Crypto-trading infrastructure Project Serum injecting new KYC, customisation features
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A decentralised trading project built on Solana will be adding new compliance features aimed at gaining adoption from institutional users, its core developer says.
Project Serum will create a permissioned order book that will limit trading to parties that have passed know-your-customer (KYC) requirements, the developer known as JHL told Australian Blockchain Week on Tuesday.
“So if a big institutional trading firm wants to get on Serum, but they’re concerned that they only want to trade against counterparties that have a certain level of compliance or KYC, they can trade on this permissioned order book.
“Everyone on this order book will have to pass KYC from one of our partners, and in this way we can actually foster institutional trading users on Serum.”
DeFi is growing fast, but still has a lot of room to grow when it comes to institutional adoption, JHL noted. A lack of compliance features like KYC is one reason why.
Unlike most Ethereum-based decentralised exchanges, Serum leverages the high performance of Solana to offer users a traditional order book. But users don’t trade directly on Serum – it’s just a contract that sits on the Solana blockchain.
“Because of that anyone can build a user interface for it,” JHL explained. “Anyone can create a website and plug that website into a contract that Serum posts on the blockchain and interact with Serum in that manner.”
Serum offers “rebates,” or a slice of trading fees, to these exchanges using their order book.
“So in that way, we think it creates a competitive environment for people to create new trading interfaces for Serum and will be rewarded for doing so,” JHL said.
“That’s a key component of what we see as part of Serum’s long-term success.”
Project Serum also allows users to create new financial primitives and add them to leading exchanges in a completely permissonless way, he said. For example, one project has created “power perpetuals” that offer a specific type of leveraged exposure to crypto.
“All these sort of exotic products that anyone wants to create, they can go on Serum and create them, which is really cool, right? You can’t just go on Binance and say, hey, I want to create this new product, so I’m going to go on Binance and leverage your existing financial infrastructure and launch a product — but on Serum, you can.
“And that’s what we see as Serum’s core value-adds as.”
The expectation is that projects will be composing on each other using Serum to create a vibrant ecosystem, he said.
A new functionality known as Serum Core will allow developers to implant custom functionality within the order book whenever an order executes, he said.
The automated market model used by Uniswap and other leading-based Ethereum exchanges involves users trading against “liquidity pools” generally consisting of two types of tokens (for example, Ethereum and the stablecoin USDC).
But this model only works for spot trading, and become very complex when it comes auctions, prediction markets or options, JHL said.
“Order books work out of the box, not just for spot markets but all these kind of exotic derivatives as well. You don’t need to change the underlying mechanics needed for the order book to support these.”