Pump.fun Builds Self-AMM, Breaking Free from Raydium’s Liquidity Constraints?

KEYTAKEAWAYS

TABLE OF CONTENTS

• KEY TAKEAWAYS
• PUMP.FUN ANNOUNCES LAUNCH OF SELF-BUILT AMM
• ABANDONING RAYDIUM: CAN PUMP.FUN BECOME A LIQUIDITY CONTROLLER?
• CAN PUMP.FUN SHAKE RAYDIUM’S POSITION?
• DISCLAIMER
• WRITER’S INTRO

CONTENT

In recent years, with the rapid development of decentralized finance (DeFi), automated market makers (AMMs) have become essential infrastructure in the cryptocurrency market. As an important participant in the Solana ecosystem, Pump.fun recently announced the launch of its self-built AMM, which may have a profound impact on the liquidity landscape on Solana.

PUMP.FUN ANNOUNCES LAUNCH OF SELF-BUILT AMM

Pump.fun is a Web3 platform centered around social interaction and community-driven engagement, aimed at promoting cryptocurrency trading through gamification. Its unique model has attracted numerous users, especially Meme coin enthusiasts. However, Pump.fun has previously relied on Raydium as its external liquidity provider, meaning each transaction required paying fees to Raydium and prevented full control over liquidity.

In February 2024, Pump.fun announced the launch of its self-built AMM, with the first test token $CRACK already available in the liquidity pool. This move signals Pump.fun’s attempt to reduce dependency on external platforms and build a completely independent ecosystem.

The core advantage of Pump.fun’s self-built AMM lies in its ability to create a closed liquidity loop, specifically in the following aspects:

• Immediate Liquidity: After creating tokens, users can immediately trade on the Pump.fun platform without relying on external platforms.
• Fee Retention: All transaction fees will remain within the Pump.fun ecosystem, no longer flowing to external platforms like Raydium.
• LP Reward Mechanism: Similar to other decentralized exchanges (DEXs), Pump.fun may introduce liquidity provider (LP) reward mechanisms to attract more users to participate in providing liquidity.
• Early Arbitrage Opportunities: As the AMM is in its early stages, traders may discover arbitrage opportunities or even exploit system vulnerabilities for profit.

ABANDONING RAYDIUM: CAN PUMP.FUN BECOME A LIQUIDITY CONTROLLER?

Pump.fun previously relied on Raydium as its external liquidity provider. According to data, Pump.fun tokens accounted for approximately 20% of trading volume on Raydium over the past 14 weeks. This suggests that if Pump.fun successfully diverts liquidity through its self-built AMM, Raydium’s trading volume could decrease by around 20%.

Raydium is one of the principal AMM platforms in the Solana ecosystem, with its trading volume in 2024 even surpassing Ethereum’s Uniswap. By providing liquidity pool services, Raydium has become the liquidity infrastructure for numerous projects on Solana. Its core revenue comes from a 0.25% fee on each transaction, with 0.22% allocated to liquidity providers and 0.03% used for RAY token buybacks and ecosystem support.

Upon news of Pump.fun’s self-built AMM, the RAY token price dropped significantly, falling by over 30% at one point. The market generally believes that this move by Pump.fun will weaken Raydium’s control over liquidity, thereby affecting its revenue and ecosystem position.

Raydium core contributor InfraRAY stated that Pump.fun completely abandoning Raydium could be a “strategic misjudgment,” but also acknowledged that Pump.fun’s actions indeed pose a threat to Raydium.

CAN PUMP.FUN SHAKE RAYDIUM’S POSITION?

With the launch of its self-built AMM, Pump.fun’s market competitiveness is expected to significantly improve. This move not only enhances its control over its ecosystem but may also completely transform the liquidity landscape for Meme coins on Solana. Through its self-built AMM, Pump.fun can not only fully control the rules and fee distribution of liquidity pools but also further launch more DeFi products, such as perpetual contracts and lending protocols, thereby creating a closed-loop Meme DeFi ecosystem.

Thanks to its self-built AMM, Pump.fun can provide users with one-stop interaction services for Meme coins. Users no longer need to switch platforms to complete token creation, trading, and liquidity provision operations, which will significantly enhance user experience and platform stickiness. Additionally, Pump.fun has launched a mobile application, further lowering the barrier for user participation and enabling more ordinary users to easily engage in Meme coin trading and liquidity provision.

In terms of revenue, Pump.fun’s potential growth is also promising. Assuming Pump.fun’s AMM has a daily trading volume of $5 million, with a 0.25% fee, its annual revenue could reach $4.56 million. If Pump.fun can attract more users and liquidity, this figure could grow further.

However, although Pump.fun’s self-built AMM undoubtedly poses a challenge to Raydium, whether it can truly shake Raydium’s position in Meme trading depth on Solana still faces many uncertainties.

• First, liquidity depth is a key issue. Compared to Raydium, Pump.fun’s AMM may have insufficient liquidity depth, potentially leading to higher trading slippage and affecting user experience.
• Second, security concerns cannot be ignored. As the AMM is still in the testing phase, there may be vulnerabilities or security risks, requiring more technical optimization and safeguards from Pump.fun.
• Finally, user migration willingness is also an important factor. Despite Pump.fun offering a more convenient trading experience, there’s no guarantee that all traders will switch to Pump.fun’s AMM, and some users may continue to rely on Raydium.

Pump.fun’s self-built AMM initiative marks its ambition to transform from a “traffic provider” to a “liquidity controller.” This strategy not only enhances its control over the ecosystem but may also have profound implications for the liquidity landscape on Solana.

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