Jupiter: The New King of DEX in LEGO Style

Introduction

Jupiter was established in 2021 as a decentralized exchange liquidity aggregator on the Solana blockchain. After three years of development, Jupiter has now amassed over half of the trading volume on the Solana chain, reaching the pinnacle of trading aggregators on this blockchain. As its primary trading aggregator project has reached a developmental plateau, Jupiter has begun expanding its business horizontally. This has led to the launch of Jupiter Start, a launchpad platform, and Jupiter Labs, an incubator. These initiatives aim to foster high-quality projects, enabling Jupiter to achieve horizontal growth across various parallel fields.

Project Basic Information

Basic Information:

• Website: https://jup.ag/
• Twitter: https://twitter.com/JupiterExchange, 420,000 followers
• Reddit: https://www.reddit.com/r/jupiterexchange/
• Discord: https://discord.com/invite/jup
• Whitepaper: https://station.jup.ag/docs
• Launch Date: Token launched in 2024

Project Team

Core Team

• Meow: Co-founder. He also developed Meteora and R.A.C.C.O.O.O.N.S. Additionally, he is the co-founder of the largest Wrapped token, wBTC, and a founding contributor to the Handshake project.
• Ben Chow: Co-founder. Ben has years of experience in interaction design and product development. He was part of the founding team of the social gaming company Hive7, which received Series A funding from True Ventures. In 2010, Hive7 was acquired by Disney/Playdom. In late 2007, he helped design and launch Hive7’s popular social game, Knighthood.

Advisory Team

• Shun Fan Zhou: One of the authors of the Phala Network whitepaper and a Ph.D. holder from Fudan University’s System Software and Security Laboratory. He has presented research on attack transactions and defense methods in the Ethereum ecosystem at top-tier security conferences like USENIX Security and has co-authored several papers for international security conferences.
• Sandro Gorduladze: An angel investor and partner at HASH CIB. Sandro established the research department at HASH, known for its in-depth reports. Before joining HASH, he worked at PwC Russia, providing tax consulting services to companies in the TMT sector.
• Konstantin Shamruk: Holds a Ph.D. in Economics from the University of Toulouse. He led the game theory analysis work for Phala Network’s economic design.
• Jonas Gehrlein: A research scientist at the Web3 Foundation, where he focuses on the economic issues within the Polkadot ecosystem. Before joining the Web3 Foundation, Jonas earned his Ph.D. in Behavioral and Experimental Economics from the University of Bern, where he studied human behavior in markets and organizations. He also holds a Master’s degree in Quantitative Economics from the University of Konstanz.
• Zo Meckbach: A senior ambassador for Polkadot, researcher, and advocate for Web3 and cybersecurity. She is currently the COO of MH-IT & Service GmbH and previously held a position in application analysis at Google.

Funding Information

The Jupiter team has not disclosed any funding information.

Development Capabilities

Jupiter was founded in 2021 by co-founders Meow and Ben Chow. Key events in the project’s development are outlined in the table below:

From Jupiter’s project development roadmap, it is evident that the team, despite achieving significant success after the project’s launch, continues to introduce innovative features and optimize user experience. Upon reaching the pinnacle of its core business, the trading aggregator on the Solana chain, the team swiftly recognized and transitioned towards expanding other parallel business areas. This demonstrates Jupiter’s team’s keen business insight and enterprising spirit, as well as their capability to promptly complete development tasks.

Main Products

Trading Aggregator

The trading aggregator is Jupiter’s core product and the foundation of its success. Originating from the last bull market during the “DeFi Summer,” trading aggregators became popular as many traders gathered on-chain to trade tokens using various DEXs (decentralized exchanges). However, a notable drawback of DEXs is that each one has its own liquidity pool, which are not interconnected. Thus, investors often had to manually search for the best trading pool to get the optimal trading price, which was time-consuming and laborious. Additionally, the fragmented liquidity made it difficult to ensure optimal trades.

The introduction of trading aggregators changed this scenario. A trading aggregator can combine the liquidity pools of different DEXs on the same chain. When users use a trading aggregator, they can clearly see the depth, slippage, and other details of the token they want to trade across all pools in the market. Traders can then choose the DEX that best suits their needs based on these parameters.

