Metrics Ventures Research Report: Is Jupiter an Amplifier for Investing in Solana?

Author: @charlotte0211z, Metrics Ventures

1 Jupiter: A Leveraged Asset for the Solana Ecosystem

1.1 Will Solana Become the "Ethereum Killer"?

Solana is revitalizing itself after the FTX collapse, becoming a leader in the cryptocurrency market in the fourth quarter of 2023. In 2024, it continues to ignite market sentiment with ecological airdrops and high multiples of MEME tokens, positioning itself as the top contender for the title of "Ethereum Killer." We will review the growth of the Solana ecosystem from the perspectives of data, market sentiment, and ecological prosperity, explaining why the importance of positioning within the Solana ecosystem should be significantly elevated during this cycle.

Various metrics for Solana are rapidly soaring. Solana's TVL began to grow rapidly in the fourth quarter of 2023, skyrocketing from approximately $500M on October 1, 2023, to nearly $8B recently, marking a 1500% increase over two quarters and approaching the peak of $12B in November 2021. DEX trading volume, influenced by MEME tokens, is also increasing rapidly, with trading volume surpassing $3.8B on March 16, setting a new historical high. The proportion of DEX trading volume is growing quickly, nearing Ethereum and even briefly surpassing it; in terms of token performance, Solana's token price has been on a strong upward trajectory since October 2023, approaching a peak of $250, with a total market capitalization exceeding the peak of the last bull market.

(Chart showing Solana's TVL over time, source: DeFiLlama)

(Chart showing Solana's DEX trading volume over time, source: DeFiLlama)

(Chart showing DEX Volume Dominance of various public chains over time, source: DeFiLlama)

(Chart showing Solana's total market capitalization over time, source: Coingecko)

From the perspectives of ecology and market sentiment, the reasons for the rapid growth of the Solana ecosystem and the significant room for further increase include the following points:

• Solana has overcome the negative impact of the FTX incident: With the conclusion of SBF's trial, the FTX collapse has essentially come to an end. From the perspective of the Solana ecosystem, Solana has gradually emerged from the low point of the FTX incident. Whether in terms of ecological development, investor sentiment, or market sentiment, the negative impact of the FTX incident on Solana has dissipated. According to reports from The Block citing informed sources, the 41 million SOL locked by FTX has attracted multiple buyers, and the market has a high demand for acquiring SOL tokens, providing positive indicators for Solana's future growth expectations from both a financial and institutional sentiment perspective.
• Solana has become the main battleground for DePIN projects, with multiple ecological projects about to launch tokens: Solana, with its low fees and high performance, has become the primary ecosystem for carrying the DePIN narrative. In addition to leading DePIN projects like Helium, Shadow, and Hivemapper, many AI × DePIN projects have also chosen the Solana ecosystem, including io.net, Render, Grass, and Nosana. At the same time, several projects in the Solana ecosystem have yet to launch tokens, such as io.net and Magic Eden. Referencing JUP and JTO, the token launches and airdrops from these projects will continuously inject vitality into the Solana ecosystem.
• Solana has achieved product-market fit and may become the main interactive ecosystem for retail investors and new users in this cycle: Solana's high performance and extremely low transaction fees make it highly suitable for retail trading, lowering the barrier for new users. Ethereum's L1 transaction fees can reach tens or even hundreds of dollars during peak periods, and this figure is rising with the increase in ETH prices. L2 liquidity is fragmented, and the operational difficulty for new users has increased; additionally, the concept of Fair Launch has gained popularity among retail investors in this cycle. Retail investors generally believe that Ethereum has become the main battleground for VC, while Solana's strong support for MEME tokens has driven bottom-up market sentiment. Simple operations, low-priced tokens, and wealth creation effects will be the main drivers attracting new retail investors.

