Aggregating over 50% of DEX trading volume, is Jupiter the future of Solana DeFi ecosystem?

As a hot star in the Solana ecosystem, Jupiter has already established a firm foothold in the DeFi field although it was launched not long ago. But on the other hand, without the support of a complete economic model and stable token prices, it is easy to end up in a death spiral, which may have a fatal impact on Jupiter itself. ‍

The Solana ecosystem has continued to be active in the past week, and the price of the Jupiter token $JUP has also risen rapidly in the past two weeks, almost doubling.

The research on Jupiter and $JUP in the market mainly focuses on the secondary perspective. In addition to its impressive market capitalization performance, its superior product design is also a key factor in its success, in addition to excellent dog farms and community support. Therefore, we will analyze Jupiter’s design ideas from the perspective of product design.

The introduction of Jupiter into the Solana ecosystem is no accident, but a model of technological innovation and user experience optimization among many DEXs. As one of the most competitive DEXs on the Solana network, Jupiter has become the first choice for many trading users.

Jup’s three core functions

The key reason why Jupiter has attracted much attention lies in the three core functions of its products: liquidity aggregator, current price order and DCA/fixed investment. The use of these innovative technologies not only enhances Jupiter's competitiveness, but also sets a new benchmark for the entire DEX field.

Core Function Module 1: Liquidity Aggregator

Jupiter’s liquidity aggregator technology is one of its core competencies. In the traditional DEX model, the liquidity pool of each exchange exists in isolation. When exchanging assets, users often need to find the best trading pool to obtain the best trading price. This is not only time-consuming and labor-intensive, but also Due to the dispersed liquidity, it is difficult to ensure the optimality of transactions. Jupiter's liquidity aggregator technology can span many liquidity pools in the Solana ecosystem, automatically find and aggregate optimal liquidity resources through algorithms, and provide users with a one-stop best trading path.

Users can adjust parameters such as transaction fees, slippage size, and whether to use a direct path according to their own needs before making a transaction. This flexibility enables users to obtain the best transaction prices and minimal slippage in the entire ecosystem from one interface, thereby improving the efficiency and economy of asset exchange. The implementation of Jupiter transaction aggregation relies on its back-end intelligent routing technology.

On the back end, Jupiter monitors and analyzes the entire market’s transaction data in real time through complex algorithms, including price, depth, slippage and other dimensions. Based on these data, the intelligent routing algorithm can dynamically select the best trading route for each transaction, ensuring the success rate and cost efficiency of user transactions even in the face of severe market fluctuations. Specifically, once Jupiter obtains market data, its multi-path search algorithm begins looking for the best trading path.

This process involves complex calculations, as it not only considers the direct trading pair, but also analyzes whether a better trading price can be obtained through a series of intermediate token conversions. For example, if a user wants to exchange from token A to token C, smart routing will not only consider the direct A→C transaction path, but also possible intermediate paths such as A→B→C or A→B→D→C. So as to find the lowest cost trading solution.

Although the technology behind smart routing is very complex, Jupiter is committed to providing users with a simple and easy-to-use trading experience. The operation of smart routing is completely transparent to users. Users only need to enter the tokens and amounts they want to exchange, and the rest of the work is automatically completed by smart routing. This design minimizes the user's operational difficulty, allowing users to easily conduct transactions even without a deep technical background.

Core Function Module 2: Limit Order

Jupiter provides traders with the limit order function, effectively avoiding the costs caused by price effects during transactions. Increase and slippage problems while avoiding the MEV problem. When the order is not fully filled, the limit order can be partially filled and the tokens for the filled portion will be obtained. When proposing a transaction, users can select the order validity period, exchange price and exchange quantity to more accurately implement their trading strategies. The protocol cooperates with Birdeye and TradingView. Birdeye provides on-chain price data of tokens, and Jupiter uses TradingView’s technology for chart data display. This feature makes the actual experience Jupiter provides users closer to that of a centralized exchange.

Core Function Module 3: DCA Fixed Investment

Dollar-Cost Averaging (DCA) is an investment strategy in which investors spread out their purchase costs through multiple investments within a specific time interval. To a preset price range, this method can help investors reduce the risk of investing at a single price point. To conduct DCA fixed investment in Jupiter, users only need to set the purchase frequency (Jupiter provides a minimum frequency of minutes and a maximum frequency of monthly), purchase price range, total time period and the assets they wish to purchase. After the fixed investment, the user's tokens will be transferred to the account related to the fixed investment, and transactions will be automatically executed based on the preset price range and transaction frequency.

After the fixed investment is completed, the tokens are automatically transferred back to the user's wallet, and the agreement charges one thousandth of the fee for the fixed investment. Controllable cost prices, low fees and fully managed trading processes make DCA a good choice for traders to accumulate assets in a bear market. However, in the bull market, this mechanism has become relatively unknown, so the overall demand for this feature is still relatively small.

