Pumpfun, a Solana-based platform, is reportedly testing its own automated market maker (AMM) on a private testnet without any official statements. This development could significantly alter the memecoin and microcap token market on Solana.
What is Pumpfun's AMM?
An automated market maker (AMM) allows users to trade cryptocurrencies directly against liquidity pools. Currently, when a memecoin on Pumpfun gains traction, it moves to Raydium for continued trading activity. With an in-house AMM, Pumpfun could retain liquidity within its ecosystem and generate more trading fees. Opportunities include introducing new financial products like memecoin perpetuals and lending, which might significantly impact Raydium's trading volume and market dominance.
Risks for Raydium Business
Integrating its own AMM could eliminate the need for new tokens to migrate to Raydium for liquidity, allowing Pumpfun to control liquidity pools and potentially charge higher fees. Estimates suggest Raydium's trading volumes could drop by 30-50% if Pumpfun implements its AMM. Analysts suggest Pumpfun could charge higher fees, potentially increasing its revenues. For instance, Shoal Research founder Gabriel Tramble commented that 'traders are used to paying high fees,' suggesting acceptance of potentially increased charges if the new AMM enhances trading experiences.
New Features or New Risks?
While Pumpfun's AMM could introduce new trading features, it may also come with heightened risks of security and regulatory scrutiny. Potential features include meme token perpetual contracts, lending pools, and customized reward mechanisms for liquidity providers. However, risks involve scams, flash loan attacks, and protocol vulnerabilities. Recent associations of Pumpfun with the $1.4 billion Bybit hack highlight pressing security concerns.
Solana is becoming a battleground for memecoin liquidity, and Pumpfun's AMM could radically transform the space. If successful, other Solana DEXs like Raydium, Orca, and Drift Protocol may have to adapt to the new reality.