In summary, whether from data performance, ecological prosperity, or market sentiment, the Solana ecosystem has demonstrated strong capabilities in recent events, showing a sustained growth ability and a logical path for growth during a bull market. Regardless of whether Solana is the "Ethereum Killer," from a positioning perspective, the Solana ecosystem deserves equal status with the Ethereum ecosystem, and in terms of growth potential, it may even be more aggressive.

1.2 Jupiter Will Resonantly Synchronize with Solana

As a liquidity infrastructure within the Solana ecosystem, Jupiter will resonate synchronously with Solana.

Firstly, on the Solana network, Jupiter guides approximately 50%-60% of the trading volume and over 80% of organic trading volume (removing trading bots). This means that for traders participating in the Solana ecosystem, the vast majority of trades, aside from those using trading bots, need to interact with Jupiter's frontend. With its position as a trading infrastructure and a massive customer capture, Jupiter has become one of the most important protocols in the Solana ecosystem. Additionally, as a DEX aggregator, Jupiter's importance to the Solana ecosystem is far greater than that of 1inch to Ethereum, as Solana is inherently more suitable for liquidity aggregators. A single trade split into multiple transactions incurs higher gas fees, which creates significant friction for Ethereum, where gas fees are already high, while the cost to users on Solana remains minimal. Therefore, in terms of trading volume, Jupiter is roughly comparable to Uniswap and even briefly surpassed it, both far exceeding other trading infrastructures; it can be said to be the Uniswap of the Solana ecosystem.

Secondly, Jupiter has launched Jupiter Start and Launchpad. Given Jupiter's significant capture of users and traffic within the Solana ecosystem, it is foreseeable that new projects in the Solana ecosystem will have a high binding with Jupiter, whether through the Jupiter Launchpad or direct airdrops to JUP holders. Jupiter will greatly benefit from the birth and growth of new projects in the Solana ecosystem.

In terms of token performance during this phase, the price growth of Jupiter and Solana has been largely synchronized. In the past month, JUP's increase has outpaced SOL, indicating that JUP will become a leveraged asset for SOL.

2 Fundamental Analysis: Top DEX Aggregator on Solana

Jupiter was launched in November 2021, and its products can be divided into two parts: trading infrastructure and LFG Launchpad. The trading infrastructure includes liquidity aggregation, limit orders, DCA (Dollar Cost Averaging), and Perps trading. This section will provide a brief introduction to Jupiter's products.

2.1 Liquidity Aggregation

Token prices can change rapidly, and the best prices for trades are not always found on a single DEX but may involve combinations of trades across multiple DEXs. As a liquidity aggregator, Jupiter finds the best price routes across all major DEXs and AMMs on Solana, maximizing the reduction of slippage and trading fees, making the trading process more efficient and user-friendly. The aggregator's operation mainly consists of two methods: Multi-hop routing and order splitting. Multi-hop refers to achieving better exchanges from token A to token B through an intermediary token C (A-C-B), while order splitting involves breaking a single trade into multiple trades completed on different DEXs.

Jupiter currently uses a routing algorithm called Metis, designed to provide optimal price routing within Solana's fast block times. Compared to V1 and V2, Metis offers more flexible and complex trading paths, resulting in better price discovery. Additionally, the Metis algorithm increases the number of DEXs that can be supported and shows stronger quoting capabilities for large trades. According to official data from Jupiter, Metis's quoting capability is, on average, 5.22% higher than that of the V2 engine, and the improvement increases rapidly with the trade amount.

Currently, the Jupiter aggregator does not charge users, primarily serving as the frontend for user trading, which has attracted the attention and traffic of users in the Solana ecosystem, making it very suitable for launching Launchpad services. However, it is important to note that during the last Solana MEME craze, Jupiter's position as a trading frontend was impacted by trading bots. On one hand, trading bots offer a more user-friendly operation and come equipped with features like sniping and token information queries, which are inherently suited for MEME tokens. On the other hand, Jupiter's token pair updates cannot keep pace with the demands of MEME token launches, as they must meet certain liquidity requirements before being displayed on Jupiter.

