Is Jupiter an amplifier for investing in Solana?

Original title: "Metrics Ventures Research Report | Is Jupiter an amplifier for investing in Solana?"

Original author: @charlotte0211z, Metrics Ventures

1 Jupiter: A leveraged target for the Solana ecosystem

1.1 Will Solana become an "Ethereum killer"?

Solana is recovering from the FTX crash. After becoming the leader of the cryptocurrency rally in the fourth quarter of 2023, it continued to ignite market sentiment in 2024 with the high-multiple increase in ecological airdrops and MEME tokens, making Solana the top player in the "Ethereum killer". We review the growth of the Solana ecosystem from the perspectives of data, market sentiment, and ecological prosperity, and explain why the importance of deploying the Solana ecosystem should be greatly increased in this cycle.

Solana's data is soaring rapidly. Solana's TVL began to grow rapidly in the fourth quarter of 2023, from about $500M on October 1, 2023 to the recent $8B, an increase of 1500% in two quarters, and is approaching the peak of $12B in November 2021; DEX trading volume is increasing rapidly under the influence of MEME tokens. On March 16, the trading volume exceeded $3.8B, a record high. The proportion of DEX trading volume has increased rapidly, approaching Ethereum and even surpassed it for a short time; in terms of token performance, Solana's token price began to rise sharply in October 2023, approaching a peak of $250, and the total market value has surpassed the peak of the last bull market.

(Solana TVL changes over time, source: DeFiLlama)

(Solana DEX transaction volume changes over time, source: DeFiLlama)

(DEX Volume Dominance of each public chain changes over time, source: DeFiLlama)

(Chart of Solana's total market value over time, source: Coingecko)

From other perspectives such as ecology and market sentiment, the reasons why Solana's ecology is growing rapidly and still has room for substantial growth include the following:

· Solana has emerged from the negative impact of the FTX incident:With the end of SBF's trial, the FTX crash has basically come to an end. From the perspective of the Solana ecosystem, Solana has gradually emerged from the trough of the FTX incident. Whether from the perspective of ecological development, investor views and market sentiment, the negative impact of the FTX incident on Solana has disappeared. According to The Block, citing people familiar with the matter, the 41 million SOL locked by FTX has attracted multiple buyers, and the market demand for the acquisition of SOL tokens is high. Both from the perspective of funding and institutional sentiment, it provides positive indicators for Solana's future growth expectations.

· Solana becomes the main battlefield of the DePIN project, and multiple ecological projects are about to issue coins: Solana has become the main ecology that carries the DePIN narrative with its low fees and high performance. In addition to DePIN head projects such as Helium, Shadow, and Hivemapper, a number of AI×DePIN projects have also chosen the Solana ecosystem, including io.net, Render, Grass, and Nosana. At the same time, many projects in the Solana ecosystem have not yet issued coins, such as io.net, Magic Eden, etc. Referring to JUP and JTO, the issuance of coins and airdrops by these projects will continue to inject vitality into the Solana ecosystem.

· Solana has achieved product-market fit and may become the main interactive ecosystem for retail investors and new users in this round:Solana's high performance and extremely low transaction fees make it extremely suitable for retail transactions, and lower the threshold for new users. Ethereum L1 transaction fees can be as high as tens or even hundreds of dollars during peak periods, and this number is rising with the growth of ETH prices. L2 liquidity is dispersed and the operation difficulty for new users has increased. In addition, the concept of Fair Launch has been deeply loved by retail investors in this cycle. Retail investors generally believe that Ethereum has become the main battlefield of VC disks. On the contrary, Solana's strong support for MEME coins has driven bottom-up market sentiment. Simple operation, low-priced chips and wealth-creating effects will become the main driving force to attract new retail investors.

In summary, whether it is data performance, ecological prosperity or market sentiment, the Solana ecosystem has shown strong strength in the past, and has demonstrated the ability to continue to grow and the logical deduction path of growth in the bull market. Whether Solana is an "Ethereum killer" or not, from a configuration perspective, the Solana ecosystem deserves the same status as the Ethereum ecosystem, and from a growth perspective, it is even more aggressive.

