Jupiter aggregates liquidity from multiple DEXs using a model similar to the 1inch protocol, which was launched on Ethereum in 2019.
DEX aggregators arose in response to the challenge of fragmented liquidity in the DeFi sector. The value of tokens is spread across different pools in many different exchanges, which results in inefficient markets with high volatility and risks of slippage, as well as vulnerability to manipulation.
Jupiter and other DEX aggregators aim to overcome this challenge by providing a single interface with access to all the liquidity in multiple pools for a given token or combination of tokens. The concept can be imagined as a decentralized version of a broker in traditional markets, who sources the optimal trades from a variety of exchanges on behalf of clients.
How was Jupiter developed?
Launched in October 2021 by the pseudonymous 'Meow', Jupiter continues to benefit from their active leadership and development contributions. It started out with a mission to build best-in-class swap infrastructure and become Solana's default swap provider.
As well as a DEX aggregator, the project now bills itself as a “full stack ecosystem” following the launch of several additional projects, such as a dedicated pool to support perpetuals trading, and plans for a stablecoin.
The JUP token announcement quickly garnered significant attention among the Solana community for being one of the largest airdrops ever to take place on the platform. JUP is the token of the Jupiter DAO and operates under the moniker of the Jupiter United Planet, with community members dubbed “Space Catdets.”
Since its launch, Jupiter has grown to become one of the leading DeFi protocols in the Solana ecosystem and a rival to competitors on other platforms in terms of trading volume. In March 2024, as the pace of the crypto bull market picked up, Jupiter experienced trading volumes of $47 billion, in contrast to Uniswap, with just under $28 billion.
How does Jupiter work?
Jupiter’s main offering is the DEX aggregator, but it has also expanded to offer several other features.
Exchange aggregator and swaps
Jupiter aggregates liquidity from a variety of DEXs, including automated market makers (AMMs) and order book DEXs. By aggregating liquidity, it aims to offer optimized trade execution and thus an enhanced trading experience thanks to Solana’s fast throughput and low fees.
The project offers an interface for users to access the aggregator directly, but it also offers a series of APIs so developers can integrate features of the aggregator, such as pricing or limit orders on swaps, to their dApps.
Jupiter offers limit ordering, a feature rarely found on other automated market maker (AMM) exchanges. This allows traders to set specific buy or sell prices, rather than simply accepting the current market rate.
Jupiter also has a dollar cost averaging (DCA) feature, which facilitates automatic purchasing of a fixed amount of a token at given intervals. This strategy is often used by more passive cryptocurrency holders to generate stable returns over time, rather than relying on timing the market.
Jupiter Liquidity Pool (JLP) and perpetuals exchange
The Jupiter Liquidity Pool allows liquidity providers to deposit various asset types in return for a portion of the fees generated by traders on the Jupiter perpetuals exchange. The pool is used to provide liquidity for the perpetuals exchange, so liquidity providers (LPs) effectively act as counterparties to the trade rather than relying on an order book and matching engine. Traders using leverage, which is available up to 100x on Jupiter, are borrowing tokens from the pool, generating more returns for LPs.
LST Stablecoin
The Jupiter project has also announced the launch of the LST stablecoin, a yield-bearing stablecoin overcollateralized by Solana Liquid Staking Tokens (LSTs). LSTs are a token-based representation of staked Solana, which are, in turn locked up to generate sUSD, the LST stablecoin. Rewards generated from staking LSTs are returned to sUSD holders.
How is JUP used?
The founder of Jupiter has previously established that the JUP token is not designed for utility within the ecosystem. However, it will be used to govern the upcoming DAO, and holding JUP will include eligibility to participate in key ecosystem initiatives.
The JUP tokenomic model caps the total supply at 10 billion tokens. Of those, 50% is allocated for distribution to the Jupiter community through airdrops and other initiatives. The remaining 50% is reserved for team and operational needs. The team allocation is also subject to a vesting period.
The total circulating supply at launch in January 2024 was 1.35 billion JUP, which included 1 billion tokens for a community airdrop, 250 million for a launch pool, and 100 million to be split between loans to centralized exchange market makers and immediate liquidity pool needs.
Conclusion
- Jupiter is a decentralized exchange aggregator for the Solana ecosystem.
- The project launched in 2021 and has grown to become a leading DeFi protocol for Solana.
- Since launching, the project has also grown to include other features, including a perpetuals exchange and plans for a yield-bearing stablecoin. It also operates its own governance token, JUP.