Jupiter aggregates numerous liquidity pools within the Solana ecosystem, automatically searching for and combining the best liquidity resources through algorithms to provide users with the best one-stop trading path. The user interface of Jupiter is very user-friendly, similar to Uniswap’s trading interface, making it easy for most users to adapt and use. Before operating Jupiter, users can set various trading parameters according to their needs, such as transaction fees, slippage, or trading paths, allowing them to choose the most suitable price and slippage for their trades. Jupiter uses its smart contract algorithms to monitor and analyze market data in real-time, intelligently helping users select the optimal trading path in the market, thus improving transaction success rates and capital efficiency.

To ensure the safety and quality of trades, Jupiter requires that any trading pair pool connected to it must have a minimum liquidity of $500,000 and undergo rigorous audits. Due to these measures, Jupiter has aggregated the majority of trading volume on the Solana chain, now accounting for over 50% of the total trading volume, thus dominating the Solana ecosystem.

Limit Orders

Solana has positioned itself primarily as a transaction-focused blockchain, which, thanks to its unique consensus mechanism and SVM parallel capabilities, is highly user-friendly for traders. As Jupiter serves traders, it offers limited order functionality to help users avoid cost increases and slippage due to price impacts during trading, while also mitigating MEV (Miner Extractable Value) issues.

Jupiter’s user-friendliness is also evident in its interface. It collaborates with Birdeye and TradingView — Birdeye provides on-chain price data for tokens, and Jupiter uses TradingView’s technology to display chart data. This makes Jupiter’s interface resemble that of traditional CEXs (centralized exchanges), allowing users to feel more comfortable and familiar with using Jupiter.

When using limit orders, they can be partially executed, allowing users to receive the executed portion of the tokens. Users can set the order validity period, exchange price, and quantity, enabling precise execution of their trading strategies. This helps users effectively avoid cost increases and slippage due to price impacts during trading, while also mitigating MEV issues.

Dollar-Cost Averaging (DCA)

Dollar-Cost Averaging (DCA) is a widely used investment strategy in real life. Users can set a regular and fixed investment plan to lower their purchase cost within their expected price range over time. This method helps investors reduce the risk of investing at a single price point in a volatile market environment. Jupiter offers DCA investment products, allowing users to set their purchase frequency, price range, total duration, and desired tokens. Once DCA takes effect, the purchased tokens are transferred to the user’s account on Jupiter and traded automatically based on the preset price range and frequency. After the DCA period ends, the tokens are automatically transferred back to the user’s wallet.

Jupiter’s DCA has the advantages of controllable cost, low fees, and a fully managed trading process. During bear markets, DCA is particularly beneficial as it allows investors to purchase assets at a lower average cost over time, reducing the risk of a single investment. It also helps investors maintain a rational and steady investment strategy, avoiding emotional reactions to market fluctuations. However, in bull markets, DCA may not capture the rapid gains from market uptrends as effectively as lump-sum investments.

Thus, while DCA is a beneficial long-term investment strategy under certain market conditions, its overall demand remains relatively low. Investors should consider their risk tolerance, market conditions, and long-term investment plans when deciding whether to use DCA.

Jupiter Labs

Jupiter Labs operates independently from Jupiter as a project investment laboratory driven by both the team and the community. It is not influenced by the Jupiter project team but receives substantial technical and financial support from Jupiter. Jupiter users and community members enjoy certain privileges, including priority access and token incentives.

Jupiter Labs signifies Jupiter’s horizontal expansion into various fields within the Solana ecosystem, aiming to increase its market share and influence. Currently, Jupiter Labs focuses on developing perpetual contracts and LST (Liquid Staking Token) stablecoins, two highly profitable and influential areas within the ecosystem.

Perpetual Contracts

Jupiter Perpetual is Jupiter’s initial foray into perpetual contracts, operating similarly to GMX. Participants in Jupiter Perpetual include liquidity providers (LPs) and traders. LPs provide funds to the pool, which are converted into a basket of tokens primarily consisting of BTC, ETH, SOL, USDC, and USDT, with SOL and USDC having higher weights as the main trading assets. Traders leverage the tokens in the liquidity pool to establish leveraged positions, paying transaction and borrowing fees. LPs receive 70% of the transaction fees and all borrowing fees. Like GMX, LPs are the counterparty to traders’ contract trades. This model is favorable for LPs in bear markets but less so in bull markets.

