introduce
Solana DeFi is performing extremely well, with both total value locked (TVL) and daily DEX trading volume exceeding $4 billion. Led by premium DeFi 1.0 protocols such as Marinade, Phoenix, Jito, MarginFi, Kamino, BlazeStake, Solend, Jupiter, Meteora, Orca, Raydium, Lifinity, Sanctum, and Drift, the Solana DeFi team is firing on all cylinders. These teams have weathered the FTX crash, built through the troughs of the bear market, and are now in their harvest season.
However, the performance of new teams entering the Solana DeFi ecosystem has been somewhat lackluster, in part due to a lack of new narratives and fewer teams focusing on Solana’s new Only Maybe (OPOS) mechanism.
Now is the time to focus on new DeFi ideas and encourage more teams to build in the DeFi industry, thereby driving Solana’s economic activity.
This article attempts to present the top 10 topics, each with relevant ideas worth exploring. While we focus on Solana, some of the topics can be applied to other high-performance chains as well.
Source: Yash Agarwal
In this article we will discuss:
DeFi Stablecoin
LST, MEV and re-pledge
currency market
Interest rate derivative financial products
RWA and DeFi composability
Perpetual contracts and derivative financial products
DeFi infrastructure
MemeFi and Social DeFi
Protocols tend to become platforms
Interface (UX Aggregator)
Source: Yash Agarwal
Theme 1: DeFi stablecoin mechanisms will become more diverse
We need more DeFi native stablecoins as DeFi currencies to form liquidity pairs in DEX and lending projects. Primarily, their utility is driven by yield. . DeFi stablecoins lack utility as a medium of exchange (i.e. used for transactions).
Stablecoins or synthetic dollars can broadly be divided into the following categories:
1. Stable coins supported by fiat currencies, such as $USDC, $USDT and $EURC. M0 is another upcoming stablecoin player on Ethereum.
2. CDP stablecoins such as $DAI and $FRAX.
3. Stable coins supported by LST, including:
CDP structures such as Lybra’s $eUSD and Prisma’s $mkUSD.
Delta neutral projects like Ethena and Resolv Labs (UXD on Solana is a pioneer).
4. Stablecoins supported by RWA, such as $USDV, $USDY, $USDM and $ISC.
5. Perpetual DEXs that offer their synthetic versions, such as Synthetix ($sUSD) and Aevo ($aUSD).
6. Algorithmic stablecoins, such as Gyroscope, use segregated treasury reserves to reduce associated risks and implement dynamic stabilization mechanisms that utilize the diminishing bond curve for redemptions.
On Solana, two LST-backed stablecoins are emerging: MarginFi’s $YBX and Jupiter’s $SUSD, as well as very early-stage projects like Surge Finance.
Alpha suggestions for Builders:
Updated design mechanics: Drawing inspiration from Ethereum stablecoins.
Market Entry Strategy: Most stablecoins struggle with initial liquidity and traction; since the primary utility is yield, this can be an interesting play. For example, increasing $DAI’s Enhanced $DAI Savings Rate (EDSR) resulted in an increase in the circulating supply of $DAI, i.e. an increase in $DAI deposits of approximately $1.5 billion (approximately 30% of the total $DAI supply). $USDV provides yields to verified miners such as DeFi projects to increase circulation, which can then also provide rewards to their users (think how Arbritrum DAO provides $ARB to projects that distribute $ARB to their users).
The most popular Ethereum stablecoin, Ethena (with over $1.3 billion in circulation), is also coming to Solana. One could also build a "Solena" with Ethena-like mechanics but using $SOL. However, the CEX listing of Solana LST and the depth of the $SOL perpetual contract are a major hurdle, but will surely be reached slowly.
The case of on-chain foreign exchange (FX) market
The foreign exchange market is huge, with daily trading volume exceeding $6 trillion. The emergence of fiat-backed stablecoins with sufficient liquidity may pave the way for the on-chain spot foreign exchange market through order books and automated market makers (AMMs). Imagine merchants could accept payments in $USDX and instantly convert them to $YENX, routing transactions to multiple liquidity venues through Jupiter. Sooner or later, someone will build a spot FX trading platform on Solana.