1.2 Jupiter will resonate with Solana

As the liquidity infrastructure of the Solana ecosystem, Jupiter will resonate with Solana.

First, on the Solana network, Jupiter guides about 50%-60% of the trading volume, and more than 80% of the organic trading volume (excluding Trading bots), which means that traders participating in the Solana ecosystem, in addition to using Trading bots, most transactions need to be completed through interaction with Jupiter's front-end. Jupiter has become one of the most important protocols in the Solana ecosystem by virtue of its status as a trading infrastructure and its extremely large customer capture. In addition, as a DEX aggregator, Jupiter's importance to the Solana ecosystem is actually much higher than 1inch's importance to Ethereum, because Solana is inherently more suitable for liquidity aggregators. A transaction divided into multiple times will generate higher gas, which brings high friction to Ethereum, which already has high gas fees, while the cost to users on Solana is still very small. Therefore, in terms of trading volume, Jupiter is basically equivalent to Uniswap, and even surpasses it for a short time. Both are far higher than other trading infrastructures, and can be said to be the Uniswap of the Solana ecosystem.

Secondly, Jupiter has launched Jupiter Start and Launchpad. With Jupiter's great capture of Solana's users and traffic, it can be foreseen that Solana's new projects in the future will be highly bound to Jupiter. Whether through Jupiter Launchpad or directly airdropped to JUP holders, Jupiter will greatly benefit from the birth and growth of new projects in the Solana ecosystem.

In terms of token performance at this stage, the price growth of Jupiter and Solana is basically synchronized. In the past month, JUP's increase has exceeded SOL, which also shows that JUP will become a leveraged target of SOL.

2 Fundamental Analysis: Top DEX Aggregators on Solana

Jupiter was launched in November 2021. Its products can be basically divided into two parts: trading infrastructure and LFG Launchpad. The trading infrastructure includes liquidity aggregation, limit orders, DCA (fixed investment strategy) and Perps trading. This section will briefly introduce Jupiter's products.

2.1 Liquidity Aggregation

Token prices change rapidly at any time. The best price transaction is not always on one DEX, but may involve a combination of transactions on multiple DEXs. As a liquidity aggregator, Jupiter will find the most favorable price route among all major DEXs and AMMs on Solana, which can minimize slippage and transaction fees, making the transaction process more efficient and user-friendly. There are two main ways that aggregators work: Multi-hop routing and order splitting. Multi-hop refers to the better exchange of A tokens to B tokens through intermediary tokens C (A-C-B), while order splitting is to split a transaction into multiple transactions and complete them on different DEXs.

Jupiter currently uses a routing algorithm called Metis, which aims to provide the best price routing within Solana's fast block time. Compared with V1 and V2, Metis provides a more flexible and complex trading path, thereby achieving better price discovery. In addition, the Metis algorithm increases the number of DEXs that can be supported and shows stronger quotation capabilities in large transactions. According to Jupiter's official data, Metis's quotation capabilities are 5.22% higher than the V2 engine on average, and the degree of improvement increases rapidly with the increase in transaction amounts.

Currently, Jupiter aggregator does not charge users. It mainly serves as the front end of user transactions, attracting the attention and traffic of users in the Solana ecosystem, which also makes it very suitable for Launchpad business. However, it should be noted that during the last Solana MEME boom, Jupiter's status as a trading front end was impacted by Trading bots. On the one hand, Trading bots have a more user-friendly operation method, and are equipped with functions such as sniping and token information query. They are naturally born for MEME tokens. On the other hand, Jupiter's token pair update speed cannot meet the requirements of MEME opening rush. Token pairs must be displayed on Jupiter only after meeting certain liquidity requirements.

