

Market Sentiment: Navigating Pessimism and Ethereum's Influence

• The discussion kicks off with an acknowledgment of prevailing pessimism in the crypto market, which Dan from Blockworks Data attributes partly to price action and the psychological impact of "crime season thinking."
• Dan notes, "Ethereum price lagging is definitely net bad for the industry's morale. Most people own ETH."
• Despite this, he sees positive developments in Ethereum's scaling efforts, which are crucial for the broader industry's health.
• Carlos from Blockworks Data highlights a "flight to fundamentals or quality," observing Bitcoin's outperformance and the strength of applications with cash flows and real value accrual to token holders.
• The speakers agree that sentiment is largely price-driven, with Ethereum community members feeling down but focused on a potential "pivot," while other segments have been happier.

Actionable Insight: Investors should monitor Ethereum's scaling progress, as its success is seen as a bellwether for overall market morale and stability. The divergence in asset performance suggests a discerning market favoring projects with strong fundamentals and clear value propositions.

Solana DEX Landscape: The Rise of Prop AMMs

• The conversation shifts to the dynamic Decentralized Exchange (DEX) landscape on Solana, with a focus on "prop AMMs" (Proprietary Automated Market Makers) like SoulFi by Ellipsis Labs (creators of Phoenix Trade). These AMMs use oracles to price liquidity privately seeded into pools, aiming to reduce toxic flow and offer tighter spreads for retail.
• Dan explains SoulFi, Oric, and ZeroFi are capturing significant market share, especially in major pairs. "If you add the three of these together... that's about 50% in total of SOL/USD volume and north of 60% on stablecoin swap volume."
• SoulFi, an oracle-priced AMM, uses private liquidity deposits and oracle pricing to manage pools, similar to Lifinity (another AMM known for its concentrated liquidity and oracle integration). This design aims to minimize toxic arbitrage flow common in traditional AMMs like Uniswap or Radium.
• These prop AMMs are excelling with highly liquid pairs like SOL/USD and stablecoin swaps, quoting very thin liquidity in tight price windows to primarily capture retail flow.
• Carlos suggests a bifurcation: prop AMMs dominating liquid markets (majors, LSTs like JitoSOL), while traditional AMMs like Radium and Pump.fun retain dominance in tail-end assets like memecoins, which constitute over 50% of Solana's DEX volumes. Professional market makers are less willing to price highly volatile, new memecoins.
• Chris Jung from Titan, a meta-aggregator, reportedly noted that prop AMMs like SoulFi and ZeroFi provide "dramatically better prices" for highly liquid assets.

Strategic Implication: The rise of prop AMMs on Solana signals a shift in DEX architecture for major trading pairs. Investors should watch if these models can extend their success to project tokens beyond the top majors, potentially challenging incumbents like Orca. Traditional AMMs may find a defensible niche in the long-tail and memecoin markets.

Solana Lending: Modular Architectures and Order Book Innovations

• The discussion explores innovations in Solana's lending sector, moving beyond traditional pooled models.
• Camino is developing Camino Lend V2, aiming for a modular architecture.
• Carlos highlights Loopkl, a lending protocol with an order book-based design that directly matches lenders and borrowers, contrasting with the pool-based design introduced by Compound where interest rates are algorithmically set based on pool utilization. This can eliminate the spread between supply and borrow APYs and enable fixed rates and more diverse collateral types.
• "Loopkl offers fixed rates, which is great for more sophisticated borrowers that want to have like more planned out strategies," Carlos states.
• Dan draws parallels to Morpho on Ethereum, which uses a base layer lending primitive with isolated pools, topped by vault products managed by trusted teams (e.g., Gauntlet, Steakhouse) to abstract complexity from users. He sees this as the "right path forward for lending."
• The potential for Solana-based Pendle-equivalents like Raidex and Exponent (platforms for trading tokenized yields) to integrate with these new lending models could create a virtuous cycle, similar to what's seen on Ethereum with Pendle assets and Aave/Morpho.
• A recent hack on Loopkl involving an AMM-based oracle pricing issue for a Raidex asset (from which funds were recovered) underscores the "relative immaturity in some sense of Solana DeFi relative to Ethereum," as Carlos puts it.
• Dan emphasizes the importance of underwriting: "Building a scalable lending product is not a developer issue... it's an underwriting issue and you have to be able to price the risk on these assets properly."

Actionable Insight: The move towards modular, order book-based, and vault-centric lending protocols on Solana could unlock new efficiencies and use cases. Researchers should monitor the development of protocols like Loopkl and Camino, and how they manage risk, especially with novel collateral types and oracle dependencies.