Topic 2: (Re)Staking and LST – The Monetity of $SOL
Solana’s LST scene is now consolidated into three major players: Jito, Solblaze, and Marinade. Sanctum is another interesting player in the LST industry, solving the liquidity problem and building LST as a service. However, the number of LSTs is still very small, and more LSTs would also be good for network decentralization. Additionally, LST is a major contributor to DeFi, and increasing their deposit volume in lending, borrowing markets, or LP pools will increase the total on-chain value locked (TVL).
Alpha suggestions for Builders:
1. More LSTs: Supported by token issuance hype and incentives, there is still a chance for new LSTs to enter the market and capture significant LST market share. For example, Solblaze grew from $30,000 $SOL to $3 million $SOL in just 8 months by leveraging BLZE incentives and focusing on DeFi integration.
Another strategy is to follow new design mechanics. For example, follow the dual-token model of Frax Ether (over $1B TVL), which has two tokens:
$frxETH: pegged to Ethereum 1:1 and does not accumulate staking returns.
$sfrxETH: Accumulated staking income.
This enables higher yields on staked Ethereum while ensuring $frxETH has deep liquidity and full ecosystem integration. $frxETH also has a higher DeFi TVL due to Fraxlend integration and liquidity incentives compared to peers like $rETH.
2. Validators launching LST: As MEV and priority fees increase, we will likely see validators launching their own LST and sharing more rewards with stakers to attract stakers. Sanctum is a key project driving this change.
3. LST return maximizer: For example, Kamino Multiply offers a one-click treasury product designed for leveraged returns on LST through a cycle (stake LST and lend $SOL → stake $SOL for LST → repeat). This industry can have a large number of products (more on this later).
4. $SOL re-staking: Solana also has the opportunity to adopt a shared security/re-staking layer similar to Ethereum, allowing projects to further increase their returns through re-staking and access the best validators. Unlike Ethereum, Ethereum's AVS requires economically secure Rollup, application chain, and cross-chain bridge, while Solana has not yet adopted modularization.
However, this is still worth exploring, as AVS on Solana could be a Clockwork-style Keeper network, a Python-style application chain, or any network like DePIN that requires economic security and "$SOL alignment". Additionally, if the Rollapp/AppChain perspective on Solana is taken hold, the $SOL re-staking narrative could be huge!
5. Regarding MEV: Recently, Jito Labs suspended the mempool service provided by Jito Block Engine due to an increase in sandwich attacks. The decision has sparked mixed reactions within the community, with some appreciating Jito's proactive approach, while critics believe it could lead to side deals and the possible development of new, private mempools in response.
As DeFi activity increases, MEV will only increase, and projects (and LST) can take full advantage of this.
The amount of $SOL in LST is still unsatisfactory (<5%) compared to Ethereum, and this needs to be addressed. Overall, now is the time to increase the monetization of $SOL and ensure that increases in $SOL price are also captured by the DeFi ecosystem.
Topic 3: Next Generation Money Market
While core currency markets (lending) such as Solend ($300 million), MarginFi ($800 million) and Kamino ($1.1 billion) are already established, it is time to innovate on the design mechanisms to make them more efficient. For example, MarginFi still lacks eMode (a feature of Aave v3) that improves capital efficiency.
Focus on higher capital efficiency: As blue chip lenders, borrowers like MarginFi and Kamino consume their points and issue tokens; users will want higher capital efficiency, especially for the liquid staking market.
Alpha suggestions for Builders:
1. New design mechanisms: For example, some interesting mechanisms explored by the EVM project are:
Alchemix offers self-paying loans that allow you to leverage a range of tokens without the risk of liquidation.
Modular architectures such as Euler v2 are composed of ERC-4626 credit libraries (lending pools) connected through the Ethereum Vault Connector (EVC) contract. This also enables Builders to create and launch lending vaults with various configurations without permissions, such as selecting any collateral, selecting oracle settings TVL, interest rates, etc. This can create network effects and compound liquidity, as one vault’s market share can be used as collateral for any other vault within the Euler ecosystem.
Morpho Blue improves capital efficiency.
It doesn’t hurt to get inspired by upcoming Ethereum protocols and innovative designs. Better than just creating an Aave v3 branch.
2. Optimizer for existing money markets: Taking MarginFi’s $SOL market as an example, there is a considerable gap between lending and borrowing returns, and this situation applies to almost all markets. This is because of the liquidity pool mechanism and insufficient pool utilization, resulting in lower yields: [Supply rate = Borrowing rate * Utilization rate].
