Author: Kyle Samani, Co-founder of Multicoin

Translated by: Azuma, Odaily Planet Daily

Editor's Note: The man who shouts for Solana the loudest, the former co-founder of Multicoin Capital Kyle Samani, who recently made a high-profile exit from the industry, is back!

Last night, Kyle Samani published a long thread on his personal X account. In it, Kyle Samani once again demonstrated his continued persuasive "shouting" (not in a derogatory sense) rhetoric, using the dimension of "efficiency" as a gap in the decentralized narrative to elaborate on how the PropAMM currently being promoted in the Solana ecosystem will catch up to or even surpass traditional centralized models in terms of efficiency, proving that PropAMM is one of the most significant innovations in the microstructure of the market in recent years and even decades.

The following is the original content:

PropAMM is one of the most important innovations in the market microstructure in recent years, and it may even be one of the most significant innovations in decades.

To help everyone understand this conclusion, let’s first look at how Market Makers (MM) quote on traditional centralized exchanges (CEX).

Market Makers generally engage in physical co-location with trading platforms. Each Market Maker runs their algorithms on a server and connects to another server running the trading platform’s system via a uniform-length network cable (e.g., 50 meters).

There is a constant back-and-forth exchange of massive data streams between Market Makers and trading platforms. Whenever a Market Maker sends an order to the trading platform—whether it’s a limit order, cancellation, or market order—the trading platform needs to broadcast this information to all other Market Makers; then other Market Makers resend their orders based on the new information; this cycle repeats infinitely.

The following is a simple diagram.

Now let’s take a look at how PropAMM works on the Solana mainnet.

The beauty of PropAMM on Solana is that the blockchain itself directly "hosts" the Market Maker algorithms. This means that the system no longer needs to send billions of messages back and forth between Market Makers and trading platforms; the market-making algorithm will run directly on the same physical machine as the trading platform.

The new diagram is as follows. (Yes, it only requires the Solana blockchain!)

There has always been a cliché in the cryptocurrency industry that decentralized systems are slower than centralized systems due to the need for communication among global nodes (resulting in higher latency).

But if you understand this issue differently, the on-chain hosted algorithms may actually have lower latency than traditional financial centralized trading platforms.

Why do I say this? The reason is that the latency required for PropAMM to update prices only involves electrons moving within the same physical silicon chip. For example, if the last market order caused a change in the price of SOL-USD, that information will be immediately visible to all PropAMM and will be used for pricing the next market order. Everything happens within the same chip, and there is no longer a need for bidirectional communication between servers.

It is important to note that PropAMM does indeed need frequent oracle updates, but this is not an issue, and it does not change the overall fact I described above.

The key point remains that when the trading platform—in the above case, the Solana blockchain—directly hosts the PropAMM algorithms, the pricing from Market Makers will change in real-time within the same physical silicon chip.

PropAMM has become the dominant mechanism for the SOL-USDC spot quote on Solana, and the spreads are narrower than all major CEXs. I expect this market structure to become the dominant model of on-chain trading this year, including spot, perpetual contracts, and even prediction markets.

The biggest challenge for PropAMM is that there is currently no way to ensure that takers receive the best execution because:

· All PropAMM algorithms are not public (which is actually reasonable, since traditional market-making algorithms are also proprietary);

· The routing of trades across multiple PropAMMs is non-deterministic.

However, this issue can be resolved. I anticipate that all relevant aggregator teams will launch solutions this year, such as Jupiter and dFlow on the spot side, and Phoenix on the contract side.

The current PropAMM is still not fully optimized and is subject to various limitations of the Solana blockchain itself. This year, Solana will introduce a series of major upgrades that will significantly enhance the performance of PropAMM, including:

1. Higher CU (Computational Unit) limits per transaction and larger transaction sizes;

2. Higher CU limits per block;

3. Alpenglow: reducing slot time from 400ms to 100–150ms;

4. DoubleZero: reducing global network latency;

5. Application-controlled execution;

6. Multiple concurrent leaders.

If PropAMM on the Solana mainnet can already provide narrower quotes than all CEXs without these upgrades, one can imagine how powerful its performance will become as these upgrades gradually go live.

Related Reading: “The Best Crypto Investor of All Time” Kyle Samani's Turnaround, Mirroring Ten Years Ago

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