Jupiter Perpetual allows traders to use up to 100x leverage for perpetual contracts, with LPs providing funds to earn fees. Traders can use any supported Solana token as collateral to open long or short positions on SOL, ETH, and wBTC. Long positions require the respective underlying asset, while short positions need stablecoins as collateral. Traders borrow assets from the liquidity pool to take on leverage.

LST Stablecoins

XYZ is an LST stablecoin project supported by Jupiter Labs. In XYZ, users can mint interest-bearing stablecoins (SUSD) without borrowing interest by collateralizing SOL. The collateral remains locked in a smart contract until the user repays the corresponding SUSD. This borrowing model allows users to obtain stablecoins without incurring borrowing interest. The revenue from LST staking is distributed to SUSD holders and governance token holders to incentivize participation. XYZ also employs a leverage arbitrage strategy to maximize returns when LST yields exceed SOL borrowing rates. To maintain SUSD price stability, XYZ uses a redemption mechanism similar to Lybra, redeeming SUSD for governance tokens within a small price range of $0.95-$1 to minimize the impact on borrowers’ positions.

Jupiter LFG Launchpad

LFG Launchpad supports new projects through an innovative, community-driven, and transparent model. Unlike traditional launchpads with complex structures, LFG Launchpad emphasizes an open market and community participation. It boasts significant community support, customizable anti-bot measures, user-friendly liquidity management tools, and comprehensive trading features. These characteristics ensure fair price discovery, immediate liquidity, and robust technical support.

LFG Launchpad leverages community support to drive new project development, garnering extensive attention and support. Customizable anti-bot measures ensure fair and transparent trading, enhancing security and reliability. User-friendly liquidity management tools improve asset and liquidity management, enhancing user experience. Comprehensive trading features provide a variety of trading options, meeting diverse user needs and improving trading efficiency.

In a recent interview, Jupiter co-founder Meow highlighted LFG Launchpad’s role in boosting Jupiter’s brand influence. He indicated that in the third quarter, Jupiter plans to further explore and develop the rules and expansion of LFG Launchpad.

Comparison with Competing Projects

Jupiter, as the most successful decentralized exchange liquidity aggregator in the Solana ecosystem, dominates half of the trading volume on Solana. Its main competitor in the Ethereum ecosystem is 1inch, a giant in decentralized exchange liquidity aggregation.

Underlying Operational Logic

Jupiter operates on the Solana blockchain, benefiting from Solana’s high performance, especially with the use of SVM (Solana Virtual Machine). SVM supports smart contract code written in Rust, C, and C++, converting them to BPF bytecode, making it developer-friendly. However, SVM’s biggest advantage for Jupiter is its parallel processing capability. The Sealevel engine is key to parallel processing on Solana. With integrated state access lists in Solana transactions, non-conflicting transactions can run simultaneously, achieving faster overall performance. SVM supports multithreading, allowing more transactions to be processed in less time. Each thread contains a queue of pending transactions, distributed randomly. This gives Jupiter robust transaction processing capabilities, supporting a high volume of transactions simultaneously, which is very user-friendly.

1inch, operating on the Ethereum blockchain, relies on the EVM (Ethereum Virtual Machine), a single-threaded environment. This means it can only handle one contract at a time, limiting its transaction processing capacity compared to Jupiter. Although Ethereum improved its performance with the 2023 Cancun upgrade and various Layer 2 (L2) solutions, it still cannot match Solana’s capabilities. Thus, Jupiter naturally has a performance advantage over 1inch.

Gas Fees

Decentralized exchange liquidity aggregators involve high-frequency on-chain transactions, making users sensitive to gas fees. Solana uses a proof-of-history consensus method, improving system efficiency and reliability, and SVM gives Solana high processing speed and low latency. This allows transactions to be confirmed quickly, reducing gas fees. On Jupiter, each transaction costs only $0.00015, supporting high-frequency operations essential for limited orders, DCA investments, and perpetual contract trading.

