Original Article Title: Solana Perpetual Powerhouses: An Overview of GMX-Solana, Jupiter, and Drift
Original Article Author: @castle_labs
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: This article analyzes the main derivatives protocols on Solana, including GMX-Solana, Jupiter Perps, and Drift, comparing their liquidity, trading volume, capital efficiency, and risk management. Jupiter and Drift have shown consistent growth but lower capital efficiency, while GMX-Solana boasts higher capital efficiency but less liquidity. As Solana introduces better functionality and incentives for the protocols, market competition will intensify, with the DEX to CEX derivatives trading volume ratio hitting an all-time high, benefiting Solana.

The following is the original content (slightly reorganized for better readability):

BitMEX introduced perpetual contracts in 2016, becoming a crucial part of the crypto derivatives market. Perpetual derivatives are futures contracts with no expiration date, meaning users are not liquidated until they add more margin. It allows users to go long or short on their chosen asset and offers optimal leverage opportunities to define their risk tolerance.

The on-chain derivatives market has evolved over the years, successfully aligning product-market fit, initially seen on Ethereum and then expanding to other ecosystems. In these ecosystems, Solana perpetual contracts have seen significant success, with @Jupiterexchange and @Driftprotocol becoming the primary trading platforms.

Recently, one of the most significant perpetual trading platforms on Arbitrum and Avalanche, GMX, has also launched on Solana, operating under the name @gmx_sol, marking another milestone in the maturing Solana DeFi ecosystem. This study will analyze the rapid growth of the perpetual contract ecosystem on Solana, focusing on the two major mainstream perpetual protocols on Solana, Jupiter and Drift, as well as the recent addition of the significant EVM-based perpetual protocol GMX to Solana.

1. Platform Overview

This section will compare how the above protocols operate, their key data, and product offerings.

1.1 GMX-Solana

GMX-Solana is a decentralized leveraged perpetual trading platform that has recently launched on Solana, continuing its leading trading product position in the EVM ecosystem.

GMX-Solana is a slightly modified version of GMX V2, specifically optimized for the Solana blockchain. Users can engage in leveraged trading, provide liquidity, and swap tokens. Upon its launch, it introduced a unique feature—the Trade-to-Mint mode, where traders receive GT tokens based on the transaction fees they pay. These GT tokens can be redeemed through the treasury for a stablecoin, offsetting users' trading costs.

The GT token's economic model is similar to Bitcoin: the more GT tokens in circulation, the higher their price, and the minting difficulty increases accordingly. Additionally, once the GT token's minted amount exceeds 82.53 million, GMX-Solana may conduct the GT token's Token Generation Event (TGE) with governance approval.

Liquidity providers can choose to provide liquidity to the Global Liquidity Vault (GLV) or the GM Pool.

The GLV consists of SOL/USDC and dynamically adjusts liquidity to support various synthetic markets based on SOL/USDC, while the GM is a standalone pool suitable for LPs looking to gain exposure to specific assets.

As of now, GMX-Solana's total trading volume has exceeded $2.4 billion, with a TVL of approximately $6.5 million.

1.2 Jupiter

Jupiter is a spot aggregator on Solana and one of the largest on-chain leveraged trading platforms, relying on its product Jupiter Perpetuals to provide perpetual contract trading services.

Similar to GMX-Solana, Jupiter adopts a pool-based design, where liquidity pools act as the counterparties to traders. In this design, when traders incur losses, the liquidity pool profits; and vice versa.

Jupiter allows traders to open positions with up to 100x leverage on major assets such as SOL, ETH, and wBTC. In the Jupiter perpetual contract, long positions are collateralized with the same asset as the index asset, while short positions are collateralized with stablecoins to ensure efficient settlement.

Liquidity providers supply liquidity through JLP, which operates similarly to GMX-Solana's GLV. JLP consists of five major assets: SOL, ETH, wBTC, USDC, and USDT.

Currently, the TVL of JLP is approximately $1.4 billion, equivalent to the total liquidity available for the Jupiter perpetual contract. The platform's total trading volume has exceeded $268 billion.

1.3 Drift

Drift is also one of the largest on-chain perpetual contract exchanges on Solana. Since the launch of the V2 version, the platform's TVL has approached $9 billion, with a total trading volume of $592 billion.

Drift offers leverage of up to 20x trading, while also supporting liquidity provision, spot trading, and a lending market.

Drift adopts a Hybrid Design, obtaining liquidity through multiple channels to ensure efficient trade execution, deep liquidity, and a proper profit and loss settlement mechanism.

Its liquidity sources include:

· Just-In-Time Auction (JIT): Managed by market makers (MMs) to match orders in a short-term auction style;

· On-chain Order Book: Managed by off-chain robots interacting with AMMs to provide liquidity for orders;

· Automated Market Makers: A liquidity pool containing various assets for trade matching.

Liquidity providers can offer liquidity to multiple channels, including Strategy Vaults, Insurance Funds, Lending Pools, and Backup AMM Liquidity (BAL). Among these, liquidity in the lending pool can be used not only for borrowing but also as collateral to open trading positions, attracting more traders to participate due to this flexibility.