2.2 Limit Orders

Jupiter provides users with limit order functionality, allowing for a trading experience similar to CEX, avoiding slippage caused by rapid on-chain price changes and issues like MEV. Similar to other on-chain limit order platforms, Jupiter's limit orders are not order book systems but are monitored by Keepers using the Jupiter Price API to execute trades when prices reach specified standards. Benefiting from Jupiter's liquidity aggregation feature, limit orders can also utilize multiple liquidity pairs on Solana to complete trades.

Currently, Jupiter supports trading between any token pairs, effectively providing a more convenient trading experience than CEX. Additionally, Jupiter collaborates with Birdeye and TradingView, with Birdeye providing on-chain price data and TradingView integrated into the frontend for more convenient chart data display for users. Jupiter currently charges a platform fee of 0.1%.

2.3 DCA

Jupiter DCA (Dollar Cost Averaging) is an investment plan that allows users to automatically buy or sell any Solana ecosystem token at regular intervals over a specified period. Jupiter DCA charges a platform fee of 0.1%, which will be collected each time a trade is executed. The DCA method is a very important basic strategy for both buying and selling, as accumulating tokens through regular investments can avoid sharp price fluctuations and achieve a relatively stable and average cost price over a period. DCA is also suitable for selling strategies during bull markets, and for large trades or tokens with low liquidity, users can choose to accumulate tokens over a period to reduce price impact.

2.4 Perps Trading

Perps trading operates based on liquidity provided by LPs and price data from the Pyth oracle and is currently in the Beta testing phase. The operational mechanism of Perps trading is similar to the GLP pool model of GMX, where LPs provide liquidity to the JLP pool. Contract traders can collateralize various Solana assets and choose leverage multiples from 1.1x to 100x, borrowing the corresponding liquidity from the JLP pool (for example, to go long on SOL contracts, the trader must borrow the corresponding amount of SOL according to the leverage multiple, while shorting SOL requires borrowing stablecoins). Upon closing the position, traders realize profits or losses and return the remaining tokens to the JLP pool. For going long on SOL, if the trader profits, the amount of SOL held by the JLP pool decreases, while the trader's profit portion comes from the JLP pool.

Currently, the JLP pool supports five assets: SOL, ETH, WBTC, USDC, and USDT. The JLP pool will receive 70% of the exchange's revenue, which includes trading fees for opening and closing positions, as well as interest fees for borrowing (the relevant fee standards are shown in the table below). Currently, the TVL of the JLP pool is $331,384,506.56, with the corresponding asset proportions shown in the figure below.

2.5 LFG Launchpad

Jupiter launched the Beta version of the Launchpad in January 2024 and has completed the token issuance for JUP, WEN, and ZEUS. The participants in the Launchpad are mainly divided into three groups: project parties, the JUP community, and users purchasing tokens.

For project parties, Jupiter is the largest traffic entry point on Solana. Choosing Jupiter as a launchpad will greatly capture users in the Solana ecosystem. Additionally, participating projects in the Launchpad need to provide a certain amount of tokens (generally 1% of the total tokens) to incentivize the JUP community and team.

The JUP community consists of voters who own and stake JUP, deciding the next project to launch on Jupiter through voting and receiving corresponding rewards. In terms of voting rules, users must lock a certain amount of JUP to obtain corresponding voting rights. There is no minimum token requirement for voting, but each wallet can only vote to support one project. Tokens can be unlocked after 30 days, and during the countdown to unlocking, users can still vote, but their voting rights will be proportionally reduced. After voting, the two projects that will launch on Jupiter are Zeus Network and Sharky. For JUP holders, the benefits of choosing to stake and vote include:

• Launchpad project airdrops: For example, Zeus Network announced an airdrop to 181,889 addresses that participated in voting for the Jupiter LFG Launchpad. To attract JUP votes, it is likely that projects will airdrop to voters;
• Jupiter governance rewards: 100 million JUP and 75% of Launchpad fees will be used for governance incentives, with rewards distributed quarterly. This quarter's rewards will be 50 million JUP and the Launchpad fees for this quarter, with the remaining 50 million JUP to be awarded in the next quarter. The Launchpad fees are 0.75% of the total token supply paid to the JUP DAO.