Source: Yash Agarwal
One possible solution is to build something like the Morpho Optimizer, where the liquidity provided is dynamically matched to peers as borrowers come and go (effectively 100% utilization). For matched liquidity, the lender’s rate of return is the same as the borrower’s rate: matched lenders do not share interest. In the event that liquidity is not matched, it will connect to the underlying lending pool, such as MarginFi or Kamino. Altitude is also a good reference. Flexlend and JuicerFi are great for building this.
Source: Yash Agarwal
3. Fixed-rate loans: Currently, most P2P lending protocols (such as MarginFi and Solend) follow floating (variable) interest rates. Low utilization rates lead to high interest rate spreads, essentially creating a banking system similar to TradFi, with high interest rate spreads. But with a pool as an intermediary. Fixed-rate loans are one way to solve this problem.
DeFi’s fixed rate market share is less than 1%, while TradFi’s fixed rate dominance is around 98%, due to several reasons:
Passive: The peer-to-pool model has no expiration date and therefore requires much less maintenance.
Lindy effect: Floating rates are battle-tested, leading to a Lindy effect like sticky TVL.
As the Delphi report points out, fixed-rate loans in DeFi still don’t exist. Yield protocol shutdown, Notional Finance's v2 shutdown (it started with $1B TVL and is now down to $17M) shows lack of demand. Notional Finance’s v3 launch moves to variable loans and leveraged vaults. Exactly Finance built some momentum and brought new ideas to the table, but usage was heavily incentivized by $OP incentives and native token emissions. Term Finance is another project worth keeping an eye on. A team that solves all the pain points (like maintaining a loan easily) and launches it with incentives can win over a potentially large market here.
Lulo Finance (the same team as Flexlend) has been trying to solve this problem on Solana but has yet to see any significant traction. While fixed rates have their problems and were "ahead of their time," it's worth exploring them.
4. Gearbox by Solana: Gearbox is a composable leverage protocol (leverage obtained through lending, but with ecosystem-wide integration). Solana is highly composable in nature and can be integrated with multiple protocols such as AMM and LST. Assuming a bullish market, more projects will launch high APY incentive programs that can be integrated into this protocol for leveraged liquidity staking.
Source: Yash Agarwal
A close idea could also be corporate debt, where companies generating revenue on-chain could start issuing bonds to raise capital. Think of it as revenue-based financing (RBF), but on-chain and fully transparent. This ensures that profitable on-chain companies raise funds without diluting their tokens.
Topic 4: Interest rate derivative financial products – an unknown industry
Interest rate derivatives (IRDs) are the second largest market after foreign exchange, with a nominal value of $450-600 trillion. Absolute number comparisons with TradFi may not be directly relevant. However, the emerging nature of the DeFi market, and Solana in particular, presents significant opportunities. In addition to generating money market (loans, borrowings) returns through asset management contracts, this can also facilitate the generation of organic returns.
Alpha suggestions for Builders:
Taking inspiration from TradFi, there are some interesting ideas to explore:
1. Interest rate swap for LST: This is a forward contract that usually allows parties to exchange a fixed rate for a floating rate and vice versa. In short, if you want a fixed staking rate, you sign an agreement with someone who is prepared to take the risk of a variable staking rate.
This will be very attractive to a new class of institutional and retail clients looking to gain DeFi exposure without much speculation. In TradFi, the swap is between two financial institutions, while in DeFi it will be peer-to-peer. People can choose to pay a fixed benefit or receive a fixed benefit. LSTs like $JitoSOL or $mSOL are the best target assets via Dividend Rate Swaps (SRS) as they are considered the “risk-free rate” of $SOL in DeFi.
2. ERC-4626 is the yield token vault standard on Ethereum, ensuring composability of all yield vaults with a TVL exceeding $10 billion. Building on Solana and ensuring its adoption may be key. This can open up a range of vault products, such as Sommelier.
3. Earnings Peeling (Pendle) for Solana: Earnings Peeling is a cash flow discounting game. Users can obtain a predictable rate of return on the future value of the instrument, while speculators can obtain future assets at a discount. It involves separating a bond's interest payments from its principal payments. Pendle’s revenue tokenization is an implementation of this.