2.2 Limit Order

Jupiter provides users with a limit order function, allowing users to have a CEX-like trading experience, avoiding slippage and MEV problems caused by rapid changes in on-chain prices. Similar to other on-chain limit order platforms, Jupiter limit orders are not order book systems, but are monitored by Keeper using the Jupiter Price API to execute transactions when the price reaches the specified standard. Benefiting from Jupiter's liquidity aggregation function, limit orders can also use multiple liquidity pairs on Solana to complete transactions.

Currently, Jupiter supports transactions between any token pairs, which actually realizes a more convenient trading experience than CEX. At the same time, Jupiter cooperates with Birdeye and TradingView. Birdeye provides on-chain price data, and TradingView is integrated in the front end to provide users with more convenient chart data display. Jupiter currently charges a platform fee of 0.1%.

2.3 DCA

Jupiter DCA (Dollar Cost Averaging) is a fixed investment program that enables users to automatically buy or sell any Solana ecosystem token regularly over a certain period of time. Jupiter DCA charges a platform fee of 0.1%, which will be charged on each transaction execution. The DCA method is a very important basic strategy for both buying and selling. Accumulating chips by fixed investment can avoid sharp price fluctuations and obtain a relatively stable and average cost price over a period of time. DCA is also suitable for selling strategies when making profits in a bull market. In addition, for large transactions or tokens with poor liquidity, you can choose to continue to accumulate chips over a period of time to reduce the price impact.

2.4 Perps Trading

Perps trading is based on LP providing liquidity and Pyth oracle providing price data, and is currently in the Beta testing stage. The operating mechanism of Perps trading is similar to the GLP pool mode of GMX. LP provides liquidity for the JLP pool. Contract traders pledge various Solana assets and choose a leverage multiple of 1.1x-100x to borrow relevant liquidity from the JLP pool (for example, a contract that is long SOL needs to borrow a corresponding amount of SOL according to the leverage multiple, and a contract that is short SOL needs to borrow stablecoins). After closing the position, the trader obtains profit/closes the loss and returns the remaining tokens to the JLP pool. For long SOL, if the trader makes a profit, the amount of SOL owned by the JLP pool will decrease, and the trader's profit part comes from the JLP pool.

Currently, the JLP pool supports five assets: SOL, ETH, WBTC, USDC, and USDT. The JLP pool will receive 70% of the exchange's revenue, which includes transaction fees for opening and closing positions, as well as interest fees for borrowing (the relevant charging standards are shown in the table below). The current TVL of the JLP pool is $331,384,506.56, and the corresponding asset proportions are shown in the figure below.

2.5 LFG Launchpad

Jupiter launched the Beta version of Launchpad in January 2024, and has completed the token issuance of JUP, WEN, and ZEUS. The participants of Launchpad are mainly divided into three categories: project parties, JUP communities, and users who purchase tokens.

For project owners, Jupiter is the largest traffic entry on Solana. Choosing Jupiter as the launchpad will greatly capture Solana ecosystem users. At the same time, projects participating in the Launchpad need to provide a certain amount of tokens (generally 1% of tokens) to incentivize the JUP community and team.

The JUP community is the voters who own and stake JUP. They vote to decide the next project to be launched on Jupiter and receive corresponding rewards. In terms of voting rules, many users lock a certain number of JUP to obtain a corresponding number of voting rights. There is no minimum token requirement for voting, but each wallet can only vote for 1 project. It takes 30 days for the token to be unlocked. During the unlocking countdown, users can still vote, but their voting rights will be reduced accordingly. After voting, the two projects that will be launched on Jupiter are Zeus Network and Sharky. For JUP holders, the benefits of choosing to pledge and vote include:

· Launchpad project airdrops: For example, Zeus Network announced airdrops to 181,889 addresses that participated in the Jupiter LFG Launchpad voting. In order to attract JUP votes, it may be inevitable for the project to airdrop to voters;

· Jupiter governance rewards: 100 million JUP and 75% of Launchpad fees will be used for governance incentives. Rewards are distributed quarterly. This quarter's rewards will be 50 million JUP and this quarter's Launchpad fees. The remaining 50 million JUP will be used as rewards in the next quarter. The Launchpad fee is 0.75% of the total token supply paid by the project to the JUP DAO.

