Author: Azum, Odaily

The mainstream DEX protocol Raydium (RAY) on Solana plummeted today, the direct trigger being that pump.fun seems to be testing its own AMM liquidity pool. The market speculates that this move may lead to the fact that the tokens of the pump.fun system will no longer be pooled on Raydium after being "squeezed out of the internal market", but will be directly diverted to the pump.fun protocol, which will lead to a shrinkage of Raydium's trading volume and a corresponding reduction in its revenue and buyback scale.

The logic behind the drop in RAY (readers familiar with the relevant logic can skip this)

A simple review of the relationship between Raydium and pump.fun.

As the most mainstream meme token Launchpad platform on Solana, the token issuance of pump.fun goes through two stages: "internal market" and "external market". After the token is issued, it will first enter the "internal market" trading stage, which relies on the Bonding Curve of the pump.fun protocol itself for matching, and when the trading volume reaches $69,000, it will then enter the "external market" trading stage, at which point the liquidity will be migrated to Raydium, where a pool will be established and trading will continue to be open.

Now let's look at Raydium and RAY.

Raydium currently charges a 0.25% transaction fee, of which 0.22% is allocated to Raydium's liquidity providers (LPs) and 0.03% is used for RAY buybacks and ecosystem support. In other words, Raydium's trading volume will indirectly affect the price of RAY through its fee income.

So the current situation is that if pump.fun builds its own AMM, the liquidity will no longer be migrated to Raydium in the future, thereby reducing the latter's trading volume and fees, which will in turn affect the performance of RAY's value.

How dependent is Raydium on pump.fun?

The above part has already been analyzed a lot in the market today, but it seems that no one has carefully sorted out how much Raydium depends on pump.fun in terms of trading volume. To this end, we queried some data sources on Defillama and Dune, and the conclusion is shown in the figure below.

From the above figure, we can see that over the past 14 weeks, the trading volume of the pump.fun system tokens on Raydium has been around 20%, which means that if pump.fun does indeed use its own AMM to divert Raydium in the future (without considering the self-migration of liquidity due to the uncertain platform fee rate difference), Raydium is expected to see a reduction of around 20% in trading volume.

Is it oversold?

Returning to the market, OKX's market data shows that RAY hit a low of $2.82 today, a drop of over 30% (the data was pulled too late, and in retrospect there was indeed some overselling), and the current price has gradually recovered to $3.15, a drop of 25.43%.

Considering that SOL itself has also seen a 5.8% drop, the current drop in RAY is basically in a reasonable range, i.e. the market has already priced in the "squeezing" behavior of pump.fun.

Finally, let's end with the words of Fluid COO DMH:

The plunge in RAY once again proves to us that "distribution >>> technology", with countless examples in the traditional world (Microsoft) and the crypto field (Metamask) showing that if you have a large enough user base, your product doesn't matter that much.