Decentralized Exchange Liquidity Hub in the Solana Ecosystem: Jupiter's Diversified Strategy

Overview

Jupiter, as a transaction aggregator on the Solana network, has become the dominant DeFi infrastructure on the chain. As of mid-January 2024, this aggregator platform has aggregated over 50% of Solana’s total transaction volume, making it the preferred entry point for user trading. The project has not publicly disclosed funding information; it was founded in May 2021 by core founders Meow and Ben Chow, who are also key members of the liquidity platform Meteora.

Against the backdrop of gradually saturated transaction aggregation business, Jupiter has begun implementing a diversification strategy, launching the project startup platform Jupiter Start and the incubation ecosystem Jupiter Labs, aiming to establish a broader influence within the Solana ecosystem.

Jupiter’s Core Competitive Advantages: Why Dominating the Aggregation Market

User Experience and Interface Design Advantages

Major DEXs on Solana include Orca, with the deepest liquidity; Raydium, with the most trading pairs; and emerging platforms like Phoenix and Lifinity. However, these DEXs have obvious gaps in user interface and trading experience.

Taking Orca as an example, its trading method uses a Buy/Sell selection with quantity input, which is inconsistent with traditional exchange interaction habits. In contrast, Jupiter adopts a clean design similar to 1inch, allowing users to directly input trading pairs and amounts, with the system automatically matching the optimal swap route. Although this design difference may seem minor, it creates a significant user stickiness advantage in practice.

Aggregation Efficiency Data Proof

The benefits of transaction aggregation become even more apparent during large trades. For example, exchanging 1 million USDC for SOL on a single DEX results in approximately 1.22% slippage loss, whereas using Jupiter aggregator can reduce this loss to 0.4%, a decrease of 0.8 percentage points. This cost optimization is especially attractive to large traders and arbitrageurs.

Currently, Jupiter supports trading functions from 29 applications, with the top five liquidity sources (Orca, Raydium, Phoenix, Lifinity, Meteora) contributing nearly 90% of the trading volume.

Market Dominance at the Data Layer

According to on-chain data, in November and December 2023, the total DEX trading volume on Solana was $8 billion and $28 billion, respectively. During the same period, Jupiter’s aggregated trading volume reached $3.9 billion and $17 billion, accounting for approximately 49% and 61%. The 24-hour trading volume remains stable around $46 million, indicating that most Solana users have developed the habit of using Jupiter first rather than directly accessing DEX frontends.

Product Matrix: Vertical and Horizontal Extensions

Basic Trading Functions

Transaction aggregation is Jupiter’s core business. Users can customize parameters such as fees, slippage tolerance, and trading routes before trading. The system searches all connected DEXs for the best quote; for tokens existing only on specific DEXs, the aggregator can directly locate liquidity; for liquidity-split trading pairs, it optimizes prices through multi-path splitting.

Limit Order Function was officially launched in December 2022, avoiding price impact and MEV front-running risks caused by market volatility. Users can set order validity, exchange prices, and amounts, and receive corresponding tokens after partial fills. This feature integrates on-chain data from Birdeye and chart systems from TradingView, providing an experience close to centralized exchanges.

Dollar-Cost Averaging (DCA) allows users to set investment frequency from minutes to months and specify price ranges. The system performs a trade at each set interval (with a 2-30 second buffer to prevent MEV), then automatically closes the account and recovers funds. This is helpful for accumulating tokens at market bottoms or gradually releasing tokens with poor liquidity, but overall demand is limited. The protocol charges a fee of 0.1%.

Jupiter Start: A New Approach to Project Incubation

Jupiter Start is a professional startup platform launched by the protocol to protect investors while supporting new projects. Its process is divided into five stages:

Community Introduction Stage lasts one week, covering core information such as project philosophy and tokenomics, and opens community discussions.

Educational Phase involves qualified users gaining access to a dedicated area on the website, earning token rewards through reading materials and on-chain operations.

Pre-Launch Functionality allows users to trade via limit orders and DCA before liquidity is added.

Launchpad and Atlas are core features that have not yet been launched; the former will be key for project fundraising, while the latter’s functions are not yet detailed.