For token buyers, JUP Launchpad uses the DLMM (Dynamic Liquidity Market Maker) model for token sales. The DLMM model divides a price range into multiple discrete price ranges. The team mainly provides token liquidity, and users provide USDC liquidity, completing the token sale in this process. In addition, in order to reduce the impact of complex mechanisms on users, Jupiter still provides DCA and limit order functions, allowing users to complete token purchases based on appropriate strategies during the token sale period.

Currently, the first unofficial project of Jupiter Launchpad, Zeus Network, is on sale. The starting price range of ZEUS on Launchpad is $0.3-$0.85, the highest price reached $1.11, and the current price is $0.83 (data from April 11). At this price, the total airdrop value shared by JUP voters is $8,300,000 (1% ZEUS). In addition, among the issued JUP and WEN, the vast majority of participants have received more than 3 times the returns: 2.6 Summary Based on the above analysis, we believe that Jupiter’s product advantages are as follows: Jupiter provides a full set of basic tools for trading, creating an excellent user trading experience: from the most basic spot and Perps trading to DCA and limit orders, it provides users with almost all the necessary basic functions. At the same time, benefiting from the liquidity aggregation function, DCA and limit orders also connect to a wider range of liquidity.

· The business development direction from trading infrastructure to Launchpad is reasonable: trading infrastructure has captured a large number of users, making Jupiter the traffic center of Solana, which naturally meets the needs of Launchpad, and multiple trading functions also lower the threshold for users to participate in token sales; Launchpad's functions make Jupiter more deeply bound to the Solana ecosystem, strengthening Jupiter's infrastructure and leading position, while increasing JUP's token empowerment.

3 Token Economics and Funding Analysis

3.1 Token Economics Analysis

Jupiter's total supply is 10B, and the token distribution is as follows: the Jupiter team will manage 50% of the tokens, and the remaining 50% will be distributed to the community.

Of the 50% of tokens that belong to the team, 20% will be distributed to team members, but the distribution will not begin until two years later, 20% enter the strategic reserve and are kept in the 4/7 Team Cold Multisig wallet, these tokens will be locked for at least one year, and the community must be notified at least six months in advance of any liquidity event, and the remaining 10% of JUP tokens will be used as liquidity supply and kept in the Team Hot Multisig wallet.

Of the 50% of tokens that belong to the community, 40% will be distributed through four separate airdrops, which will be conducted on January 31st of each year, and the remaining 10% of tokens will be provided to community contributors through grants.

In the Genesis launch, a total of 1.35B (13.5%) tokens entered circulation, including a 10% separate airdrop (1B), 250M tokens allocated to Launchpad, 50M as loans to market makers, and 50M for liquidity provision.

Therefore, according to the token supply plan, there will be no large-scale unlocking of JUP before 2025, and 50% of the tokens belonging to the team will not be unlocked in the next year, and the unlocking will be notified to the community six months in advance. The next large-scale unlocking will come from the 1B airdrop on January 30, 2025.

In terms of token empowerment, the main purpose at present is to obtain governance incentives and Launchpad project airdrops through staking voting. As of April 4, 2024, a total of 269,290,321 JUPs have participated in staking, accounting for about 20% of the current circulation. However, it is worth noting that Meow, the founder of Jupiter, believes in the Reddit AMA that the JUP token is not designed for practicality and believes that the price growth of JUP will come from value rather than actual utility.

3.2 Funding Analysis

The market value of JUP is $2,101,677,968, and FDV is $15,567,984,945 (data on April 11). Since there is no large-scale unlocking in the next year, the market value has a stronger reference significance than FDV.

JUP transactions are mainly concentrated on Binance, followed by OKX, Bybit and Gate. According to trading data on Binance, JUP has maintained a price of around 0.5 for a long time, and completed a large number of turnovers in the price range of 0.5-0.7, which is the intensive cost range of JUP and has become a strong support. After 2 months of precipitation, the price of JUP began to break through the bottom cost range and has now entered a new price range.

