Author: Shenchao TechFlow

"Give him the one who has gained it, so that he will make him extra; those who have no one will even take over all of him." - Matthew

In the blockchain world, the Matthew effect of the strong always strong never stops.

For example, Pump.fun is quietly eroding Raydium's market share: it recently launched an independent AMM pool with the intention of diverting liquidity returns that originally belonged to Raydium.

At present, this self-built AMM (http://miracleart.cn/link/e339e9f77caa07d6be8acfa2fceb178a) has a simple and easy-to-use interface, and users can exchange tokens like other DeFi products.

However, behind this may be a deeper strategic intention.

As we all know, Pump.fun has attracted a large number of radical investors with its unique internal and external trading mechanism and memecoin culture.

User transactions are first matched in the internal trading of Pump.fun, and the platform's own liquidity is used to complete the transaction; when the internal trading capacity is insufficient, the transaction will be routed to the external trading, and the external trading actually relies on Raydium's liquidity pool.

In this mode, Pump.fun has always been the main source of traffic for Raydium, but it is also subject to Raydium's rules. Each time a transaction flows to the outside market, Pump.fun has to pay a certain percentage of the transaction fee, and this part of the profit eventually flows into the hands of Raydium's liquidity provider (LP).

Raydium is one of the most important AMM platforms in the Solana ecosystem and an important infrastructure for DeFi users to obtain liquidity. It provides liquidity pool services for many Solana projects. Its TVL (total locked volume) has long been at the forefront of the Solana ecosystem.

As Solana's "liquidity center", Raydium occupies a pivotal position in the ecosystem. But Pump.fun's latest move is challenging this pattern:

Pump.fun is no longer willing to act simply as a "traffic provider" of Raydium, but instead tries to become the "controller" of liquidity.

Strategic considerations behind self-built AMM pool

By building self-built AMM, Pump.fun can transfer foreign disk liquidity from Raydium to its own platform, thereby fully controlling the allocation of transaction fees.

If Pump.fun's strategy works, Raydium will not only lose a part of its liquidity source, but its revenue model and ecological status will also be severely impacted.

So, how to calculate this account?

1. Raydium's revenue model: "hidden cost" of Pump.fun

In the current model, Pump.fun's foreign trading relies on Raydium's liquidity pool, and each transaction will incur handling fees, which eventually flow to the Raydium ecosystem.

• Raydium's standard charge: Each transaction is charged a handling fee of 0.25%, including:

  • 0.22%Liquidity Provider (LP) assigned to Raydium.
  • 0.03%Repurchase and ecological support for $RAY.

• Trading volume for Pump.fun: Suppose that Pump.fun's daily trading volume is $100 million, of which 5% of the trading volume (approximately $5 million) is routed to Raydium's foreign market.

• Implicit Cost of Pump.fun: Calculated at the handling fee of 0.25%, Pump.fun needs to pay Raydium $12,500 every day, which is about 4.562,500 per year.

For a rapidly developing platform, although this fee is lower than before, it is still a dependence on external platforms.

2. Potential benefits of self-built AMM

By building self-built AMM, Pump.fun can transfer foreign disk liquidity to its own platform, thereby fully controlling the allocation of transaction fees. So, how much potential benefits can this strategy bring?

• New revenue model: Suppose the charging standard of Pump.fun's self-built AMM is the same as that of Raydium (0.25%), but all fees belong to the platform:

  Daily foreign trading volume is still
  • 5 million US dollars.
  According to the
  • 0.25% handling fee, Pump.fun can directly receive 12,500 income per day. The cumulative annual income is approximately
  4.5625 million US dollars
  • .
• Net benefits after removing LP costs:

  If Pump.fun's AMM does not rely on external LPs, but provides liquidity by the platform itself, then this revenue will be entirely owned by the platform and does not need to be allocated to other liquidity providers.

In addition to profits, what else does Pump.fun value?
Building self-built AMM can not only bring direct revenue increases, but also significantly enhance Pump.fun's control over the ecology and lay a solid foundation for future development.

In the current model, Pump.fun's foreign trading relies on Raydium's liquidity pool, which means that Raydium controls the user's trading experience and liquidity stability.

After building your own AMM, Pump.fun will fully control the rules and fee allocation of liquidity pools, thereby enhancing control over users.

After controlling liquidity, Pump.fun can further launch more DeFi products (such as perpetual contracts, lending agreements, etc.), thereby building a complete closed-loop ecosystem.

For example, Pump.fun can directly support the issuance and transaction of memecoin through its AMM pool, providing its community with more ways to participate.

Related token price fluctuations

After Pump.fun announced the launch of its own AMM, the price of Raydium's token $RAY fell, and the current daily decline has reached 20%.

This phenomenon may reflect the market's concerns about its future income and status.

Pump.fun's strategy may pose a long-term threat to Raydium, especially in terms of liquidity migration and fee income.

But on the other hand, after Pump.fun built its own AMM pool, the price of a MEME token used for testing the liquidity pool was increased rapidly, with a market value of $4 million at one point.

CA: CitRGsrgU7NjaXsxdMFc7sfsxtSnPdtkhHJqbPvhpump

Among the few market hotspots, the test tokens of AMM pool may continue to rise for a while.

The challenge is obvious

After building your own AMM, if it runs smoothly, Pump.fun will fully control the liquidity of the external disk, thereby significantly increasing revenue.

By integrating internal and external disk liquidity, Pump.fun can build a completely self-consistent on-chain Meme DeFi ecological closed loop.

From competing for user attention to competing for capital flow, Pump.fun is obviously transforming from "relying on external liquidity" to "own liquidity".

After an innovative platform has more user base, it will certainly have the opportunity to shake the status of traditional DeFi and the on-chain ecological pattern through strategic adjustments.

However, whether Pump.fun can truly shake Raydium's position in the future will depend on its liquidity strategy and balanced user growth; more importantly, whether the market conditions are improving.

The right time, place and people are harmonious.

It's not just investors who are competing, but the fierce competition between projects is also exciting.

The above is the detailed content of Pump.fun made its own AMM pool? The profit-taking heart is obvious. For more information, please follow other related articles on the PHP Chinese website!