Explained: What Is a Serum Coin (SRM)?

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The popularity of decentralized exchanges has been on the rise over the past year, with the decentralized finance (DeFi) movement forcing developers to focus on issues surrounding complete decentralization. Despite demonstrating certain advantages (e.g., the ability to combine intuitive interface and access for substantial liquidity), centralized exchanges will never achieve the level of security that decentralized exchanges offer. One example of the latter is Serum. In order to become the cornerstone of the DeFi ecosystem, Serum has decided to offer a set of exciting new features.

What Is Serum (SRM)?

Serum is a fully decentralized ecosystem based on Solana. Its main focus is interoperability, and the highlight of its ecosystem is decentralibility. Serum offers an easy-to-use platform from which any crypto token can be exchanged for another without the need to go through any KYC procedures. Serum’s DEX uses the traditional swap system, allowing users to add any trading pairs they like.

Since Serum is built on Solana’s blockchain, its DEX benefits from capabilities worthy of a centralized exchange while users retain full control of their funds. Thanks to its cross-chain features, you can trade BTC, ETH, ERC20 tokens and SPL tokens (Solana’s token standard), among others. These features allow DeFi users to find in Serum a truly decentralized platform, which has all the convenience offered by centralized platforms and more.

Who Is the Founder of Serum?

The Serum Foundation was launched in August 2020. It’s the brainchild of Sam Bankman-Fried, a math and computer science graduate of MIT. Bankman-Fried is also the founder of Alameda Research (2017), a successful cryptocurrency trading company, and the popular crypto derivatives exchange FTX (2019). Along with his FTX colleagues, Bankman-Fried came up with a DeFi protocol to implement in which the DEX was autonomous.

Serum is supported by many centralized exchanges. To date, it has also entered into numerous collaborations, including one with Chainlink (LINK), providing pricing oracles for its DEX within the ecosystem. The leading advisors for the project include Robert Leshner, the founder of Compound Labs, and Long Vuong, founder and CEO of TomoChain.

Why Is SRM Valuable?

SRM is the native token of the Serum ecosystem. Serum’s cross-chain swap protocol allows users to reliably swap assets between blockchains. Serum offers investors a decentralized, automated full-limit order book that gives them full control over each order. The integration between Ethereum and Solana makes Serum faster, more efficient and interoperable with ERC20 tokens.

The regulated cross-chain contracts allow easy margin positions in DeFi on synthetic assets. SRMBTC is a model for creating ERC20 or Solana-based tokens for BTC, while SRMUSD is a model for creating a decentralized USD fixed constant currency.

Stake rewards are distributed based on the performance of nodes that take into account important in-chain actions, such as providing blockchain histories for cross-chain placement verification.

The SRM token also has a classic mechanism that is recognized by the tokens of exchange platforms. This system of redemption and destruction rarefies the total amount of SRM.

Apart from the utility of the SRM token in the ecosystem, all fees paid in SRM are automatically burned every week. This mechanism gradually reduces the number of SRM tokens in circulation, further increasing its rarity. That’s why SRM continues to remain valuable. 

Currently, Serum is the most preferred decentralized exchange on the Solana ecosystem. The Solana ecosystem offers users a fast trading experience, and as the ecosystem expands, the number of projects on Serum DEX will increase. 

What Makes Serum Unique?

Distributed Architecture

Serum’s unique selling proposition (USP) is that it allows the public to create their own DEXs. What this means is that individuals who possess programming skills can create a decentralized market with the help of Serum. Typically, DEXs struggle to obtain sufficient liquidity for their users. The problem is solved, however, by building a DEX using the Serum ecosystem. The liquidity of each DEX built on Serum is pooled with the others, and even with the Serum DEX itself.

Serum also rewards those who provide liquidity for its markets. Some of the top DEXs created on Serum include Bonfida and Aldrin.

Solana as a Base Layer

As we’ve already mentioned, Serum is built upon the Solana blockchain architecture. Therefore, it’s impossible to talk about the Serum project without mentioning the Solana ecosystem. 

This affiliation with Solana makes Serum a unique and pure DEX, which allows the decentralization of all exchanges for several blockchains, an exclusively on-chain order book, speed and efficiency of orders, very low exchange fees, and perhaps most importantly, interoperability with Ethereum and ERC20 tokens. This means that the SRM crypto is an SPL token (Solana Program Library). This is, by the way, a standard similar to ERC20 on Ethereum, which makes it possible to issue interchangeable tokens on Solana. Serum therefore takes advantage of all the capabilities of the Solana blockchain to ensure that its ecosystem works smoothly.