In addition, Drift incentivizes traders through the FUEL token, where users earn FUEL by creating trading volume on the platform, which can then be converted into the platform's governance token $DRIFT.

2. Comparative Analysis

This section will cover all the above platforms and compare their KPIs.

To provide a good perpetual contract trading experience, a DEX needs to meet the following criteria:

· Low fees (opening/closing fees & swap fees)
· Excellent UI/UX (fast RPC and backend servers)
· Low-latency price oracle/anti-manipulation mechanism (to avoid malicious liquidation)
· High liquidity (reduce slippage)
· Convenient collateralization & multi-market support (to enhance trading flexibility)

2.1 GMX-Solana

· Fees: Opening/closing and swap fees are approximately 4-7 bps (0.04%-0.07%), with the specific rate depending on the market balance impact of the trading pair. Fees are lower if the trade improves market balance and higher if it exacerbates market imbalance. Currently, traders can also offset some fees through the GT token incentive.

· Oracle: Uses @Chainlink to provide price data.

· RPC Service: Utilizes @Heliuslabs, which is an industry standard.

· Market Support: Supports 25+ markets, including BTC, ETH, SOL, DOGE, etc., where users can trade both long and short and use various tokens as collateral (subject to pool liquidity).

2.2 Jupiter Perps

· Fees: Charges a fixed 6 bps (0.06%) transaction fee for opening/closing trades.

· UI/UX: Jupiter Perps is part of the Jupiter spot aggregator, with a user-friendly interface and easy operation.

· Market Support: Currently only supports SOL-PERP, ETH-PERP, WBTC-PERP, with limited tradable assets.

· Oracle: Similar to GMX-Solana, relies on external price oracles for data.

2.3 Drift

· UI/UX: Drift offers more advanced features compared to other platforms, making the interface relatively more complex.

· Fee: The fee rate ranges from 3bps to 10bps (0.03%-0.1%), with the specific rate depending on the user's tier (based on 30-day trading volume & the amount of $DRIFT staked in the Insurance Fund).

· Market Coverage: Offering 50+ perpetual contract trading pairs, far surpassing GMX-Solana and Jupiter Perps.

· Risk Management Mechanism: Drift categorizes perpetual contracts based on risk levels and determines which trading pairs can utilize the Insurance Fund to protect LPs from losses.

· Oracle: Adoption of price data provided by @PythNetwork and @Switchboardxyz.

3. Liquidity & Trading Volume

Liquidity is crucial for any perpetual contract exchange. With the growth of on-chain derivative markets, the liquidity and trading volume of these platforms continue to rise.

Perpetual Contract Protocol TVL on Solana

7-day TVL and trading volume moving average

Due to the significant differences in TVL and trading volume of these protocols, a better comparison metric is Capital Efficiency, typically measured by Trading Volume (24H) / TVL. This value reflects how efficiently a protocol's TVL is utilized on the exchange, indicating how much funds generate fees and liquidity provider rewards through trading. If capital is underutilized, the efficiency is low.

A higher value indicates higher liquidity efficiency of the protocol. Although this value fluctuates based on market conditions and trader interest, a Capital Efficiency above 1 is generally considered ideal.

Currently, GMX-Solana has a Capital Efficiency of around 0.59, while Jupiter and Drift are at 0.38 and 0.15, respectively. GMX has higher Capital Efficiency than Jupiter and Drift, partly due to its current lower liquidity.

Furthermore, when calculating Drift's Capital Efficiency, we excluded the platform's Strategic Vaults TVL, as the funds in these vaults may not directly participate in trading. However, these funds are still included in Drift's total TVL.

Note: To avoid data skew due to daily performance and market fluctuations, the above calculation uses the 7-day trading volume moving average / 7-day TVL moving average as the formula for capital efficiency.

7-Day TVL and Fee Moving Average

Another metric to analyze is Fee (24H) / TVL, calculated as the 7-day fee moving average / 7-day TVL moving average. This value indicates how much of the protocol's fees are generated through locked liquidity.

For GMX-Solana, this value is 0.0002, for Jupiter it is 0.00097, and for Drift it is 0.00003.

In this metric, Jupiter has the highest fee generation proportion compared to locked value.

3.1 GMX-Solana

GMX-Solana obtains liquidity from the GLV (Global Liquidity Vault) and the GM pool. The GLV pool is yield-optimized and rebalanced based on market conditions, with liquidity allocated according to demand. Not all markets source liquidity from GLV. In contrast, the GM pool is an isolated pool for users wishing to focus on specific assets. These pools earn fees through perpetual trading and spot markets. Currently, the GLV offers an APY of approximately 6%.

Most of the platform's active liquidity comes from the GLV as the APY for specific GM pools is much lower, typically in the range of 1-5%, with thinner liquidity.

Furthermore, due to insufficient liquidity, decreased trader interest, and market volatility, GMX-Solana has not been able to capture most on-chain trading volume on Solana.

