The Perpetual SOL Rise

Solana has received sizable investor attention over the last quarter. SOL is up 50% over the last 30 days and nearly 500% over the last 90 days vs USD (24% and 249% vs ETH, respectively). In many respects, the price discovery has been healthily fueled across various sectors - a $100M gaming fund announced, Brave announcing native integration on the web3 front, $100M investment from Reddit for Social Media, $40M raised by Neon Labs to bring EVM infrastructure over, pplpleasr launching NFTs on Solana, FTX building out an NFT integration, and, of course, there’s Solana’s DeFi ecosystem that has seen a 4x TVL expansion since September.

While Solana has certainly had many growth catalysts develop recently, how has the ecosystem executed on narratives from earlier this year? One, in particular, was Solana’s potential as a network that could support high-volume trading activity. Perhaps influenced by the specialties of some of the largest investors in the ecosystem including Alameda and Jump Capital to name a few. Solana now has a relatively higher concentration of derivative-focused protocols compared to other ecosystems.

Let’s peel back this narrative and zoom in to Solana protocols focused on offering one of Crypto’s favorite trading products - perpetuals.

For some light background, perpetuals are a futures derivative product which don’t require rolling of contracts - just the single product provides ongoing future exposure to a particular market. It’s a simple way for traders to get leveraged futures exposure to an asset without the inefficiencies of having to actually acquire the underlying asset. As such it is by far the most heavily traded product in crypto. Centralized exchanges (CEXs) did $2.7T in perpetual notional volume in October in just the BTC and ETH markets alone while all of the CEX spot markets did $1.25T in volume.

Decentralized exchange (DEX) perpetual markets still lag spot volumes. In the last 24hrs for example dYdX, the leading DEX perpetual protocol, has done nearly $3B in volume while all of the DEX spot markets have facilitated over $7.5B. The largest protocols in the sector are dYdX (starkware), Perpetual Protocol (xDAI - soon to be Arbitrum), MCDEX (Arbitrum and BSC), and of course the Solana ecosystem: Mango Markets, Drift Protocol, and Bonfida all offering perpetual products.

dYdX currently dominates the DEX market volume with over 97% of the 7-day volume. If you have a magnifying glass handy, you may be able to see the collective 0.8% volume-share the Solana ecosystem has garnered so far. Without jest, it’s important to understand this chart and just how fast dYdX was able to attract significant volume once it launched its token and incentive rewards. At the start of August, Perpetual Protocol was the dominant protocol with 74% of the $100M to $150M daily volume. Once dYdX announced their token on August 3rd, the game changed. Daily DEX volumes immediately more than doubled to $300M - $500M consistently throughout August and dYdX found itself contributing on average 78% of the volume in the second half of the month. When the token and liquidity incentives went live in early September, there was no looking back as volumes expanded to consistently over $2 billion a day with dYdX accounting for +90% of it.