What is Serum?
If you’ve been on Solana there’s no way you haven’t heard about Serum. One lesser know fact about Serum is that it’s more than a DEX. In fact, it’s a decentralized exchange software that’s utilized by other projects such as Mango, Raydium, and Solflare, to name a few.
Serum was launched in 2020 by Alameda Research and FTX exchange in 2020. Sam Bankman-Fried chose to build the DEX on Solana thanks to its dazzling transaction speeds and cheap fees. Few months later and a few million in liquidity, Serum has turned into the largest DEX on Solana.
Serum alone is a valuable infrastructure piece for Solana’s DeFi ecosystem. Central to Serum’s value is a decentralized orderbook run by smart contracts that aims to mirror traditional exchanges. This gives participants flexibility with pricing and order sizes when they submit orders to Serum, giving them full control over their trading.
In this way, Serum is able to operate like a decentralized exchange while offering traders the familiarity of a CEX trading interface. Furthermore, Serum users don't have to undergo KYC.
Serum also has its native token, called SRM. It is a gas/governance token that gives users 50% discount on trading fees. On paper, SRM holders were able to vote on the development of the protocol and adjust trading fees.
Unfortunately for Serum, it turned out that the protocol wasn't "decentralized" at all. After the FTX collapse, it became clearer than ever that FTX still held the update authority keys, and users were at the whim of the FTX employees. Without Alameda pumping in money, the protocol liquidity quickly dried up, as users withdrew their funds at a loss.
To solve the situation, SRM DAO agreed that the protocol is too valuable to give up on, so they forked the code. The old version of Serum remains under the control of FTX while the forked version became fully controlled by the SerumDAO.
As of 2023, the Serum community is still recovering from the FTX chaos. Every social account tied to Serum has been deleted, and it appears that the community will have to rebuild its reputation from scratch. However, the value of SRM token is under question. FTX bankruptcy proceedings show that the company, which helped create Serum, owned 97% of the token's supply. These tokens will more thank likely be liquidated to satisfy creditor claims, leading to the price of SRM taking.
How does Serum work?
Serum is a completely permissionless protocol with an on-chain central limit orderbook. More specifically, Serum's on-chain central limit order book and matching engine provide liquidity and price-time-priority matching to traders and composing projects.
Users benefit from this exchange model through the ability to choose the price, size and direction of their trades. Composing projects benefit from Serum’s existing architecture, bootstrapped liquidity, and matching service.
Dapps that build on Solana can plug into Serum's ecosystem and benefit from the same features i.e on-chain orderbook. Unlike automated market making, where traders buy and sell cryptos from liquidity pools, Serum gives their participants full control over their orders. This gives them the ability to choose the price that they wish to buy and sell their assets and the ability to pick any order size they desire.
In addition, Serum offers cross-chain swaps, allowing any participant to trade tokens that exist on other platforms. For example, users can transact Ethereum tokens (ERC20) by sending the tokens to a smart contract as collateral. If the sender sends their token to the receiver in exchange for their token, both parties will receive their ETH collateral back.
In case of a dispute, the smart contract that holds the collateral determines who is right by checking the blockchain ledger. The smart contract then sends the assets back to whomever they deem to be correct, plus a portion of the other person’s collateral, aiming to incentivize good behavior.
How to make money on Serum?
Serum was once considered to be the best DEX on Solana, with millions in liquidity flowing every day. As it turned out, Alameda/FTX was behind the increased liquidity. With these companies gone, the TVL on Serum (and the Solana ecosystem) has gone down dramatically. As of 2023, Serum protocol has been forked by the Solana developers. Later this year, the protocol is expected to make a comeback.
Price Prediction for SRM: Can it hit $1000?
Buying and hodling SRM — the native token of Serum— is one way of potentially making money on Serum.
By looking at its current price, it’s natural to think about the chance of SRM hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the SRM token by analyzing its tokenomics. SRM’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} SRM tokens being in circulation today, that means a price of {PRICE} per SRM.
How did we come to that calculation? It’s quite easy, the price of a SRM token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each SRM coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of SRM at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for SRM to hit that price.
At a price of $1000 per token, that means the current market cap of SRM would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. SRM’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} SRM which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of SRM? Taking into account the current price of a SRM token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. SRM coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of a SRM token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the SRM protocol fully diluted market cap.
These are all crucial details to know when calculating if SRM can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of SRM depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some SRM to your portfolio, the most trusted places to get some are Binance and Coinbase.