How does Saros Finance work? A comprehensive DeFi station on Solana
This article will give you a clear view of how Saros Finance works and how Saros Finance aims to solve the existing problems of the AMM sector on Solana, hence supporting its development.
Saros Finance overview
Saros Finance is a DeFi Suite on Solana, including the following products: SarosSwap (AMM), SarosFarm (Pool), and SarosStake (Staking). The goal of Saros is to build a complete decentralized ecosystem for developers and DeFi users on Solana.
Saros is a product developed by Coin98 Labs, focusing mainly on the Solana ecosystem.
Some outstanding points of Saros:
- Permissionless AMM: Saros is the first DEX (Decentralized Exchange) on Solana that allows creating liquidity pools without any cost. This complementation can bootstrap the Solana ecosystem drastically.
- A complete DeFi Suite: Saros Finance develops a wide range of products, which fully meet the demand of users and projects.
- Backer: Saros is currently supported by numerous prestigious backers, on Solana in particular and on the whole crypto market in general. Some names can be regarded as Alameda Research, #Hashed, Spartan Capital,... The advice and strategies from these backers are the foundation for the long-term success of Saros Finance.
The current situation of Solana
AMMs on Solana
Here is the comparison of AMMs on Solana.
A year ago, Solana witnessed mostly Order-book DEXs, such as SerumDEX, Bonfida,... Now, the AMM sector is growing incredibly fast.
In terms of TVL or Volume, the AMM sector on Solana is currently “dominated” by Saber and Raydium.
Their limitations
One of the major problems on Solana is “the number of assets issued is really small”. In the infographic by Coin98 Analytics below, we can see the difference between the total number of assets on Solana and that on Ethereum & Binance Smart Chain.
It can be clearly illustrated that the number of total assets on Solana is too insignificant compared to Ethereum or Binance Smart Chain.
From the research of our team member, the reason is that at the moment, Solana is still lacking a truly permissionless AMM (similar to Uniswap, Quickswap, PancakeSwap,...).
Raydium does provide permissionless pools. However, the protocol is developed using Serum as the foundation. In order to create a liquidity pool on Raydium, users have to first create a market on Serum, which costs about 10-15 SOL as well as a really complicated and time-consuming process, especially with first-timers.
Therefore, to further expand the ecosystem, Solana needs an AMM allowing the permissionless creation of liquidity pools. There is no doubt that this can possibly lead to the appearance of multiple scams and rug-pull situations; nevertheless, it will also help developers and projects grow products more independently and rapidly, while users will have a wider range of options to invest in.
How does Saros Finance work? “PancakeSwap” on Solana
Saros Finance recognizes the existing obstacles in the process of issuing assets on Solana and attempts to tackle the problem.
The ecosystem of Saros Finance consists of 3 main products: SarosSwap, SarosFarm, SarosStake. Let’s go through each of them to learn how they operate.
SarosSwap
SarosSwap is an AMM similar to Uniswap or PancakeSwap, using the price curve formula: x*y=k.
Currently, most DEXs on Solana are developed based on the Central Limit Order Book (CLOB) model by Serum DEX, which is not an ideal model to attract liquidity. As a result, SarosSwap follows the AMM model.
The work process of SarosSwap:
(1) A liquidity pool on Saros contains 2 assets, A and B, for example. Liquidity providers will put those 2 assets into the pool at a 1:1 ratio, in return for LP tokens that represent the share of assets in that pool.
(2) Traders swap A for B.
(3) Saros will charge a small transaction fee and distribute a portion to Liquidity Providers and a portion to the Saros Treasury.
(4) Besides, Liquidity Providers can use LP tokens to participate in Yield Farming programs on SarosFarm.
The difference between SarosSwap and other competitors:
Compared to other competitors on Solana, Saros stands out for its permissionless feature that allows other projects on Solana to create liquidity pools easily. At the same time, Saros develops a whole ecosystem around its AMM to help attract new protocols and users.
In the technical aspect, Saros implements a simple formula x*y=k like the majority of existing AMMs. Nonetheless, Saros focuses on developing UI/UX and Gamification to become exceptional.
SarosFarm
SarosFarm is the Yield Farming program on Saros that supports other projects to attract and bootstrap initial liquidity.
- With newly released projects, liquidity is always the first priority. SarosFarm is an Incentive program that aims to eliminate any difficulties.
- With users, SarosFarm offers more options for Liquidity Providers to choose from.
The work process of SarosFarm:
(1) Users provide liquidity on Saros and receive LP tokens.
(2) Users stake those LP tokens into SarosFarm. Over time, they will receive rewards from Saros Incentives or its cooperative projects.
SarosStake
SarosStake allows users to stake SAROS to receive other tokens - a similar model to SyrupPool on PancakeSwap. SarosStake will create more use cases for the SAROS token, thereby increasing the buy demand for SAROS.
The work process of SarosStake:
(1) Projects apply to SarosStake.
(2) Users Stake SAROS in SarosStake pools.
(3) Over time, users will earn free tokens either in SAROS or other tokens.
SarosStake is an indispensable puzzle to finish the ecosystem of Saros Finance. Nonetheless, there is no doubt that Saros has no intention of stopping at this product, as its main objective is a comprehensive DeFi suite. More products will be released in the future to support users and grow the DeFi ecosystem on Solana.
How Saros captures the value for its native token
There are currently 4 main use cases for SAROS:
- Earn Fees.
- Govern.
- Airdrop.
- Gamification.
Saros Finance Flywheel
The Flywheel of Saros Finance will happen as follows:
(1) Saros develops a permissionless AMM and Liquidity Mining programs to draw attention from projects and Liquidity Providers.
(2) Rich liquidity along with multiple assets supported will help Saros gain more users. Besides, Saros will also develop Gamification products in the future to attract even more users.
(3) When a flawless ecosystem is formed with a massive user base, high liquidity, numerous Incentive and Gamification programs,... Saros will be the go-to place for every protocol.
(4) More projects being developed on Saros ⇒ More users ⇒ Higher Trading Volume and Liquidity ⇒ Create a Snowball loop, growing gradually.
Investment Opportunities with Saros Finance
Currently, there are various ways to involve in the Saros ecosystem:
- Testing Saros products: Saros has not made any official announcement on its products and tokens. You can test its products to possibly receive retroactive rewards.
- Participating in Liquidity Mining programs: Early Liquidity Mining programs often offer extremely appealing APYs, so you can take advantage of those opportunities.
- Join Staking programs from SarosStake: You can stake SAROS to receive other tokens at 0 costs.
Conclusion
In general, regardless of the recent tremendous growth of the Solana ecosystem, there still exists a variety of weaknesses remaining unsolved. Saros Finance is a completely suitable lego that is able to tackle those problems, hence contributing to further growth of Solana in the future.
What do you think about Saros Finance? Is this really the puzzle that Solana needs? Share your thoughts on Saros Finance in the comment section below!
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