GMX-Solana's TVL

GMX-Solana's Daily Trading Volume

3.2 Jupiter Perp

The liquidity of Jupiter Perp comes from the JLP token, which is an index fund consisting of SOL, ETH, wBTC, USDC, and USDT. JLP accrues value from the fees generated by Jupiter Perps. JLP is an excellent choice for liquidity providers as it offers flexibility to easily add or remove liquidity.

At the time of writing, JLP offers a 10% annualized yield.

Jupiter Perp TVL

3.3 Drift

Drift's liquidity comes from various channels as described in the overview section. As users can provide liquidity in different ways, the annualized yield varies for each method.

The platform offers a highest APY of 338% through Strategic Vaults managed by external parties. Other pools, including lending pools and insurance funds, offer a 10-15% APY.

LPs can also provide liquidity through BAL, where they automatically open positions against traders and earn fees from the market's funding rate. Moreover, 80% of the collected order fees are distributed to BAL providers, allowing them to achieve an annualized yield of 10-25%, depending on the market they provide liquidity for.

Drift Daily Trading Volume

4. Risk Management

Risk management is crucial in every perpetual contract exchange. Although risks associated with smart contracts still exist, an ideal risk management protocol should be able to efficiently settle positions in highly volatile market conditions and minimize damage to liquidity providers.

4.1 GMX-Solana

GMX-Solana has two types of markets: Fully Collateralized Markets and Synthetic Markets.

Each GMX-Solana market contains 3 tokens:

· Index Token

· Long Token

· Short Token

The Long and Short Tokens collectively support the market. The Long Token backs long positions, while the Short Token is typically a stablecoin that backs short positions.

The Index Token is the token users use to go long or short. However, it is worth noting that GMX-Solana also supports markets where only one token is collateralized, which may pose a risk to short positions.

When the Long Token and Index Token are the same, the market is fully collateralized, meaning that in highly volatile market conditions, traders' PnL settlements can occur rapidly. In Synthetic Markets, where the Long and Index Tokens are different, this may pose settlement issues during high volatility.

To ensure efficient PnL settlement, GMX-Solana employs an Auto-Deleveraging (ADL) mechanism, which partially or fully closes out certain profitable positions to maintain market solvency.

To manage risk, protect liquidity providers, and maintain pool balance, various fees are involved, including:

· Price Impact Fee: Fee paid when LPs or traders cause pool imbalance

· Dynamic Funding Fee: Fee paid by traders to LPs for borrowing assets from the liquidity pool

· Funding Fee: Fee incentivizing the other side of the market to trade in the opposite direction

These fees are crucial for incentivizing liquidity providers and protecting the exchange in times of solvency issues.

4.2 Jupiter Perps

Jupiter Perps operates similarly to GMX-Solana, with the only difference being that it does not allow for synthetic markets where the Long Backed Token differs from the Index Token. This further protects the exchange and positions to remain stable even during highly volatile conditions.

4.3 Drift

Drift takes a different approach as it employs a hybrid liquidity model. Drift utilizes an Insurance Fund to manage risk and efficiently maintain the exchange's solvency. The Insurance Fund accumulates funds from protocol revenue, liquidations, and trading fees. As BAL is an Automated Market Maker (AMM), LPs may be prevented from burning their shares in case of pool imbalance.

5. Current Status and Future Trends

Currently, the majority of derivative liquidity is concentrated on Solana, with the main contributors being Jupiter and Drift. As of now, Solana accounts for approximately 52% of the total on-chain derivative liquidity, around $27 billion out of a total liquidity of $52 billion.

7-Day Trading Volume: Solana Perpetual Contract Platform

Currently, Jupiter leads in trading volume for Solana perpetual contracts, followed by Drift. GMX-Solana still has a long way to go in challenging the current market incumbents.

DEX to CEX Futures Trading Volume, Source: The Block

The on-chain derivative market is experiencing unprecedented growth, with increasing competition between protocols that have introduced many excellent products. The DEX to CEX trading volume ratio is on the rise, currently around 7%, indicating significant room for future growth.

Top Ten Blockchains by 1-Month Trading Volume

Solana is the second-largest chain in terms of trading volume in the on-chain derivatives space. Hyperliquid lags far behind in trading volume compared to other chains. As the industry evolves and Solana protocols introduce better features and incentives, this gap will eventually narrow. Through the increased throughput enabled by the Firedancer validation client, the Solana protocol can achieve speeds and efficiency comparable to its competitors.

6. Conclusion

Jupiter and Drift have displayed a consistent growth pattern but lack capital efficiency. While GMX-Solana has a slight edge in capital efficiency, partly due to lower liquidity, it still needs to work hard to catch up.

Jupiter is driving simplicity through its JLP token, allowing LPs to buy and hold JLP to provide liquidity to the platform. While GMX and Jupiter follow similar patterns in handling transactions, they differ in their liquidity approach, with little similarity between GLV and JLP.

Drift offers an overcollateralized account for advanced traders seeking better risk allocation. It allows for lower leverage and focuses on risk management through incentive funds.

Currently, the DEX-to-CEX derivatives trading volume ratio is at an all-time high. As Solana is a key liquidity provider in the on-chain derivatives market, its ecosystem will benefit from the volume generated in this sector.

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