Some examples of Solana earnings that can be traded include: Liquidity Staking $SOL, Lifinity earnings, Meteora Pool earnings, Kamino_Finance kTokens, and Solend Protocol’s $cTokens (yield deposit receipts).
An early-stage project called Exponent is exploring this direction, starting with MarginFi’s loan yield trading and then expanding to other yield derivatives. Solana DEX is also exploring "Pendle for Solana".
Topic 5: Making RWA and DeFi composable
As more RWA comes on-chain, especially liquid and yield-bearing assets like Treasury bonds. Logically, all RWAs are permissioned due to KYC and regulatory restrictions. However, Ondo’s launch of $USDY (a tokenized Treasury bond) and making it permissionless opens up a whole new design space. Ondo also demonstrated an interesting mechanism for tokenizing stocks that, if implemented correctly, could spark another wave of DeFi composability.
Alpha suggestions for Builders:
1. Token Scaling: There are many opportunities when it comes to RWA, especially leveraging token scaling. Our article delves into these details.
2. TradFi Giants: With giants like Franklin Templeton, BlackRock, and Fidelity looking to pilot RWA on Solana, this could unlock huge opportunities over the next 1-2 years. First, these can be permissioned, but building permissionless wrappers and more DeFi integrations (such as Flux Finance for lending) could be a significant opportunity. For example, holders may have the opportunity to earn higher yields by tokenizing U.S. Treasuries, offering them as collateral on the DeFi lending market, borrowing stablecoins, purchasing more Treasuries, and repeating the cycle.
BlackRock funds and $USDC could allegedly be combined.
Topic 6: The era of derivative financial products has arrived!
During the last bull market, structured products and on-chain derivative financial products (excluding perpetual contracts) were all the rage. Solana in particular saw DeFi Options Vault (DOV) TVL surge by more than $500 million ahead of the bear market across protocols like Ribbon, Katana, and Friktion. However, as the bull market returns and demand for yield increases, it's no surprise that these products are making a comeback.
Alpha suggestions for Builders:
1. Vertical perpetual contracts or prediction markets: Just like Parcl allows people to go long and short, people can build perpetual contracts for different market segments such as commodities. This is a highly category-creating game and Parcl is creating hype and amassing over $100 million in TVL.
2. Power Perpetual Contracts: This is an idea proposed by Paradigm in 2021 that didn’t really take off in the last cycle due to timing issues, but it’s worth a try in this cycle. Several protocols like Exponents are trying this on Berachain. Another adjacent idea is to explore perpetual options (think what perpetual contracts are to futures, this is to options), which was proposed by SBF.
3. Perpetual contract aggregator: Just like we have aggregators for lending and spot DEX, building a perpetual contract aggregator is a big enough opportunity despite the challenges posed by different design mechanisms. With the emergence of perpetual contract aggregators like Rage Trade and MUX, a similar trend may emerge with Solana, especially with designs like Flash and Jupiter.
4. Perpetual contracts on the Solana application chain: In the EVM world, most order book-based perpetual DEXs, especially ones like Aevo, dYdX and Hyperliquid, are transitioning to their own application chains. In the future, the Solana perpetual DEX can also build its own chain, which may provide several benefits:
Protected from any mainnet congestion
Provide users with an improved trading experience (transactions can be gas-free for traders)
In fact, Zeta is already starting to move in this direction.
5. Structured product: Build a product like Friktion. In fact, the Friktion code is still available for anyone to fork and use. An asset management protocol like Investin (a previous project by the Flash team) might also be a good idea for revival. Order books like Phoenix or Drift need to proactively provide liquidity, which can be achieved through market-making vaults. This ensures decentralized market making, otherwise all liquidity would be controlled by the market makers (we witnessed what happened with Alameda after the FTX crash).
6. On-chain options: Protocols like Ribbon, Ava, and Gravity Markets serve as examples of existing on-chain options trading platforms. One can also construct binary options like Decalls (i.e. price goes up or down), but it's important to gain traction and build a moat.
7. HXRO: As the basic layer of Solana’s derivative financial products and liquidity staking, builders can build on the following basis:
Dexterity, Hxro's derivatives financial product protocol, provides the basic building blocks of derivatives financial products (whether it is a traditional DEX interface, advanced trading terminal, API, etc.), providing on-chain expiration, perpetual and zero-day expiration futures and other Margin-based derivatives markets provide all necessary risk and exchange infrastructure.
