Raydium Use Case
In the rapidly expanding DeFi movement, the ability to trade with each other in a trustless and decentralized way is at the heart of it all.
Raydium has made it possible to trade cryptocurrencies easily without the involvement of traditional banking institutions or centralized exchanges.
Let’s take a look at how RAY, its native token, is being used.
What is Raydium?
Raydium is an automated market maker (AMM) built on the Solana blockchain. It facilitates near-instant trading with low fees. AMMs bring liquidity to Decentralized Exchanges (DEXs) and allow automatic and trustless trading of tokens without a third party or intermediary.
Raydium is interoperable with Ethereum which means it has access to the most popular DeFi ecosystem. However, as it is built on Solana (a high-performing and extremely scalable blockchain), it has much faster transaction times and lower fees than Ethereum.
The native token of the Raydium protocol is the RAY coin. The token is used as a staking token for providing liquidity to the Raydium ecosystem. Transaction fees for trading are paid using RAY tokens.
The maximum supply of RAY tokens is 555,000,000 and 34% of tokens were held in reserve to be distributed to liquidity providers. 30% were put aside to fund the growth of the Raydium ecosystem. The mainnet was launched in February 2021.
Raydium as An Automated Market Maker
Automated Market Makers are a vital element to the Decentralized Finance (DeFi) ecosystem. They allow the automatic trading of digital assets or tokens without a third party. This is an important tool for Decentralized Exchanges (DEXs).
One major drawback of using centralized exchanges is that the tokens being traded must be held in wallets that are managed by the exchange. Users can have access to their tokens withheld or disrupted. Many users wish to avoid this and DEXs allow this as tokens are traded automatically between users’ wallets.
Centralized exchanges have also been targeted by hackers and users have lost their tokens as a result. The centralized exchange, Bitfinex, was hacked in 2016 and tokens to the value of $60 million were stolen. Decentralized exchanges are secured by a large number of servers spread globally. This makes them much less susceptible to hacks.
An AMM lets users trade tokens without a third party by using decentralized reserves of tokens. Prices are set automatically using a mathematical equation that removes the need for a third party to match buyers and sellers.
Raydium Use Case: Providing Liquidity
To provide the services of an Automated Market Maker, Raydium needs to have large liquid, decentralized pools of tokens. Liquidity Providers are Raydium users who stake or bond their RAY and other tokens in these pools.
Liquidity Pools are created using pairs of tokens that users lend to Raydium for a period of time in return for rewards. Each pool is a combination of two tokens in a 1:1 ratio (like RAY-SOL, a pool of RAY and SOL tokens).
Users who carry out trades are essentially trading with these liquidity pools. This removes the need for third parties or intermediaries who charge high transaction fees.
Liquidity providers receive a Liquidity Provider (LP) token that represents the two tokens they have bonded. This token can be redeemed for the original tokens easily. They can also be used in Raydium Farms.
The liquidity providers earn rewards based on a small transaction fee (0.25%) charged per trade. This fee is split between the liquidity providers (0.22%) and users who stake RAY tokens (0.03%). The fee for trading using Raydium is charged in RAY tokens.
This system incentivizes users to bond their tokens on-chain to provide liquidity. It enables fast, trustless and automatic cross-chain trading of coins which has been very difficult for decentralized exchanges to provide. This allows Raydium to compete with centralized exchanges in crypto markets.
Users can earn RAY tokens by providing liquidity to these pools and retaining their investments in the long run. Token holders can easily redeem their bonded digital assets and restake them in other pools.
Raydium Use Case: Raydium Farming
The Liquidity Provider (LP) tokens generated by staking token pairs to Raydium can be staked to generate interest in the form of yield farming. So, not only does staking in liquidity pools generate rewards in the form of trading fees, the LP tokens that you receive in return for your staked coin pair can also be staked again to receive more rewards in the form of RAY tokens.
Once a user holds LP tokens these can be staked in a corresponding Raydium Farm (so a holder of SOL-RAY LP tokens can stake them in a SOL-RAY farm). These Raydium Farms are designed to incentivize providing liquidity across the exchange.
Farming will generate RAY tokens in return. These farming rewards allow RAY users a second way to generate passive income using Raydium.
Raydium Use Case: Staking RAY Tokens
Users can also stake their RAY tokens on the Raydium website to receive a return on their staked tokens. This brings more liquidity to the Raydium platform.
The longer tokens are staked for, the greater the reward. The average return at the moment is about 20% APR but this can change.
As well as receiving RAY tokens as a reward, staking RAY tokens allows you access to new crypto projects being launched on the Raydium trading platform. Projects will require the user to have a minimum amount of RAY tokens staked to gain access.
This means RAY token holders can get in early on cryptocurrency projects that they believe to have potential. Early investors of the most popular cryptocurrencies have seen great financial successes.
Raydium Use Case: Near-Instant Trading
Currently, Ethereum is facing a scaling problem. As platform use has grown, the network has been unable to keep pace. Transactions can take days and incur high gas fees due to network congestion. A simple transaction can cost the user $70 and take a day to clear.
Trading within the Ethereum ecosystem is most commonly done using Uniswap, a popular decentralized exchange on the platform. Uniswap allows the trading of ERC-20 tokens (built to the Ethereum standard) without an intermediary.
However, trading using this platform can result in high gas fees as it runs on the Ethereum blockchain. Conducting a trade can cost over a hundred dollars which makes it unattractive to the average user trading in small amounts. This is a huge barrier to fast-paced trading and market speculation. Ethereum 2.0 promises to tackle this but many people in DeFi don’t want to wait.
Raydium and Trading
Raydium allows the trading of ERC-20 tokens but is built on the Solana network. Solana is a high-performing, scalable blockchain with many DeFi services built upon the chain. Raydium benefits from the low fees and high speeds of the network. Transactions are near-instant as Solana can process up to 65,000 transactions per second.
This allows users to trade tokens with extremely low fees that are paid in the trading platform’s native cryptocurrency, RAY. Users can still trade ETH and ERC-20 tokens as well as having access to a wider range of tokens from different networks and the Solana ecosystem.
Investors who wish to trade tokens using Raydium pay a trading fee in RAY coins for every trade they make. Trades incur a 0.25% fee which is much lower than is available on most centralized exchanges. Coinbase, a popular centralized exchange, charges 0.5% fee for any trade less than $10,000 in value.
So any RAY token holder can take part in trading tokens on the Radium AMM platform for a small fee of RAY tokens. Traders can act quickly on market changes or news rather than having to wait hours for trades to take place. This can make all the difference in the fast-paced landscape of cryptocurrency markets where prices can fluctuate minute-to-minute.
A Leader of DeFi on Solana
Raydium have combined the best of DeFi and Solana to create a platform for near-instant trading of digital assets with low fees. This combined with Ethereum interoperability has secured Radium’s place as one of the most popular projects on Solana.
While the Ray token is not designed as a market speculation-focused coin, its value has risen steadily as network usage has grown. This is also due to the rewards that RAY token holders can earn by providing liquidity to the Automatic Market Maker.
Raydium is designed to encourage user participation which has helped establish a core community. As the DeFi landscape explodes, Raydium seems to become a major player in the trading of cryptocurrencies.