This article is from:Kyle Samani

Compilation｜Odaily Planet Daily（@OdailyChina）；Translator｜Azuma（@azuma_eth）

Editor's note: The man who is best at calling for Solana, Kyle Samani, former co-founder of Multicoin Capital who has recently made a high-profile withdrawal from the industry, is back!

Last night, Kyle Samani published a lengthy thread on his personal X account. In it, Kyle Samani showcased his continued persuasive "calling" (not a derogatory term here) rhetoric, using the dimension of "efficiency" as a breakthrough point, explained in detail how the PropAMM currently being promoted by the Solana ecosystem will catch up to and even surpass traditional centralized models in terms of efficiency, firmly asserting that PropAMM is one of the most important innovations in the market's microstructure in recent years, if not decades.

• Related articles can be found here: 《The Man Who Best Calls for SOL Exits the Crypto World》;《Kyle Samani's Withdrawal, Is There More to the Story?》.

The following is the original content from Kyle Samani, translated by Odaily Planet Daily.

PropAMM is one of the most important innovations in market microstructure in recent years, and perhaps one of the most important innovations in decades.

To help everyone understand this conclusion, let's first take a look at how market makers (MMs) quote on traditional centralized exchanges (CEX).

Market makers typically co-locate with exchanges. Each market maker runs an algorithm on a server and connects to another server where the exchange's system runs via a standardized length of network cable (e.g., 50 meters).

There is a constant flow of data sent back and forth between market makers and the exchange. Whenever a market maker sends an order to the exchange—whether it's a limit order, a cancellation, or a market order—the exchange needs to broadcast this information to all other market makers; subsequently, the other market makers will resend their orders based on the new information; this cycle repeats infinitely.

Below is a simple schematic diagram.

Now let's look at how propAMM works on the Solana mainnet.

The beauty of propAMM on Solana lies in the fact 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.

The new schematic is as follows. (Yes, only the Solana blockchain is needed!)

There has always been a prevailing viewpoint in the cryptocurrency industry that because decentralized systems need to communicate between global nodes, they must be slower than centralized systems (with higher latency).

However, if you understand this issue differently, the on-chain hosted algorithms may actually exhibit lower latency than traditional centralized exchanges.

Why do I say this? The reason is that the delay required for propAMM to update prices only involves electrons moving within the same piece of physical silicon. For example, if the previous market order caused the price of SOL-USD to change, this information would immediately be visible to all propAMMs and used for pricing the next market order. Everything happens within the same silicon chip, eliminating the need for bidirectional communication between servers.

It is important to note that propAMM does require frequent oracle updates, but this is not a problem and does not alter the overall fact I described above.

The most crucial point remains that when the exchange—in the above case, the Solana blockchain—directly hosts the propAMM algorithm, the pricing by market makers changes in real-time within the same piece of physical silicon.

propAMM has already become the dominant mechanism for SOL-USDC spot pricing on Solana, with narrower spreads than all major CEXs. I expect this market structure will become the dominant mode 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 guarantee that takers (the side taking the order) will always get the best execution, due to:

• All propAMM algorithms are not public (which is actually reasonable since traditional market-making algorithms are also proprietary);
• Routing trades among multiple propAMMs is non-deterministic.

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

The current propAMM is not yet fully optimized and is still subject to various limitations of the Solana blockchain itself. This year, Solana will launch a series of major upgrades that will significantly enhance the performance of propAMM, 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 the 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 are gradually implemented.

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