Hxro's Parimutuel protocol is the backbone of on-chain betting applications, enabling event betting with continuous liquidity through the network's "smart" AMM. The protocol can support various on-chain betting markets for gaming, sports betting, cryptocurrencies and other active markets.
Topic 7: Building infrastructure and tools for DeFi protocols
With many billion-dollar DeFi protocols emerging on Solana, now is the perfect time to build the infrastructure and tools for these DeFi protocols.
Alpha suggestions for Builders:
1. OEV: A subset of MEV, Oracle Extractable Value (OEV) is when an application relies on Oracle updates so that arbitrageurs or liquidators can exploit this state inconsistency. As mentioned by Multicoin, there is an opportunity for applications to capture OEV.
2. DeFi Infrastructure as a Service: Several protocols like Aave and Compound have been forked many times; the same is true for Solana, where the protocol forked the reference implementation of Solana Lab. There are considerable costs in terms of development, auditing and maintenance. It is possible to standardize and build a sustainable development company that provides a "plug-and-play DeFi protocol" - it can also be regarded as the "Metaplex of DeFi". Rari Capital (now defunct) had a similar vision and Vault infrastructure created. One result is building ERC-4626 equivalent infrastructure for Solana and taking advantage of Solana’s yield hype by servicing DeFi projects.
3. Risk Management Organization: This can be structured as a risk DAO or advisory committee to conduct research and risk analysis for DeFi protocols. These entities can publish public “risk analysis dashboards” with key indicators of the Solana ecosystem and provide paid research, risk assessment frameworks, and risk rating services to DeFi projects.
4. Bribing aggregators or markets: In EVM, Curve Finance lets its token holders decide how much token incentive to allocate to each of their pools. This creates a dynamic where projects "bribe" token holders to vote for pools containing their tokens. Votium Protocol aggregates these bribes and automatically represents the voting power of token holders to maximize the incentives received. Having an aggregator makes it easier to coordinate activities between bribers and voters and leads to greater market efficiency. On Solana, this can be applied to:
LST transfers equity directly to validators through governance tokens.
Jupiter LFG Launchpad, projects can bribe their voters and offer token distributions in return.
5. Privacy in DeFi: Privacy finds product-market fit in unexpected places, like airdrops. For example, centralized exchanges are also used by large players to anonymize their transactions, so protocols like Elusiv are heavily used as a result.
Topic 8: MemeFi and Making DEX more vertical
Meme currency is a financial culture. Their value comes purely from attention and social consensus. We may be in a meme coin super cycle with Solana at the forefront.
In addition, DeFi applications will also become more social. We're already seeing some early trends:
Buy through Telegram bots like Bonkbot with a daily trading volume of $250 million!
Projects like Zeta or Kamino have public points leaderboards.
The next front-end for DEX will most likely not be a Jupiter-style exchange interface, but a live broadcast platform where creators and viewers place bets together, a social feed with trading integration, or other network presence.
UI layer composability: Telegram robot makes DEX’s UI composable. Previously, people would find information somewhere on the web (X, Reddit, news, Telegram groups, etc.) and then navigate to a separate UI to trade (eg: Drift, Binance, Coinbase, etc.). Telegram bots bring transactions to Telegram, where people already gather, socialize and exchange information.
Alpha suggestions for Builders:
1. Continuous prediction markets powered by Meme coins: Existing prediction markets such as Polymarket are binary and discrete, so the upside is very limited. Most people want continuous, unlimited upside. A native crypto prediction market could actually be a meme coin (eg: $BIDEN, $TRUMP). One could build a niche platform dedicated to trading meme coins (for example: a political platform that trades all political meme coins and predicts who will win). In fact, MetaDAO is an example of a vertical and continuous prediction market, but only for governance.
2. Meme coin frontend: The user experience for trading Meme coins is still not optimal: one needs to discover the Meme coin, check all its details on Birdeye or DEXScreener, and then trade on Jupiter, whereas for many early Meme coins, wallets Not even basic support. One could simply make a website like Birdeye, but dedicated to meme coins, more social, where bloggers could also praise each other and copy trades. Pump.fun is another interesting platform where people can join Meme coins very early (until $69,000 market cap). Another adjacent idea worth exploring is a DEX specifically suited for meme coins (currently Raydium, but the experience is not optimal).
