Author: Cody Poh, Liquidity Investment Partner of Pantera Capital; Translated by: 0xjs@黄金财经

Raydium is the leading DEX on Solana, and it is now arguably the most attractive asset to investors in the entire market.

Raydium is a rare combination of strong market leadership in a long-term growth space and a clear value-added story, which is not common in DeFi protocols on any other chain.

Solana's Growth

Thanks to the rise of memecoin trading, Solana has become the ecosystem with the most DEX activity. Solana's monthly trading volume has grown exponentially throughout the year, far exceeding Ethereum and Base.  

As the leading DEX on Solana and a major beneficiary of its strong growth, Raydium has also seen a significant increase in trading volume. The protocol currently accounts for more than 50% of all DEX trading volume in the Solana ecosystem.   

As a result, Raydium has become one of the highest-grossing applications on Solana, with $450 million in annual protocol revenue, a number that is expected to grow as Solana continues to prosper.

Major Beneficiary of Memecoin Transactions

As mentioned above, much of the increase in on-chain activity on Solana can be attributed to memecoin transactions. Raydium is uniquely positioned to capture memecoin-driven growth on Solana with its integration with pump.fun.

Partnering with pump.fun gives Raydium an unfair head start in building liquidity around newly graduated tokens that have a market cap of $69,000 USD, as they will be deployed directly on Raydium and not on other DEXs on Solana.

This is a win-win for Raydium and pump.fun. Because listing on Raydium leads to higher trading volume and price. Raydium is a prime candidate for this integration because of the sniping ecosystem it has built since the early days of the Solana IDO.

This bot-operated liquidity is programmed to snipe memecoins after they graduate to Raydium. This results in an influx of new capital into newly graduated memecoins, which results in a massive price increase, creating an effect similar to a CEX listing. This infrastructure moat will be difficult to replicate by other competing DEXs on Solana.

Memecoin Becomes Persistent

A major source of controversy for Raydium is that the majority of its volume comes from memecoin transactions, and therefore should be considered unsustainable. Many even argue that memecoin will not exist in the long run.

However, empirically, memecoin transactions have gradually evolved into a more persistent, less cyclical social on-chain phenomenon. Memecoin transactions are essentially a modern, digitally native form of gambling, with a global market size of approximately $400 billion.

To put the numbers in context, memecoins consistently account for over 50% of all Solana transaction volume, and an average of approximately 50,000 new tokens are minted per day on Pump.fun. This suggests that memecoins are here to stay and will continue to grow.

Strong Network Effect

As Raydium solidifies its position as the DEX of choice for new token issuance on Solana, a strong liquidity advantage will be established, attracting more trading volume to the platform as better liquidity leads to tighter spreads and more competitive pricing. This helps Raydium win more trading flows from consumer-facing frontends and DEX aggregators.  

Profitable Unit Economics and Value Accrual

Raydium’s profitable unit economics and clear value accrual mechanism also stand out from most other DEXs in the market with pure governance tokens.

This can be attributed to Raydium’s dominance in the primary issuance market, as traders of newly issued assets (or primarily memecoins) tend to be price-insensitive takers. This allows Raydium to charge 25bps in fees on its AMM v4 pool and have the power to not compete on price with other DEXs in other subsets of trading flows (such as stablecoin swaps and utility tokens).

Raydium programmatically buys back 12% of its trading revenue on the open market, returning value directly to RAY token holders. Raydium has bought back 56 million RAY tokens overall, equivalent to approximately 10% of its total token supply.  

Our Buy (Underwriting)

Raydium has strong growth prospects, assuming the continued growth of Solana and its role as a home for memecoin trading. We believe that Raydium is well-positioned to continue to capture the majority of Solana trading volume, given its dominant position in the primary token issuance market, provided that the fee rate remains constant.

Raydium is currently trading at the lower end of its historical P/E range, with a P/E of 10x, suggesting that strong fundamentals coupled with its strong growth prospects may be undervalued by the market.There is reason to believe that Raydium could double both its P/E and growth rate.

Conclusion

With the changing regulatory environment in the United States bringing speculation on the approval of the SOL ETF, and the resurgence of AI agent activity on Solana, we may see Solana on-chain activity gain support again.

Raydium may be an ideal candidate to capture the trend.