In contrast, even after the Cancun upgrade, Ethereum’s average transaction fee remains around $0.3, much higher than Solana’s. For 1inch, a high-frequency on-chain trading aggregator, gas fees increase exponentially with transaction frequency. During bull markets, this becomes very unfriendly to traders. The essence of aggregators is to provide better prices by sourcing liquidity from multiple sources, not just a single DEX. However, Ethereum’s high gas fees make it expensive to aggregate liquidity from multiple pools, potentially worsening the problem and making it more advantageous to trade from a single liquidity source.

Product Diversity

Jupiter offers a variety of products for traders, including limit orders, DCA investments, and derivatives trading, meeting various user needs. Jupiter aims to solve various trading issues from a financial development perspective, providing comprehensive financial services. This approach not only meets users’ diverse financial needs but also offers suitable financial services during different market phases.

In comparison, 1inch focuses solely on being a DEX aggregator, providing better prices by sourcing liquidity from multiple DEXs. It does not offer other financial service products, making its product offerings less diverse than Jupiter’s.

Future Development Direction

Having secured a leading position in the decentralized exchange liquidity aggregation field within Solana, Jupiter sees limited growth in its original track. Therefore, it has expanded its focus to other parallel tracks, launching Jupiter Labs and LFG Launchpad. By supporting and investing in projects across different tracks within the Solana ecosystem, Jupiter aims to increase its influence. Jupiter’s future development will focus on continually updating and enhancing its liquidity aggregator features while emphasizing the promotion of Jupiter Labs and LFG Launchpad. This direction was highlighted in the co-founder’s H2 work plan, which underlined further exploration and development of LFG Launchpad.

Although 1inch holds a significant position in the Ethereum ecosystem’s decentralized exchange liquidity aggregation field, it does not have the absolute dominance that Jupiter enjoys in Solana. Uniswap, a highly successful DEX in the Ethereum ecosystem, also has a substantial user base. Consequently, 1inch’s future development will differ from Jupiter’s. 1inch will continue to focus on the decentralized exchange liquidity aggregation field, optimizing its transaction speed and gas fees by deploying itself across various L2 solutions.

Project Model

Business Model

Jupiter operates as a decentralized trading liquidity aggregator and also offers derivative contract services and project incubation. Its economic model comprises three primary roles: trading users, liquidity providers, and newly incubated projects.

1. Trading Users: These are the foundation of Jupiter’s success and development. They benefit from various financial services offered by Jupiter, such as liquidity aggregation, limit orders, DCA (Dollar-Cost Averaging) investment, and contract services. In return, they pay a certain percentage of transaction and service fees to Jupiter, constituting the main source of Jupiter’s revenue.
2. Liquidity Providers: Jupiter extends beyond liquidity aggregation to perpetual contracts, operating similarly to GMX. Therefore, it needs dedicated liquidity providers to ensure the smooth functioning of perpetual contracts. These providers receive 70% of the transaction fees and all lending fees, while the remaining 30% goes to Jupiter as revenue.
3. Newly Incubated Projects: With the launch of LFG Launchpad, Jupiter adopts an innovative approach to support new projects by providing technical and financial support. In return, these incubated projects allocate a portion of their tokens to Jupiter, creating an additional revenue stream for the project.

Revenue Sources:

• Fees for using Jupiter’s liquidity aggregator: Up to 2%, depending on the liquidity pools.
• Fees for using the limit order function: 0.3%.
• Fees for using the DCA investment function: 0.1%.
• Fees for using perpetual contract products: 0.1% for opening/closing positions, up to 2% for swapping (depending on pool weight), a borrowing rate of 0.01%/hour * token utilization rate %, and 30% of transaction fees and all lending fees.
• Tokens allocated by projects incubated or managed by Jupiter Launchpad.

Token Model

According to the whitepaper, the total supply of JUP tokens is 10 billion, with a current circulating supply of 1.35 billion tokens, representing a circulation rate of 13.5%. The initial circulating supply of 1.35 billion tokens includes 1 billion tokens for airdrops, 250 million tokens for Launchpool, and 50 million tokens each for CEX market making and on-chain LP requirements.

The protocol commits to allocating 50% of tokens to the community. Both the team and the community have been allocated separate cold wallets. The initial circulating tokens are expected to be used for adding liquidity (5%) and airdrop tokens (10%), with a potential additional 2% of tokens unlocked.

