GuShiio.com Pump.fun is no longer satisfied with being Raydium’s “traffic provider”, but is trying to become the “controller” of liquidity.
Author: Shenchao TechFlow
“Whatever he has will be given to him; whatever he does not have, even what he has will be taken away from him.”
—Gospel of Matthew
On the chain, the Matthew effect of the stronger the stronger never stops.
For example, Pump.fun quietly began to do Raydium’s work: today it secretly launched a self-built AMM pool in an attempt to divide the liquid income that originally belonged to Raydium.
At present, this self-built AMM (http://amm.pump.fun) page is very simple. You can swap any token like other DeFi products.
However, the thinking behind this product may not be simple.
As we all know, Pump.fun has attracted a large number of Degens with its unique internal and external disk mechanism and memecoin culture.
Users ‘transactions are first matched on the internal market of Pump.fun, relying on the liquidity of the platform to complete the transaction; when the internal market is full, the transaction will be routed to the external market, which actually relies on Raydium’s liquidity pool.
In this model, Pump.fun has always been Raydium’s “traffic provider”, but it is therefore subject to Raydium’s rules. Whenever a transaction flows to an outside market, Pump.fun needs to pay a portion of the transaction fees, and this portion of the profits eventually flow to Raydium’s liquidity provider (LP).
Raydium itself is one of the most important AMM platforms in the Solana ecosystem and an important infrastructure for DeFi users to gain mobility. It also provides liquidity pool services for many projects on Solana, and its TVL (Total Locked Volume) has long been at the forefront of Solana.
As Solana’s “mobility center”, Raydium plays a pivotal role in the ecology. However, Pump.fun’s new actions are challenging this pattern:
Pump.fun is no longer satisfied with being Raydium’s “traffic provider”, but is trying to become the “controller” of liquidity.
The business experience behind the self-built AMM pool
By building its own AMM, Pump.fun can transfer the liquidity of external markets from Raydium to its own platform, thereby fully controlling the allocation of transaction fees.
If Pump.fun ‘s strategy is successful, Raydium will not only lose part of its liquidity sources, but its revenue model and ecological status will also be affected.
So, how was this account calculated?
1. Raydium’s revenue model: Pump.fun’s “hidden costs”
Under the current model, Pump.fun’s external trading relies on Raydium’s liquidity pool, and each transaction will incur a certain handling fee, which will eventually flow to Raydium’s ecosystem.
- Raydium’s standard fee: 0.25% handling fee per transaction, including:
- 0.22% is allocated to Raydium’s liquidity providers (LP).
- 0.03% is used for repurchase and ecological support of $RAY.
- Trading volume at Pump.fun: Assuming Pump.fun has a daily trading volume of US$100 million, 5% of the trading volume (approximately US$5 million) is routed to Raydium’s outer trading volume.
- Hidden costs of Pump.fun: Based on a 0.25% handling fee, Pump.fun pays Raydium US$12,500 per day, which is approximately US$4.5625 million per year.
For a fast-growing platform, although this fee is lower than before, it is still a dependence on external platforms.
2. Potential benefits of self-built AMM
By building its own AMM, Pump.fun can transfer the liquidity of external markets from Raydium to its own platform, thereby fully controlling the allocation of transaction fees. So, how much potential benefit can this move bring?
- New revenue model: Assume that Pump.fun’s self-built AMM charges the same as Raydium (0.25%), but all fees are owned by the platform:
- The daily external trading volume remains at US$5 million.
- Based on a 0.25% handling fee, Pump.fun can directly earn US$12,500 per day.
- Cumulative annual income is approximately US$4.5625 million.
- Net income after removing LP costs: If Pump.fun ‘s AMM does not rely on external LP but is provided by the platform itself, then this income will be entirely owned by the platform and will not need to be distributed to other liquidity providers.
3. Besides money, what else does Pump.fun fancy?
Self-built AMM can not only bring direct revenue increase, but also significantly enhance Pump.fun ‘s control over the ecology and lay the foundation for future development.
Under the current model, Pump.fun’s external trading relies on Raydium’s liquidity pool, which means that Raydium controls the user’s trading experience and liquidity stability.
After building AMM, Pump.fun will fully control the rules and fee allocation of the liquidity pool, thereby enhancing its control over users.
After controlling liquidity, Pump.fun can further launch more DeFi products (such as perpetual contracts, loan agreements, etc.) to build a closed-loop ecosystem.
For example, Pump.fun can directly support the publishing and trading of memecoin through its AMM pool, providing more gameplay for its community.
Changes in relevant token prices
After Pump.fun announced the launch of self-built AMM, Raydium’s token $RAY fell, and the current daily decline has been 20%.
This phenomenon may reflect market concerns about its future revenue and status.
Pump.fun ‘s strategy could pose a long-term threat to Raydium, especially in terms of liquidity migration and fee revenue.
But on the other hand, after Pump.fun built its own AMM pool, the price of Crack, a MEME token used to test the liquidity pool, rose rapidly, with a market value reaching as high as US$4 million at one point.
CA：
CitRGsrgU7NjaXsxdMFc7sfsxtSnPdtkhHJqbPvhpump
Among the few hot market spots, AMM pool test tokens may still be flying for a while.
The challenge is clear
After building AMM, if it runs smoothly, Pump.fun will fully control the liquidity of the external disk, thereby significantly increasing revenue.
By integrating internal and external liquidity, Pump.fun can build a fully self-consistent online Meme DeFi ecological closed loop.
From grabbing attention flow to grabbing a place to grab funds, Pump.fun is clearly transforming from “relying on external liquidity” to “own liquidity”.
After an innovative platform has a more user base, it certainly has the opportunity to shake the status of traditional DeFi and the on-chain ecosystem through strategic adjustments.
However, whether Pump.fun can truly shake Raydium’s position in the future will depend on its ability to balance its liquidity strategy and user growth; more importantly, the bull market is still in existence.
Time is luck.
It’s not just the leeks competing in PVP, but the good show of projects competing against each other is also being staged.