Given that Jupiter Labs projects need to issue their own tokens, projects on the Launchpad are likely to involve derivatives.

Jupiter Labs: A Testing Ground for Ecosystem Innovation

Jupiter Labs operates independently from the main protocol, and projects launched here will become independent DeFi protocols. Jupiter users and communities enjoy priority access and token incentives.

Perpetual Contract Products adopt a structure similar to GMX V1 and are already in use. Liquidity providers deposit funds converted into a basket of assets including BTC, ETH, SOL, USDC, and USDT, with higher weights for SOL and USDC. Traders establish leveraged positions using this pool without incurring slippage, only paying trading fees and borrowing costs (which fluctuate based on utilization).

Liquidity providers earn 70% of trading fees and all lending income but bear the risks of traders’ profits and token depreciation. The JLP token (corresponding to liquidity) has fluctuated around $1.8 since late 2023, with current TVL limited to under $50 million.

LSD Stablecoin Protocol XYZ has not yet launched. Its design is inspired by Lybra V1. Users can mint interest-free stablecoins SUSD by staking SOL, with the protocol distributing yields generated from staked Liquid Staking Tokens (LST(Liquid Staking Token)) to SUSD holders and governance token holders.

The innovation involves an interest rate arbitrage mechanism: when LST yields exceed SOL borrowing rates, the system borrows SOL by collateralizing LST in lending protocols and swaps back to LST, leveraging the cycle to maximize returns. To prevent frequent redemptions from causing shocks to borrowers, XYZ adopts a governance token redemption mechanism—when SUSD deviates from the $0.95–$1 range, partial redemptions are executed by burning governance tokens instead of directly redeeming LST.

This design protects borrowers but introduces new risks: if prices stay below $1 for a long time, governance token issuance pressure increases.

Economic Model and Governance

The total supply of JUP tokens is 10 billion, allocated as follows:

• 40% for airdrops (four rounds, with 10% in the first round)
• 20% for liquidity incentives and community building
• 40% for team and strategic reserves

The protocol commits to distributing 50% of the total supply to the community. The initial circulating supply is expected to be about 5% from liquidity injection plus 10% from the first airdrop, with an additional approximately 2% possibly unlocked later.

Specific functions of JUP have not been officially announced, but industry practice suggests that in the short term, it will mainly be used for DAO governance. In the medium term, Jupiter Labs’ new projects may airdrop tokens to JUP holders and offer early testing rights. In the long term, it may follow the 1inch model, distributing positive slippage benefits to stakers.

Market Position and Development Outlook

Industry Status

Jupiter has almost monopolized the Solana aggregator market, with future growth mainly depending on the transaction volume growth of the Solana chain itself. Currently, no competitors can match its user experience and market share.

After the FTX collapse, Mercurial Finance was shut down, and its previous token holders received a 20% allocation of Meteora. Since Meteora’s founders are also Meow and Ben Chow, Jupiter’s collaboration with Meteora helps consolidate liquidity within the ecosystem. Jupiter has launched token distribution on Meteora and incentivizes liquidity providers (distributing 10% of tokens before liquidity is added).

Key Risks

Code Security: Although audited by OtterSec (which has audited Solana, Aptos, Sui, Wormhole, etc.), there remains a risk of smart contract vulnerabilities.

Derivative Risks: Perpetual contracts are still in beta; risks such as oracle attacks and liquidity pool exhaustion cannot be ignored.

Complexity of XYZ Protocol: The interest rate arbitrage and governance token redemption mechanisms introduce additional systemic risks, especially under extreme market conditions.

Overall Evaluation

Through excellent user interface design and optimized transaction aggregation algorithms, Jupiter has become an indispensable infrastructure in the Solana ecosystem. The current ceiling for transaction aggregation business has been largely reached, but through horizontal expansion via Jupiter Start and Jupiter Labs, the protocol is building a broader DeFi landscape.

With a large user base and ample resources, the new startup platform is expected to attract high-quality projects; while experimental derivatives and stablecoin protocols are limited in innovation, they fill gaps in the Solana ecosystem and still hold considerable growth potential under Jupiter’s support. The upcoming launch of the Launchpad and the improvement of the governance token ecosystem warrant close attention.