A 5-Minute Complete Guide to Serum Protocol

The serum is the world’s first completely decentralized derivatives exchange with trustless cross-chain trading.

It is a collaboration between crypto traders and De-Fi experts. 2020 has been the year of Decentralized Finance (De-Fi).

With dozens of projects being introduced into the blockchain space this year; creating a much cleaner and simpler interface allowing more users to adopt the technology.

With progress, there are occasionally some roadblocks slowing down momentum.

One of the main issues to this day is getting away from centralization.

Project ideas on Serum Protocol

1. AMM BOT: Building an open-source system that people can use to achieve AMM-like behavior on Serum’s order books.
2. Dumplings: A yield farming token that is integrated into an AMM system on Serum. 
3. Borrow/Lending: Serum needs a borrow/lending protocol. This could be either :

• A home-brewed version
• One of the major Ethereum based protocols (Compound, Aave Aave, etc.) building a mirror on Solana. 

Serum Node Update

Anyone can start a node on Serum, and anyone can stake to anyone’s node.

But in order for a node to be active, it needs to meet certain requirements.

This summarizes some of the recent requirements updates : 

• Each node must have at least 1 MegaSerum staked towards it, and must have a maximum of 100m SRM staked towards it.
• Previously, there was a required minimum of 10m staked to activate a node. However, by a node vote on 08/24/2020, that requirement has been removed for now. This was done in order to help nodes get off the ground running as on-chain voting rolls out over the next month.
• In the future, nodes may revisit instituting a minimum size requirement. 

Technical introduction to Serum DEX : 

Introductory technical explanation of the core components of the Serum DEX –

Solana, in a nutshell

The Serum DEX is a program on the Solana blockchain.

Solana was selected because of its unprecedented performance: It introduces many technical innovations, allowing it to offer extremely low transaction latency (by blockchain standards), high throughput, and low fees.

As a ballpark: Solana has block times of 400ms, and can currently process roughly 50,000 transactions per second.

This allows Serum to handle hundreds of orders per second per market.

SPL tokens, in a nutshell

Tokens on Solana are instrumented as instances of the SPL Token Program.

An SPL token on Solana is analogous to an ERC20 token on Ethereum.

Solana programs, more generally, are analogous to smart contracts.

There are a number of open-source wallets that make managing token holdings easy.

So in practice, you needn’t worry about these details. 

The DEX 

The Serum DEX is a fully trustless, fully decentralized exchange.

Crucially, it supports full limit order books and blazing fast order placement, cancellation, and fund management.

Its goal is to bring the best features of centralized exchanges to Defi while remaining fully trustless and transparent.

It is the first high-throughput low-latency exchange that has a fully on-chain order book and matching engine.

SRM Supply Update

The circulating supply of SRM was 31m, 25m of which were for liquidity.

25m was based on the volume and demand pre-listing. 

In order to provide liquidity across nine venues during an extremely busy launch, lots of assets for both bids and offers needed to be ready on exchange.

This means that more USD(T) was sent forbids; it also means that more SRM was sent for offers. 

A decent part of what’s happening here: you don’t know ahead of time where orders will be sent, and given the demand, we had to be ready for 3mm of orders on any exchange.

3mm tokens * 9 exchanges = 27mm tokens in reserve on exchanges, in case they’re necessary. 

Some of the disadvantages of Serum Protocol

1. User-Provided Collateral Is Bad for User Experience

Each time a user conducts a swap they must reserve some percentage or fixed amount to cover the collateral for the swap.

This collateral amount needs to be present to prevent griefing attacks where users initiate swaps with no intention of ever following through and sending funds to the alternate participant.

2. ETH Must Always Be on One Side of the Swap

Although the Serum method of cross-chain swapping could occur on any blockchain with smart contracts, the Serum whitepaper makes it clear the Serum arbitration contract is going to be deployed on the Ethereum blockchain.

This means one party must always be locking the full value of the trade-in ETH using an Ethereum smart contract.

3. High Dispute Fees Force Large Collateral on Small Trades

Although disputes should almost never happen because of the incentives and punishments designed into the Serum protocol, the way they are designed has negative impacts on the use of the network.

4. Swaps Are Not Set and Forget

Instead of being able to send a transaction and receive funds on the blockchain, you are swapping to, the process is highly interactive.

In the case where I am swapping ETH for Bitcoin, the following occurs: 

• Send a transaction to the Serum arbitration contract with my collateral.
• Send a transaction to the Serum arbitration contract with the funds to be traded. 
• Wait until the Bitcoin transaction sent to my address has an acceptable amount of confirmations (up to 60 mins, depending on network congestion).

5. The Serum Token Seems to Lack a Use Case

The cross-chain swapping protocol Serum describes in its whitepaper could easily be forked and launched on the Ethereum blockchain without having any need for the Serum token.

It seems that the Serum token will be used in some capacity when placing orders on the Solana based blockchain, however, the order book could just as easily be placed off with a traditional rate-limiting scheme.

Conclusion

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Our goal is to help companies adopt new technologies and simplify complicated issues that arise during technology evolution.

Contact us for the best solutions about the use of blockchain technology to solve the toughest challenges faced by the world today.

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