Author: Kyle Samani, Multicoin Co-founder
Compiled by: Azuma, Odaily Planet Daily
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, is back!
Last night, Kyle Samani posted a long Thread on his personal X account. In the post, Samani once again demonstrated his highly persuasive "hype" (not derogatory here) rhetoric, using "efficiency"—a weak point in the decentralization narrative—as a breakthrough. He detailed how Solana's PropAMM will catch up with 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 grasp 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 trading platform. Each market maker runs an algorithm on a server and connects to another server running the exchange's system via a network cable of uniform length (e.g., 50 meters).
A massive stream of data is constantly exchanged between market makers and the trading platform. Whenever a market maker sends an order to the exchange—whether it's a limit order, cancellation, or market order—the exchange must broadcast this information to all other market makers; then, other market makers resend their 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 algorithms. This means the system no longer needs to send billions of messages back and forth between market makers and the exchange; the market-making algorithms will run directly on the same physical machine as the exchange.
Here is the new diagram. (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 (with higher latency) than centralized systems because they require communication between global nodes.
But if you reframe the issue, on-chain hosted algorithms could actually have lower latency than traditional centralized financial exchanges.
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 to price the next market order. Everything happens within the same silicon chip; there is no longer a need for two-way communication between servers.
It's worth noting that PropAMM does require frequent oracle updates, but this is not a problem and does not change the overall fact described above.
The most critical point remains that when the trading platform—in this case, the Solana blockchain—directly hosts the PropAMM algorithms, the market makers' 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 takers always get the best execution, because:
· The algorithms of all PropAMMs are not public (which is reasonable, as traditional market-making algorithms are also proprietary);
· When routing trades between multiple PropAMMs, the results are 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 PropAMMs are still under-optimized and constrained by various limitations of the Solana blockchain itself. This year, Solana will roll out a series of major upgrades that will significantly enhance PropAMM 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 PropAMMs on the Solana mainnet can already offer narrower quotes than all CEXs without these upgrades, imagine how powerful they will become as these upgrades are gradually implemented.
Related reading: The Turnaround of Kyle Samani, the "Best Crypto Investor in History," and a Mirror of a Decade Ago