Solana Launchpads: Radium's Modular Counterpunch

• The conversation touches on the launchpad scene, where Radium is innovating with its Launch Lab product.
• Radium's Launch Lab is adopting a modular approach, allowing other teams to rebrand and launch their own versions, such as "Let's Bonk.fun." This is seen as a strategic response to Pump.fun, which launched its own native DEX, taking volume previously routed to Radium.
• The model includes customizable bonding curves and fee-sharing with creators/branded launchpads, incentivizing adoption.
• Carlos notes, "Launchlab has partnered with some like AI bots on on Twitter where you ask the AI bot to deploy a coin for you and that will deploy directly on Launch Lab."
• While Pump.fun still dominates in terms of token launches and volume, Radium's strategy shows early signs of traction, with Bonk-related launches driving significant activity on Launch Lab.
• Jupiter's acquisition of Moonshot presents another potential competitor in the launchpad space, though their plans are not yet clear.

Strategic Implication: Radium's modular launchpad strategy could foster a diverse ecosystem of community-specific launchpads on Solana. Investors should track whether this model can effectively compete with Pump.fun's dominance and if other platforms like Jupiter will enter this arena more aggressively.

Solana Perpetuals: The Quest for Scalability and Better Market Structure

• The discussion on perpetuals (perps) highlights Jupiter's current dominance on Solana, despite offering only three assets (BTC, ETH, SOL).
• Carlos explains a key challenge: "Building a really good perp product is going to require like doing some of that activity off-chain or like a new chain... because as validator set is permissionless you can't really have like opinionated ordering of transactions." This leads to issues with toxic order flow where takers often have an advantage.
• Hyperliquid, an Arbitrum-based order book DEX with its own Layer 1 blockchain featuring a permissioned validator set, is cited as an example of a platform that can achieve better pricing and order execution.
• While Jupiter dominates Solana perp volumes, 90% of Hyperliquid's volume also comes from top pairs, suggesting that asset variety might not be the sole driver of success initially.
• Future Solana upgrades, such as prioritizing transaction cancels or changes to Turbine (Solana's block propagation protocol) moving from single-leader to multi-leader, could improve on-chain order book viability. Max Resnik from the Solana Foundation discussed this at Token 2049.
• Dan suggests the perp landscape could evolve if Solana becomes a better environment for order books, potentially benefiting protocols like Drift.
• Carlos is also "really excited in a way about Atlas," the upcoming L2 from the Ellipsis Labs team, given their success with SoulFi.

Actionable Insight: The Solana perps market is constrained by on-chain limitations. Investors and researchers should monitor Solana's core infrastructure upgrades (e.g., Turbine, transaction prioritization) and the development of solutions like off-chain components or specialized L2s (e.g., Atlas) that could significantly alter the competitive landscape.

Solana's Big Picture: App Revenue, Diversification, and the Bitcoin Opportunity

• The podcast concludes with a macro view of Solana's ecosystem.
• Solana has impressively flipped Ethereum in application revenue since June of the previous year, now accounting for nearly 50% of total app revenue across all chains. Carlos notes, "Solana apps make $1.85 for every dollar generated in L1 revenue (REV)," up from 80 cents a year ago, indicating strong product-market fit.
• Dan argues for diversification beyond memecoin trading: "I think it's a very important sector for blockchain but like you just need some diversity around there." He sees bringing Bitcoin onto Solana as a key opportunity.
• Unlike typical RWAs (Real World Assets) – which are digital representations of tangible assets like real estate or bonds – Bitcoin is both a store of value and a volatile asset, creating arbitrage opportunities.
• Coinbase's CBTC and Wormhole's wrapped BTC are present on Solana, but the ecosystem has yet to recover the >$1B SoBTC (FTX's wrapped Bitcoin) market cap lost after FTX's collapse. Zeus Network is another player with its zBTC.
• Carlos is more skeptical about Bitcoin DeFi significantly boosting Solana's L1 revenue, believing most wrapped Bitcoin would sit in money markets rather than drive high-frequency trading.
• The conversation touches on RWAs, with Dan questioning their immediate value-add to chains if they remain low-velocity: "What is the ultimate benefit to the chain that wins that integration? It's a little bit unclear." He sees lending protocols as primary beneficiaries.
• Carlos agrees, stating, "RWAs won't be beneficial in that way for chains until they are actively traded there for price discovery."
• The episode closes by contrasting Ethereum's challenge of scaling performance with its massive capital base, against Solana's challenge of attracting more capital to leverage its high performance.

Strategic Implication: Solana's app revenue growth is remarkable, but long-term sustainability may depend on diversifying revenue sources beyond memecoins. The integration of Bitcoin and other RWAs presents opportunities, but their true economic impact will depend on their velocity and integration into active DeFi protocols, particularly trading and lending.

Conclusion

Solana's DeFi landscape is rapidly evolving with innovative AMMs and lending models challenging incumbents, while the ecosystem grapples with scaling specialized applications like perpetuals and diversifying beyond its current strengths. Investors and researchers should monitor protocol-level innovations and Solana's strategic efforts to attract diverse forms of capital and activity.