It’s worth noting that Solana also relies on interoperability between blockchains. This network is fully compatible with Ethereum, and even with Bitcoin. This particular characteristic benefits Serum, which, as we’ll see below, enables collaboration for cryptocurrencies that are otherwise incompatible. In this way, these cryptocurrencies become exchangeable via Serum’s decentralized platform.

What Are the Uses of SRM?

The Serum project is fueled by its governance token, SRM. It’s the native utility token of the Serum ecosystem built on the Solana blockchain. It confers several advantages on its holders, including:

  • A 50% reduction of the costs incurred for an exchange on any Serum DEX. In addition, up to 80% of the brokerage commissions from transactions made on Serum’s DEX return to users who also have SRM cryptocurrencies. This way, the Serum ecosystem distributes revenue to crypto owners and paves the way for continuous revenue generation.
  • The possibility of staking with your SRM token. Currently, this is reserved only for users with 1 million SRM in holdings and the technical capacity to operate masternodes. 

Note that the Serum ecosystem chooses to burn these fees and contribute to the ecosystem. The rest of the fees, 20%, are distributed to users (stakers) who lock SRM tokens.

  • The right to vote on the ecosystem’s governance. Users thus get to decide if any update is needed within the ecosystem, such as adjusting network charges.

How Does Serum Work?

Like any blockchain, Solana comes with a consensus mechanism, with the main innovation behind the Solana network being proof of history (PoH). As the name suggests, it’s a form of consensus based on evidence of past events.

Note that for the Solana network, PoH presents itself as an overlay to proof of stake (PoS), the well-known consensus that implements the concept of masternodes and staking.

Before getting into the specifics of how PoH works, it’s necessary to go back to the basics. Let’s take Bitcoin and its consensus, proof of work (PoW), as an example. On the Bitcoin network, all of the network nodes work in parallel to validate the next block. This implies that the majority of nodes must validate any block before it can be anchored forever in the chain. This process is relatively lengthy, and requires most of the network to agree that “such and such block has been validated at such and such time.”

To maximize its technical capabilities and meet the requirements of its users, the Solana blockchain implements PoH. This method obviates the need for all validators in the network to agree on creating a block. The PoH algorithm will cryptographically prove that one transaction was created before another, making its immediate implementation in the chain possible. In this way, blocks are created approximately every 400 milliseconds on the Solana blockchain, with the network theoretically approaching 50,000 to 65,000 transactions per second (TPS).

In addition, the costs incurred by a transaction on the Solana network are negligible, on the order of $0.00001 per transaction — or about $10 in fees for 1 million transactions.

As Serum is entirely built on Solana, it takes advantage of this blockchain’s capabilities, which are necessary for its ecosystem to function optimally.

What Is Solana?

Solana is a powerful, permissionless blockchain that tries to solve the scalability problems of blockchain without sharding. This makes Solana a good go-to for DApps that need a high data rate. 

According to its developers, Solana can handle up to 50,000 TPS. It relies on a PoH timestamp algorithm which automatically strings together transactions that take place in fractions of a second. The Solana mainnet went live in March 2020. Its primary goal is to develop a one-layer solution for DApps that’s both fast and scalable.

Why Is Solana a Good Blockchain for Serum?

As a full DEX, the primary benefit that Serum gets from Solana is interoperability. However, their relationship goes well beyond this. Here are some other benefits that Solana provides to Serum: 

On-Chain Central Order Books: Solana allows Serum to implement automated market makers (AMMs) to facilitate decentralized exchanges between buyers and sellers. This eliminates the need for services to hold third parties’ or clients’ funds, taking advantage of smart contracts (along with user-provided liquidity) for a pair of tokens in a pool.

Cross-Chain Functionality: It’s novel to see Serum supporting Bitcoin and Ethereum trading on its DEX, in addition to coins that use Solana’s SPL token standard. Both BTC and ETH are available on the platform as wrapped tokens in the form of SPL coins. SPL is a collection of on-chain programs run by the Solana team.

Stake and Nodes: Nodes in the Serum ecosystem can stake the project’s local SRM token. This means that nodes run hardware devices which meet Solana’s validator requirements. At the same time, they also lock coins for a certain time and perform tasks related to optimizing the protocol’s central order book and matching engine.