For token purchasers, the JUP Launchpad adopts a DLMM (Dynamic Liquidity Market Maker) model for token sales. The DLMM model subdivides a price range into multiple discrete price intervals, with the team primarily providing liquidity for the token while users provide USDC liquidity, completing the token sale in this process. Additionally, to reduce the impact of complex mechanisms on users, Jupiter still offers DCA and limit order functionalities, allowing users to complete token purchases during the sale period based on suitable strategies.

Currently, the first unofficial project of the Jupiter Launchpad, Zeus Network, is on sale, with the launch price range for ZEUS being $0.3-$0.85, reaching a maximum price of $1.11, and the current price is $0.83 (as of April 11). At this price, the total value of airdrops received by JUP voters amounts to $8,300,000 (1% ZEUS). Furthermore, among the issued JUP and WEN, the vast majority of participants have achieved returns of over three times:

2.6 Summary

Based on the above analysis, we believe that Jupiter has the following advantages in its products:

• Jupiter provides a complete set of basic tools for trading, creating an excellent user trading experience: from the most basic spot and Perps trading to DCA and limit orders, it offers almost all necessary basic functions for users. Additionally, benefiting from liquidity aggregation, DCA and limit orders connect to a broader liquidity pool.
• The development direction from trading infrastructure to Launchpad business is reasonable: the trading infrastructure captures a large number of users, making Jupiter the traffic center of Solana, which naturally aligns with the needs of the Launchpad. Various trading functions also lower the barriers for users to participate in token sales; the Launchpad functionality deepens Jupiter's binding with the Solana ecosystem, reinforcing Jupiter's infrastructure and leading position while enhancing the token empowerment of JUP.

3 Token Economics and Financial Analysis

3.1 Token Economics Analysis

Jupiter has a total supply of 10 billion tokens, with the distribution as follows: the Jupiter team will manage 50% of the tokens, while the remaining 50% will be allocated to the community.

Among the 50% of tokens allocated to the team, 20% will be distributed to team members, but distribution will not begin until two years later. Another 20% will go into strategic reserves, stored in the 4/7 Team Cold Multisig wallet, with these tokens locked for at least one year. Any liquidity events must be announced to the community at least six months in advance. The remaining 10% of JUP tokens will be used for liquidity provision and stored in the Team Hot Multisig wallet.

In the 50% of tokens allocated to the community, 40% will be distributed through four separate airdrops, which will occur on January 31 each year, while the remaining 10% will be provided to community contributors through grants.

In the Genesis issuance, a total of 1.35 billion (13.5%) tokens entered circulation, including a 10% separate airdrop (1 billion), 250 million tokens allocated to the Launchpad, 50 million as loans for market makers, and 50 million for liquidity provision.

Therefore, according to the token supply plan, there will be no large-scale unlocks of JUP before 2025. The 50% of tokens allocated to the team will not unlock in the next year, and any unlock will be communicated to the community six months in advance. The next large-scale unlock will come from the 1 billion airdrop on January 30, 2025.

In terms of token empowerment, the main current uses are for staking votes to obtain governance incentives and airdrops from Launchpad projects. As of April 4, 2024, a total of 269,290,321 JUP have been staked, accounting for approximately 20% of the current circulating supply. However, it is worth noting that Jupiter's founder, Meow, stated in a Reddit AMA that the design purpose of the JUP token is not for utility, believing that the price growth of JUP will come from value rather than actual utility.

3.2 Financial Analysis

JUP's market capitalization is $2,101,677,968, with an FDV of $15,567,984,945 (as of April 11). Due to the absence of large-scale unlocks in the next year, the market capitalization holds stronger reference significance than the FDV.