Token Utility

According to the white paper, the uses of JUP tokens within the Jupiter platform include:

1. Governance: JUP token holders can participate in the Jupiter platform’s DAO (Decentralized Autonomous Organization) governance, voting to influence the protocol’s operations and development direction.
2. Liquidity Mining: Users can earn JUP token rewards by providing liquidity to Jupiter’s liquidity pools, incentivizing users to enhance platform liquidity, reduce trading slippage, and improve trading efficiency.
3. Fee Discounts: Users holding JUP tokens can enjoy certain fee reductions when trading on Jupiter, increasing the token’s practical value.
4. Expanded Features: As the Jupiter platform evolves, JUP tokens will continue to expand in function. For example, users might use JUP to participate in perpetual contract trading or gain early access to new products and services.

JUP Token’s Value Assessment

According to the white paper, JUP does not involve centralized burning, regular burning, or staking to share transaction fees. The limited token utility is a significant drawback of the Jupiter project.

The design lacks a staking mechanism to lock JUP tokens and increase project value, and the current circulating supply is 13.5%. With each airdrop, 1 billion JUP tokens will be released into the market, potentially leading to significant market sell pressure. Thus, the value increase of JUP is primarily driven by the intrinsic value of the Jupiter project itself, similar to UNI and Uniswap. Additionally, JUP does not have a staking mechanism for sharing project revenues, resulting in reduced utility and reliance on Jupiter’s development trends and market perception for value appreciation.

Token Price Performance

JUP price trends (source: https://www.coingecko.com/en/coins/jupiter)

According to Coingecko statistics, since the JUP token was launched on January 31, 2024, its price has increased more than 2.8 times (from a low of $0.46 to a high of $1.75). The primary trading venues are major exchanges such as Binance, OKX, HTX, and Bybit.

Market Capitalization

• Current JUP price: $0.973
• Circulating supply: 1.35 billion tokens
• Market cap: $1.33057 billion

Fully Diluted Valuation (FDV)

• Current JUP price: $0.973
• Total supply: 10 billion tokens
• FDV: $9.73 billion

Daily Trading Volume

• The average daily trading volume for JUP is approximately $154 million.

Daily trading volume of JUP (source: https://www.coingecko.com/en/coins/jupiter/historical_data)

JUP’s daily trading volume is $154 million, with a circulating market capitalization of approximately $1.33057 billion, resulting in a turnover rate of 11.57%, which is considered moderate.

Top Ten Token Holders

Top Ten JUP Holders (Source: Solscan)

From the chart, it can be seen that the top ten PHA holding addresses collectively account for 91.93%.

TVL

Jupiter’s TVL (data source: https://defillama.com/protocol/jupiter#information)

It can be seen that Jupiter’s TVL has been growing over the past six months and has now reached $602 million.

Daily Trading Volume

It can be seen that Jupiter’s daily trading volume has been continuously increasing over the past year.

Project Risks

Aside from serving as Jupiter’s governance token, JUP is primarily used for rewarding liquidity providers and offering partial fee discounts for transactions. However, JUP lacks mechanisms such as the veToken model seen in Curve, centralized or periodic burning, and staking for fee distribution. Consequently, JUP functions similarly to UNI, being more of a project token with limited additional functions, serving mainly as a symbol for the project. Without a staking mechanism, JUP’s tokenomics do not support price appreciation effectively.

Summary

Jupiter is a trading aggregation platform that has approached its market ceiling, leading it to adopt a strategy of expanding into parallel fields. Beyond innovations in its core business, Jupiter has launched the Launchpad and incubation platforms, leveraging its resource advantages. These new ventures are promising and have significant potential for growth with Jupiter’s support. As Jupiter invests in other parallel sectors, it is expected to achieve notable success in these areas.

However, Jupiter’s tokenomics are relatively simple and lack a robust staking mechanism, leading to high token circulation and indirectly hindering price increases. While Jupiter provides governance and fee discounts through JUP, it does not incorporate staking, centralized burning, or periodic burning, which affects the token’s price negatively.

In summary, Jupiter has solidified its position in the decentralized liquidity aggregator sector with innovations such as limit orders, DCA investments, and user contracts. By focusing on long-term goals and expanding within the Solana ecosystem, Jupiter is poised to become a prominent player and potentially a unicorn project in Solana’s ecosystem if its supported and launched projects succeed. Therefore, we are optimistic about Jupiter’s future development.