Raydium - Best Way To Play Memecoins on Solana
TLDR
- ◆Solana's share of DEX volume has grown from less than 10% to over 30% of total on-chain volume YTD. Raydium facilitates over 50% of Solana's DEX volumes.
- ◆Over 80% of the trading volume of coins that launched on Pump.Fun occurs on Raydium. Memecoins account for over 50% of Raydium's daily volume.
- ◆Raydium's 7 day trailing RAY buyback yield is over 18%, creating a tailwind for token price appreciation
Thesis
- ◆Solana's Share of DEX Activity is Increasing
Solana's share of DEX volume has grown from less than 10% to over 30% of total on-chain volume YTD. It now accounts for over 80% of new coins created and active addresses. Solana’s DEX share growth in 2024 is attributable to the success of Pump.Fun and relative outperformance of SOL vs. ETH price.
- ◆Raydium is The Dominant DEX on Solana
Raydium has increased its share of Solana spot DEX volumes from 30% to 60% in 2024 due to it’s permissionless pool creation capabilities. This has allowed successful coins that were launched on Pump.Fun to “Graduate” to a Raydium listing.
- ◆Memecoin Beta
Over 80% of the trading volume of coins that launched on Pump.Fun occurs on Raydium. Memecoins account for over 50% of Raydium's daily volume. The most recent surge in Memecoin trading volume has been driven by the creation of A.I. Memecoins. a16z is indirectly involved with the AI agent associated with $GOAT, and there seems to be some legitimate substance around the narrative. It’s possible that speculative interest for AI memecoins will growth from here and continue to drive market share growth for Raydium.
- ◆High Buyback Yield
Raydium directs earnings from its 3bp protocol fee on AMM trading volume and 12% take on LP fees to buyback RAY tokens. Since the beginning of 2024, it has bought back 25.2mm RAY (9.6% of circulating supply) and is currently trading at an 18% buyback yield.
If Solana continues to generate ~$1tn of annual DEX volume and Raydium maintains 60% market share, Raydium will be trading at a 26.5% buyback yield. Raydium executes its buyback programatically on-chain via RAY/SOL pools. Raydium has averaged >$200k of daily buybacks throughout October. For context, a $200k on-chain RAY purchase would move price 1.6%.
Risks
- ◆Pump Launches an AMM: One of the primary drivers of Raydium's market share growth has been permissionless pool creations for memecoins. If Pump.Fun were to launch an exchange similar to Raydium, they could remove Raydium from the Memecoin value chain.
- ◆Memecoin Hype Declines: Memecoins have existed for several years, but have become the dominant driver of on-chain markets in 2024. It's unclear how long this sentiment will persist.
- ◆Election Outcome: A blue sweep would likely be poorly accepted by crypto markets and lead to lower asset prices and lower on-chain volumes.
Appendix
RAY FDV to Circulating Market Cap Bridge
Raydium Historical Revenue
Affiliate Disclosures
- •The author and/or others the author advises do not currently hold, or plan to initiate, an investment position in target.
- •The author does not hold an affiliated position with the target such as employment, directorship, or consultancy.
- •The author is not being compensated in any form by target in relation to this research.
- •To the best of the author's knowledge, the information provided here contains no material, non-public information. The accuracy of the information is the responsibility of the reader.