Author: Kyle Samani, Multicoin Co-founder
Compiled by: Azuma, Odaily Planet Daily
Original Title: Multicoin Co-founder: Is Decentralization Always Slower Than Centralization? PropAMM is Breaking This Bias
Editor's Note: The man who knows how to hype Solana best, Multicoin Capital's former co-founder 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 the post, Kyle Samani once again demonstrated his highly persuasive "hype" (not meant derogatorily) rhetoric, using "efficiency"—a shortcoming in the decentralized narrative—as a breakthrough point. He detailed how Solana ecosystem's currently promoted PropAMM will catch up to or even surpass traditional centralized models in efficiency, arguing that PropAMM is one of the most important innovations in market microstructure in recent years, or even decades.
Below is the original content:
PropAMM is one of the most important innovations in market microstructure in recent years, and perhaps even one of the most significant in decades.
To help everyone understand this conclusion, let's first look at how market makers (MMs) quote prices on traditional centralized exchanges (CEXs).
Market makers typically engage in physical co-location with the exchange. Each market maker runs an algorithm on a server and connects to another server running the exchange's system via network cables of uniform length (e.g., 50 meters).
Market makers and exchanges constantly send large data streams back and forth. Whenever a market maker sends an order to the exchange—whether it's a limit order, cancellation, or market order—the exchange needs to broadcast this information to all other market makers; then, other market makers resend their own orders based on the new information; this cycle repeats indefinitely.
Here is a simple diagram.
Now let's 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 algorithm. This means the system no longer needs to send billions of messages back and forth between market makers and the exchange; the market-making algorithm will operate directly on the same physical machine as the exchange.
The new diagram is as follows. (That's right, only the Solana blockchain is needed!)
There has long been a common view in the cryptocurrency industry that decentralized systems must be slower (have higher latency) than centralized systems because they require communication between global nodes.
But if you reframe the issue, on-chain hosted algorithms may actually have lower latency than traditional centralized exchanges in finance.
Why is that? 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 causes a change in the SOL-USD price, this information is immediately visible to all PropAMMs and used for pricing the next market order. Everything happens within the same silicon chip; there is no longer a need for two-way communication between servers.
It is worth noting that PropAMM does require frequent oracle updates, but this is not a problem and does not change the overall fact I mentioned above.
The most critical point remains that when the exchange—in this case, the Solana blockchain—directly hosts the PropAMM algorithm, the market maker's pricing changes in real-time within the same physical silicon chip.
PropAMM has already become the dominant mechanism for SOL-USDC spot quotes on Solana, with narrower spreads than all major CEXs. I expect this market structure to become the dominant model for on-chain trading this year, including spot, perpetual contracts (perps), and even prediction markets.
The biggest challenge for PropAMM is that there is currently no way to ensure that the taker always gets the best execution, because:
· The algorithms of all PropAMMs are not public (which is reasonable, as traditional market-making algorithms are also private);
· When routing trades between multiple PropAMMs, the result is non-deterministic.
However, this problem can be solved. I expect all relevant aggregator teams to launch solutions this year, such as Jupiter and dFlow for spot, and Phoenix for contracts.
Current PropAMM is still not fully optimized and is subject to various limitations of the Solana blockchain itself. This year, Solana will roll out a series of major upgrades that will significantly enhance PropAMM's performance, including:
1. Higher CU (Compute 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 offer narrower quotes than all CEXs without these upgrades, imagine how powerful their performance will become as these upgrades are gradually implemented.
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