Jup’s other ecological modules

Upstream incubator: Jupiter Labs

A laboratory that operates independently from Jupiter will operate independently in the future and is dedicated to promoting innovative projects. Jupiter users and community members enjoy certain privileges, including first access and token incentives. Currently, Jupiter Labs is focusing on two major project areas: perpetual contracts and LSD stablecoins.

Derivatives Protocol: Jupiter Perpetual

is a derivatives protocol launched by Jupiter Labs. Its model is similar to GMX V1, and it has now entered the stage of actual use. The protocol defines two main categories of participants: liquidity providers and traders. Liquidity providers provide funds to the pool, and these funds are converted into a basket of tokens, mainly including BTC, ETH, SOL, USDC and USDT. Among them, SOL and USDC have higher weights and become the main trading objects.

When traders conduct leveraged trading, they use the tokens in the pool to establish leveraged positions. They do not need to worry about transaction slippage, and only need to pay transaction fees and borrowing fees, the latter of which is calculated based on the utilization of the tokens. Liquidity providers receive 70% of transaction fees and all borrowing fees, but they also bear the risk of losses caused by traders' profits and token depreciation.

LST Stablecoin Protocol XYZ

The project has not been launched yet. The protocol is similar to Lybra V1, allowing users to mint the interest-bearing stablecoin SUSD with no borrowing interest by staking SOL. Income earned through LST staking will be distributed to SUSD holders and governance tokens. The special thing is that when the LST yield is higher than the SOL borrowing rate, a leverage arbitrage strategy will be used to maximize returns.

In addition, the protocol also introduces a redemption mechanism to maintain the price stability of SUSD, although this may have an impact on borrower positions, especially during market fluctuations. To alleviate this problem, the protocol may adopt the strategy of using governance tokens to redeem SUSD within a small price range. When the price of SUSD is between 0.95-1 US dollars, the protocol may use SUSD to redeem governance tokens. way to reduce the frequency with which borrowers are called upon. However, this plan may result in the vast majority of redemptions being governance token redemptions. If the price continues to be below 1 US dollar, it will cause a more serious token issuance.

Return to the $Jup economic model

The JUP token is the governance token in the Jupiter ecosystem, allowing token holders to vote on key ecosystem decisions, including launching projects, Issues such as dispute lists and grants. The Jupiter team promises that token distribution will strictly adhere to the roadmap, and any transfer of tokens in cold wallets must be notified six months in advance. The initial circulating supply is adjusted to 1.35 billion, and future circulation will be managed through community multi-signature wallets to ensure the healthy development of the Jupiter ecosystem.

After rising from high-rise buildings - Meditations on the prosperity of Jup ecosystem

Compared with other DEXs in the Solana ecosystem, Jupiter excels in transaction efficiency and user experience. Show advantage. Although projects such as Raydium, Orca, and Serpent are also competing for market share, Jupiter still aggregates more than 50% of the trading volume on Solana, making DEX a true underlying liquidity protocol on the Solana network. However, with limited room for further growth in transaction volume, Jupiter has chosen the long-term strategy of expanding horizontally in the DeFi sector and broadening its business breadth. Jupiter Start or the main direction for Jupiter to expand its territory.

Currently Jupiter Start only has introduction, education and pre-launch functions. The core function of Jupiter Start, LFG Launchpad, has not been launched yet, but the first round of launchpad voting was launched on March 7. The top three projects are Zeus Network (cross-chain communication), SharkyFi (NFT lending protocol) and UpRock (DePIN). . Jupiter has a large user base and strong traffic effect. Considering its own resource advantages, the projects it launches are likely to be of higher quality.

On the other hand, Jupiter Labs, the financial innovation product incubation platform launched by Jupiter, has filled the gap in related projects on Solana and still has great potential with the support of Jupiter. This project demonstrates in-depth exploration of the fields of financial derivatives and stablecoins, and aims to bring new impetus to the DeFi field under the Solana ecosystem. However, while these innovations increase returns, they also bring additional risks, such as protocol risks and oracle quotation risks. It is necessary to maintain the balance of the system by building a complete economic model, appropriate incentive mechanisms, and dynamic redemption strategies.

As a hot star in the Solana ecosystem, Jupiter has already established a firm foothold in the DeFi field although it was launched not long ago. Its user-centered product design concept, comprehensive and innovative product functions and smooth trading experience have successfully captured the trust of users and become the DEX with the largest transaction volume on the Solana chain. In addition, the Jupiter team strives to break through the traditional DEX upper limit restricted by the development of the public chain, and actively explores a broader development space horizontally, which gives Jupiter the potential to grow into a sea of ​​stars.

However, a potential problem that arises is that when exploring derivatives and stablecoins, whether as an incubator or a self-developed product, you will face greater risks. Due to the nature of such financial products using leverage to achieve high returns, without the support of a complete economic model and stable token prices, it is easy to end up in a death spiral, which may have a fatal impact on Jupiter itself.

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