A Deep Dive Into: Serum

Everything You Need to Know About Serum In Under 5 Minutes

What Is Serum?

The Serum Project is a Decentralized Exchange that is dubbed the next frontier in DeFi. Built on the Solana blockchain, this non-custodial exchange provides cross-chain support and requires no KYC for its customers. 

The lightning speed of transactions comes from its on-chain order book that is fully trustless, making Serum highly scalable, cheap, and fast.  Moreover, its speed and scalability provide users with the same UX level or even better than most centralized crypto exchanges can offer.

Pain Points Serum Sets Out To Solve

Scalability

Despite the growth of the DeFi sector on the Ethereum Blockchain, scalability has been an issue that cannot be resolved on the legacy blockchain mainly because of its structure.

Given the proof of work consensus algorithm, Ethereum does not processes transactions on a first-come-first-served basis. Instead, whoever bids the highest in gas fees payment, is processed first. This means that if you are unwilling to hike your transaction processing costs, your transactions may not get executed in time or never get executed at all.

Slow and expensive transaction processing is true of all legacy blockchains. In one way or another, it is impossible to speed up transactions due to structural limitations. As the demand for transactions grows, so does the cost.

High Cost of Transactions

With Ethereum stuck at being able to process 12 transactions a second, and gas fees on the rise, users are often better off sticking to centralized exchanges. High gas fees are counter-intuitive to the open and fair nature of blockchain, as it restricts non-affluent users from participating.

The SOLutions

Built from the ground up, the underlying Solana Blockchain is a robust network without the throughput limitations and structural inadequacies of other protocols.

The Serum Decentralized Exchange boasts features like:

  • On-Chain Orderbooks
  • Cross-Chain Swaps
  • Ethereum-Solana Integration
  • Physically Settled Cross-chain Contracts

On-Chain Orderbooks

Unlike a decentralized peer-to-peer exchange that is no more than a notice board with sell orders waiting for a buyer, the on-chain order book allows the DEX to match orders in under a second. Serum provides on-chain liquidity across the board to all users, along with an automated market maker (AMM) system to facilitate transactions.

The availability of on-chain order book swaps between tokens makes for a highly user-friendly UI, comparable to that of many centralized exchanges. The average user wishing to swap tokens without worrying about trading jargon is a giant step towards bringing DeFi to the masses.

With other DEXs out there, it is said that the on-chain order books require vast amounts of computational power to decentralize. With the Solana network, Serum can offer a lightning-fast speed of up to 65,000 transactions per second.

Another significant advantage of having an on-chain orderbook is that they make it more challenging to manipulate transactions. In case of an off-chain offer, a trader can deposit funds and manipulate things to make it look like the trade is occurring per your specifications. Using on-chain offers, orders are published to all nodes, and the information that the order was executed per your specifications can be verified.

Cross-Chain Swaps

Since the SRM token is listed both on Solana and the Ethereum Blockchain, it allows Serum cross-chain support enabling trustless transactions between blockchains. So, Serum users can trade any native ERC-20 ETH-based tokens for native SPL SRM based ones. Cross-chain communications and interoperability is a significant hurdle for the current DeFi ecosystem as many users and exchanges struggle to swap tokens across blockchains. Using Serum, you are seamlessly able to facilitate such transactions in a trustless manner.

Physical Settling of Cross-Chain Contracts

Another feature that’s big in the DeFi ecosystems now is the ability to allow leveraged trading. Going beyond smart contracts, Serum’s support for custom cryptocurrency contracts allows for any token where there is a Serum market for the pair by allowing cross-chain contracts. This unique feature will enable traders to tokenize assets and move them across the blockchain. Tokenization will allow users to be able to do margin trading via a public, decentralized, non-custodial, and seamless manner.

Wrapped Tokens

Have a non-native token that you wish to carry on Solana and Serum DEX? No problem! The Serum DEX will provide you with the capability to wrap non-native tokens. This is how the stable coin pairs of SerumBTC and SerumUSD are derived. The procedure creates a set of smart contracts that expire after a set period. Once the period expires, the non-native token sheds the wrapper and is redeemed for BTC.

Similarly, the SerumBTC and USD shed the wrapper and are redeemed for BTC or USD, while maintaining the peg. 

The Serum Token ($SRM)

The SRM token is Serum’s native token. To facilitate cross-chain transactions, the SRM is valid both on Solana natively as well as a cross-listed ERC20 token on Ethereum. The SRM is essentially the backbone of the Serum ecosystem, and it can be utilized for a few different functions.

SRM is simultaneously the governance token for the protocol. In the Serum protocol, the governance protocol allows users to vote to change various parameters like trading fees and a few low-security risk parameters. 

Another purpose the SRM token can be used for is staking. All of the validation functions run via staking and staking, or nominating someone else to represent your stake can earn you more SRM tokens.  

It can also be utilized to save on fees when you use the SRM token to pay reduced fees. Especially if you hold the SRM token, your fees can be reduced by as much as 50%. A Mega SRM token holder, that is a token worth one million SRMs, denoted by MSRM, can save up to 60% in fees.

Lastly, the fees collected via the Serum Dex are used to buy back SRM tokens and burn them.

Roadmap

According to the Serum Whitepaper, the project roadmap initially shot for a successful launch of the $SRM token and the DEX.

In phase II of the Serum project, the project will aim for a cross-chain bridge, a multicurrency wallet, customizable assets and markets for the DeFi instrument, and an active GUI ecosystem.

Wrapping Up

As you can see through the features offered in the Serum Decentralized Exchange, there has been plenty of innovation and a commitment to introducing more robust solutions to the problems we mentioned earlier.  

  • To resolve the scaling issue, Serum provides 400 ms transaction processing.
  • To lower gas fees and transaction processing costs Serum offers fees as low as .00005 cents per transaction.
  • Inter-chain communication, trustless transactions, cross-chain integration, and customization of tokens and markets.

There are plenty of reasons why there is a gold rush among DEXs and people launching new projects to attempt choosing Solana over Ethereum or Blockchain Core.  

Since the explosion of 2020’s DeFi summer, the sector has shown both the most promise and the most growth in blockchain projects. However, being built on the Ethereum blockchain, for the most part, many exchanges have either given up entirely on the idea of a decentralized system and have built their exchanges on the centralized structure or are contending with the high cost and limited scalability of the Ethereum blockchain.

This concept has motivated the earliest supporters of Ethereum blockchains to either adapt to a centralized off-chain structure like Binance or have developed their own blockchains like Dapper Labs and Flow.

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