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FTX Bets On Solana, Not Ethereum, For Its New Decentralized Exchange

Published 07/27/2020, 08:09 AM
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Solana aims to capture market share in DeFi as Ethereum's high transaction fees hinder new users.

Key Takeaways

  • FTX is building a DEX, Serum, on the Solana blockchain, with the help of partners like Kyber Network and Multicoin Capital.
  • Serum is cross-chain compatible, giving it access to liquidity on DeFi dApps on Ethereum.
  • The DEX will run on a central limit order book, but will still operate in a trustless manner.
  • Solana's high throughput is its core differentiator and will have to compete with layer two solutions on Ethereum.

FTX is spearheading the launch of a new decentralized exchange (DEX) to kickstart a new DeFi ecosystem on the Solana blockchain. Touted as an “Ethereum Killer,” can Solana’s high throughput outcompete Ethereum’s DeFi dominance?

DeFi Comes To An "Ethereum Killer"

Sam Bankman-Fried, CEO of FTX, announced on Twitter that the exchange will build a decentralized exchange named Serum on the Solana blockchain. The DEX will have a central limit order book but will remain completely trustless.

Solana was one of this year’s most anticipated layer one protocol releases, claiming to process between 50,000 to 60,000 transactions per second. The SOL token was listed on Binance and FTX in April 2020.

FTX will also be in direct competition with Binance, as it’s the only other major centralized exchange building a DEX. The Binance DEX, however, has been underwhelming for the most part.

Instead, most DEX activity is happening on the number two blockchain, Ethereum.

Automated market makers dominate dEXes on Ethereum. These technologies enable deep liquidity through community market making but are not suitable for large traders due to their high propensity for slippage.

Crypto traders and investors are used to the order book-style of trading used by centralized exchanges, as they maximize for trade matching and aren’t prone to significant bouts of slippage. Serum offers this style of trading, making it a direct competitor to its centralized counterparts.

Furthermore, Serum is fully cross-chain compatible, allowing it to access the vast amount of liquidity on Ethereum’s DeFi stack.

Solana’s high throughput means that it can scale for hundreds of thousands of users without adversely affecting fees—a problem Ethereum currently suffers from. The ability to rope in more users without pushing up costs is a huge benefit.

All smart contract platforms harp on the thousands of transactions they can process per second, but many lack the activity and initiatives ever to reach these levels of throughput.

Solana Partnerships And Traction

Solana, however, has been gaining traction amongst developers in a way that EOS never has. Further, the blockchain is production-ready two years after its seed sale, unlike Cardano, which began its ICO over five years ago and is yet to launch.

Additionally, Solana has partnered with crypto projects like DeFi powerhouse Chainlink and Terra, a South Korean stablecoin project, amongst others.

This doesn’t mean Solana will immediately overthrow Ethereum as the home of DeFi, however. Various Layer 2 solutions on Ethereum are helping the network push through bottlenecks, and core developers are hard at work expediting the launch of ETH 2.0.

Thanks to Serum’s cross-chain ability, users could take their business to this DEX while they wait for Etheruem to improve. In the future, the two blockchains could develop their own DeFi-specific moats.

Only time, and the market, will decide how this dynamic will play out.

It’s too early to tell if Solana will be an “Etherum killer", as the blockchain is just a few months old. However, it’s best not to forget that Ethereum, too, was once a nascent blockchain with little to no usage.

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