4 Competitive Analysis: Who is the best leveraged target for Solana?

Jupiter, as a transaction aggregator, is in a unique position in the Solana ecosystem. With its unique functions and large-scale capture of transaction volume, there is currently no transaction protocol in the Solana ecosystem that can compete directly with Jupiter. Therefore, what we need to consider is whether JUP is a good choice if we need to select leveraged targets for the Solana ecosystem?

There are many options for leveraged layout in the Solana ecosystem: infrastructure (such as JUP), leading MEME (such as WIF), and other ecological projects (such as AI, DePIN projects), but the benefits gained by different categories are different. MEME has a stronger uncertainty, while other ecosystem projects are more related to their own narratives (for example, RNDR will benefit from the growth of AI narratives rather than the growth of Solana ecosystem), so the projects that resonate most with Solana are the infrastructure protocols of Solana ecosystem, such as transaction infrastructure (Raydium/Orca/Jupiter), liquidity pledge protocol (Jito), and oracle (Pyth). Compared with these projects, Jupiter's advantages are mainly:

· In terms of basic business, Jupiter captures more users and traffic of Solana ecosystem. Among all businesses, the most basic business required by users is trading, especially since Solana ecosystem has recently mainly focused on Memecoin as its core demand, which further strengthens the importance of trading. According to Jupiter's monopoly position in the Solana trading front end, users who enter the Solana ecosystem will naturally become Jupiter users. Jupiter will become the first stop for users in the Solana ecosystem, with the strongest and most direct binding relationship with the Solana ecosystem, and also the strongest representative of the Solana ecosystem;

· From the airdrop of the new ecology, Jupiter's launchpad function enables JUP holders to obtain airdrop rewards from new projects, while Raydium/Orca and Jito have not yet shown strong competitiveness in this regard. The project that can also capture potential airdrops is Pyth, and many projects have provided airdrop rewards to Pyth pledgers (such as Wormhole). It is necessary to continue to pay attention to the advancement speed of Jupiter's launchpad and the wealth-creating effect of issuing tokens. For example, Jupiter uses its own traffic advantages to attract a large number of high-quality projects to start, and JUP holders will get higher returns and capture more value of new projects in the Solana ecosystem.

5 Conclusion

Jupiter is regarded by many as the Uniswap and Golden Shovel of Solana ecosystem with its trading portal and Launchpad functions, and JUP is also regarded as BNB. Based on the above analysis, we believe that Jupiter's bullish advantages are:

· A complete product matrix related to trading has been built, which greatly improves the user trading experience. Jupiter's trading volume has risen rapidly and has become the second largest trading infrastructure after Uniswap.

· Backed by the strong traffic and user base captured by Jupiter, Jupiter established Launchpad to capture more value of new projects in Solana ecosystem and provide many new project airdrop rewards for JUP token stakers. Several projects currently launched have achieved good price performance.

· On the capital side, JUP tokens will not face large-scale unlocking and selling pressure in the next three quarters, and the chip structure is relatively stable. Judging from the price performance, JUP has moved out of the bottom cost range and entered a new growth space.

· Jupiter can be seen as a leveraged target of Solana due to its close connection with the Solana ecosystem. Solana will be an equally important public chain and ecosystem as Ethereum in this cycle. As Solana's market value has reached a new high, a better way to ambush Solana may be to choose JUP as an amplifier.

Risks of Jupiter may include:

· Solana ecosystem growth does not meet expectations;

· A large number of Trading bots or other improvements to trading front-ends will challenge Jupiter's position as the first trading entry;

· Jupiter's tokens lack practicality, and token price growth may be hindered;

· The effect of Jupiter Launchpad (including the number, quality and wealth creation effect of projects) does not meet expectations.

Original link

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群： https://t.me/theblockbeats

Telegram 交流群： https://t.me/BlockBeats_App

Twitter 官方账号： https://twitter.com/BlockBeatsAsia