Solana DeFi Re-enter :
A long-absent player in the crypto derivatives trading arena is set to reenter the stage as Solana decentralised finance (DeFi) stumbles through the wreckage of FTX.
On Friday, the second iteration of Drift, a Solana-based perpetual swaps trading protocol that handled billions of dollars in volume during the 2021–2022 bull run before collapsing during the Terra crash, will go live.
The Multicoin-backed Drift has more goals than only derivatives in version 2: It aims to serve as a one-stop cryptocurrency exchange for all the different transaction kinds that DeFi can provide. Many of those services are currently in short supply in the Solana ecosystem, so Drift’s return could be a plus.
When Drift relaunches, it will be seen whether its additional services can lift Solana DeFi out of its current funk. Since FTX’s demise, DEX trade volume has dropped 96% in a single month, the worst of any major chain.
But it will also reveal how eager the remaining traders are to put their faith in Drift. Only because it was among the first to collapse did the protocol survive most of the bear market.
Drift believes it will. The protocol’s team of over 20 people is now going for the redo, according to co-founder Cindy Leow, buoyed by the “patient” venture backers who helped it out of its first crisis and convinced that its novel liquidation tech – the method by which it automatically liquidates people who get margin called – is better than anyone’s.
A somewhat complicated technique for maintaining trades, including the purchasing, selling, and liquidating of the collateral of leveraged customers whose bets go wrong, is at the core of the redesign. It has always been crucial to limit slippage, or the difference between a trade’s projected price and the price it receives. During market volatility, when large liquidations are most likely to occur, enormous orders might severely miss their targets.
According to Leow, Drift’s revised execution system should reduce slippage for significant deals. For example, to fill buys and sells, v2 routes trades through three tiers of liquidity rather than depending simply on market-making companies (as centralised exchanges do) or “automated market makers” (AMM, DeFi’s code-based trading engines).
Market makers compete to fill orders in the first phase, known as a “just-in-time auction.” Drift’s AMM will accept a trade if they reject it. The protocol’s order book is waiting to fill customs when the price is favourable in the interim.
Compared to Drift’s initial configuration, which was essentially an AMM that handled all liquidations, this “liquidity trifecta” is a lot more complicated. However, the initial plan for liquidation failed. A symbolic “run on the bank” by highly leveraged traders cannibalised millions of dollars of user collateral as Drift v1 disintegrated amid May’s Terra-caused market collapse.
According to Leow, Drift obtained $15 million in short-term finance to reimburse its subscribers. Although she would not disclose the details or the source, she did say that Drift’s investors were involved. Although team developers promptly fixed the fault, the protocol remained inactive until mainnet testing for version 2 started in November.
It’s possible that Drift was mostly shielded from the instability that plagued other DeFi protocols due to the industry torpor that began in 2022. After FTX’s demise and a slew of vulnerabilities that took down well-known protocols like Mango Markets and Solend, it was just relaunched.
Leow remarked, “Seeing the attacks made us wait a little longer,” adding that programmers spent extra time testing the protocol in battle and adding functionality.
Drift v2 is positioned to benefit from the absence of rivalry. In addition to the trading of perpetual swaps, which was its initial focus, it promises to support spot trading, borrowing and lending, and asset pool staking.
“It’s bad that they’re down. We prefer being part of an ecosystem,” Leow stated about the rivals. The goal for us to construct, borrow, lend, and bake that into a permanent protocol wasn’t to be the only living one when we were building this, according to the author.
Perhaps more than Drift’s rivals, its platform choice poses an existential threat. The collapse of Sam Bankman-business Fried’s last month, particularly the passing of Alameda Research, a significant market maker and one of Drift’s venture funders, struck Solana DeFi the hardest. The entire ecosystem, including Drift, is currently low on liquidity.
One Drift v2 beta user, referring to the well-known DEX built on Arbitrum, remarked that on Drift v2, “you can’t just yet a 5-figure position market order as at GMX.” Low liquidity is one factor.
Leow claimed that Drift would eventually follow the traders’ lead if the technology could withstand the pressure. That indicates that Drift is staying with Solana for the time being.