3. Vertical DEX: More experimentation in DEX design for applications like Meme coins or LST. For example: Sanctum’s Infinity is essentially an automated market maker for LST.
Cross-chain aggregators for high-performance chains: As activity is increasingly fragmented across different Layer1 chains, such as Aptos and Sui, building cross-chain aggregators is a great opportunity with significant first-mover advantage. Intent-based DEXs (leaning towards order books) are also an interesting direction to provide users with better quotes.
Theme 9: Protocols tend to become platforms
Platforms enable the creation of new products. Amazon is a platform, and a brand on Amazon is a product. The launch of Uniswap v4 hooks marks DeFi’s first platform moment, allowing builders to launch their products on top of these protocols. Not just Uniswap, but all blue-chip DeFi protocols, such as Jupiter, are starting to build ecosystems on top of their protocols.
Project Serum (now Openbook) serves as a platform that exemplifies ecosystem building, with over 30 projects being developed on it. The platforming of Solana DeFi projects is still in its early stages, but is expected to surge in the coming months. It is advantageous for builders to identify such protocols, position themselves strategically, and become early players in the ecosystem.
Alpha suggestions for Builders:
Some noteworthy projects include:
1. Jupiter: Originally an aggregator, Jupiter is rapidly evolving into an ecosystem. Adrastea is a good example of this, offering leveraged gains on JLP.
2. Drift: The largest sustainable DEX on Solana. Circuit Trade provides market-making vault functionality for Drift DEX and similar products can be developed around DLP.
3. Phoenix: Although still in its early days, as an order book, Phoenix has the potential to develop into a comprehensive ecosystem. For example, Root Exchange, built on Phoenix, offers enhanced limit orders.
Structured products and strategy vaults provide clear opportunities for the development of additional products on these platforms. While converting to a platform is a long-term endeavor, it greatly facilitates value accumulation (which is why Layer 1 and Layer 2 solutions have significantly higher value than applications) and shifts revenue generation responsibilities to those built on top of it. application on. This also benefits token holders of the platform protocol.
Source: Yash Agarwal
Topic 10: Interfaces (UX aggregators) will become more powerful
In the crypto industry, attention is scarce, and aggregators command it. Whether it’s DEX aggregators (e.g. Jupiter, 1inch), cross-chain aggregators (e.g. Jumper, Bungee), or chain aggregators (e.g. Polygon), they have become new and attractive narratives.
The principle is simple: aggregators control demand and capture user attention. While they don't currently accumulate much value (most don't charge a fee), it's likely that the underlying protocols they abstract from will soon offer them a fee or share to gain priority or remain featured (similar to how brands pay Amazon for advertising ).
Interfaces add additional value on top of the on-chain protocols they enable. With additional tools like UniswapX or Jupiter’s DCA tools, interfaces can win the customer acquisition battle and capture value.
In fact, Solana has one of the most powerful aggregators, with Jupiter leading the way and others like Flexlend aggregating returns.
Source: Yash Agarwal
Alpha suggestions for Builders:
Opportunities for aggregation include:
Revenue aggregator.
Persistent aggregator.
Meme coin aggregator.
An everything DeFi aggregator like Instadapp for leverage, refinancing and migrating positions.
While there seems to be a blurry line between "platform" and "aggregator," the difference is that aggregators are the front end, while platforms are the foundation on which products are built. A protocol can be both at the same time, Jupiter is an example of this.
Conclusion: It’s time to seed Solana DeFi 3.0
Now is the time to build new protocols on Solana. While EVM does serve as an inspiration, protocols should focus on core design innovation, engage in research discussions, and build true OPOS like Sanctum or Phoenix. We will make Solana DeFi even more different from Ethereum, taking inspiration from TradFi and seeing what can be built on-chain to take advantage of high capital turnover and speculation.
Infrastructure has finally reached a point where it can withstand large-scale activity. A lot of DeFi that failed before due to premature timing is now viable again. It will be exciting to see how this develops over the next few years.
This article is reproduced with permission from: "Deep Wave TechFlow"
Original author: Yash Agarwal, Superteam