What Problems Is Serum Trying to Tackle?

Transaction Speeds

Almost every DeFi platform has been bogged down by slow transaction speeds. Serum aims to solve some of DeFi’s shortcomings and inefficiencies. While DeFi practices have created tremendous value, relatively long trading times are still an issue. 

Thanks to Solana’s PoH algorithm, TPS. Serum operates using the Solana blockchain to achieve super-fast TPS.

Centralization

The primary goal of blockchains is to ensure complete decentralization. However, even as DeFi continues to garner mainstream acceptance, most crypto exchanges are centralized. Serum is unique because it uses centralized on-chain order books to make trading much more efficient and user-friendly thanAMM protocols such as Uniswap or PancakeSwap.

Another issue decentralized financial projects grapple with is costly transaction fees. Due to the increased use of gas resulting from high network activity, transaction fees for DApps are much higher than simple wallet-to-wallet transfers. Ethereum, the leading smart contracts platform and DeFi hub, has long struggled with limited scalability, which in turn has led to increased gas charges.

Capital Efficiency 

The Serum ecosystem is marked by fees and the buy-and-burn mechanism. Serum has set up a mechanism to buy back and destroy part of the transaction fees. Here’s a breakdown of the costs involved:

  • 20% goes to the creator of the platform used
  • 2% goes to the developer community (ecoSerum)
  • 10% is dedicated to staking rewards
  • 68% goes through the buy-and-burn mechanism

Buy-and-burn, therefore, takes care of two-thirds of SRM and is carried out weekly. As mentioned earlier, this mechanism gradually reduces the number of SRM in circulation, further increasing its rarity. 

Liquidity Segmentation

Remember that Serum is a pure DEX, using the AMM model to provide liquidity. While the largest ecosystems for DeFi to date are based on either Ethereum (ETH) or Binance Coin (BNB) and their associated blockchains, Serum relies on Solana. With 50,000 TPS and minimal transaction fees of fractions of a cent, the technological course for future viability has already been set. In addition, SRM and Serum are also linked to DeFi under Ethereum via a currency bridge.

How Many Serum Coins Are in Circulation?

According to CoinMarketCap, as of September 2021 the circulating supply of Serum is 50 million, against a total supply of 10 billion. Note that 90% of the total supply tokens are locked.

How Do I Buy SRM Tokens?

You can buy SRM via popular crypto exchanges. At the time of writing, it’s trading at almost $8.00 with a market capitalization of over $1 billion.

Where Can SRM Tokens Be Stored?

Despite the interoperability of the Solana blockchain, the Sollet open source wallet serves as an alternative to the popular MetaMask. It allows you to connect the tokens you hold to the exchange platform of your choice, while retaining control of the digital assets. 

Is Serum (SRM) a Good Investment?

Serum brings a unique perspective to the world of DeFi. By combining the benefits of DeFi services and over-chain order books, Serum has designed a DEX that provides users with fast, inexpensive and efficient transactions. While it still lacks some of the features of centralized exchanges, Serum offers a much better user experience than traditional DeFi AMMs. The main differences between the SRM project/Project Serum and others are as follows:

  • Many DeFi projects use an intrinsically centralized oracle system. However, Serum coin is not central at any stage.
  • Serum token has cross-chain support and network.
  • The Serum coin project always has a dollar value and a stablecoin independent of a bank account.
  • As with central exchanges, Serum uses a professional order book system.
  • With the SRM platform, your transactions can be carried out quickly and inexpensively. 

However, not all crypto enthusiasts believe that Serum coin will survive in the long term. The model in which users provide collateral tends to be a poor experience for platform users. As a cross-chain swapping protocol, Serum can easily be forked and launched on the Ethereum blockchain, rendering Serum obsolete. 

As you can see in the SRM/USDT price chart below, this crypto has grown by over 930% since the beginning of 2021. 

YTD Growth Percentage in the SRM Token | Source: TradingView SRM/USDT 

The Bottom Line

By focusing on interoperability and allowing anyone to create their own decentralized exchange, Serum creates an ecosystem fully adapted to decentralized finance. With Solana as its base, Serum impresses with its low transaction costs and almost instantaneous fund transfers. Buoyed by strong support, the Serum project looks promising even as it faces strong competition.

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