JUP's trading is primarily concentrated on Binance, followed by OKX, Bybit, and Gate. According to trading data on Binance, JUP has maintained a price around 0.5 for an extended period, completing a large volume of turnover in the 0.5-0.7 price range, which has become a strong support level. After consolidating for two months, JUP's price began to break through the bottom cost range and has now entered a new price range.

4 Competitive Analysis: Who is the Best Leveraged Asset in Solana?

As a trading aggregator, Jupiter occupies a unique position in the Solana ecosystem. With its unique functionality and significant trading volume capture, there is currently no trading protocol in the Solana ecosystem that can directly compete with Jupiter. Therefore, we need to consider whether JUP is a good choice if one needs to select a leveraged asset in the Solana ecosystem.

There are many options for leveraged exposure to the Solana ecosystem: infrastructure (like JUP), leading MEME tokens (like WIF), and other ecological projects (such as AI and DePIN projects), but the returns from different categories vary. MEME tokens have stronger uncertainty, while other ecological projects are more closely related to their own narratives (for example, RNDR will benefit from the growth of the AI narrative rather than the growth of the Solana ecosystem). Therefore, the projects that resonate most with Solana are infrastructure protocols within the Solana ecosystem, such as trading infrastructure (Raydium/Orca/Jupiter), liquidity staking protocols (Jito), and oracles (Pyth). Compared to these projects, Jupiter's advantages mainly lie in:

• From a fundamental business perspective, Jupiter captures more users and traffic from the Solana ecosystem. Among all businesses, the most basic need for users is trading, especially as the Solana ecosystem has recently focused on Memecoins, further emphasizing the importance of trading. Given Jupiter's monopolistic position as the trading frontend on Solana, users entering the Solana ecosystem will naturally become Jupiter users, making Jupiter the first stop for users in the Solana ecosystem, establishing the strongest and most direct binding relationship with Solana and representing the ecosystem most strongly.
• In terms of new ecological airdrops, Jupiter's launchpad functionality allows JUP holders to receive airdrop rewards from new projects, while Raydium/Orca and Jito have yet to demonstrate strong competitiveness in this area. Projects that can also capture potential airdrops include Pyth, with multiple projects already providing airdrop rewards to Pyth stakers (such as Wormhole). It is essential to continuously monitor the progress of Jupiter's launchpad and the wealth creation effects of the tokens released. If Jupiter leverages its traffic advantage to attract many quality projects for launch, JUP holders will achieve higher returns and capture more value from new projects in the Solana ecosystem.

5 Conclusion

Jupiter is regarded by many as the Uniswap and golden shovel of the Solana ecosystem due to its trading entry and Launchpad functionality, with JUP seen as the BNB. Based on the analysis above, we believe that Jupiter's bullish advantages include:

• A complete product matrix related to trading has been built, significantly enhancing the user trading experience. Jupiter's trading volume is rapidly increasing, making it the second-largest trading infrastructure after Uniswap.
• Backed by the strong traffic and user base captured by Jupiter, it has established a Launchpad that will capture more value from new projects in the Solana ecosystem and provide numerous airdrop rewards for JUP token stakers. The projects launched so far have all performed well in terms of price.
• Financially, the JUP token will not face large-scale unlocks and sell pressure in the next three quarters, and the chip structure is relatively stable. In terms of price performance, JUP has emerged from the bottom cost range and entered a new growth space.
• Jupiter can be seen as a leveraged asset for Solana due to its close ties with the Solana ecosystem. Solana will be as important as Ethereum in this cycle, and with Solana's market capitalization reaching new highs, a better way to go long on Solana may be to choose JUP as an amplifier.

The risks associated with Jupiter may include:

• The growth of the Solana ecosystem not meeting expectations;
• A large number of trading bots or improvements in other trading frontends challenging Jupiter's position as the primary trading entry;
• The JUP token lacking utility, potentially hindering price growth;
• The effectiveness of the Jupiter Launchpad (including the number, quality, and wealth creation effects of projects) not meeting expectations.