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Key Takeaways
The crypto market environment is gradually shifting in favor of DEXs. Over time, the influence of CEXs is expected to diminish, and a select few DEXs that actively secure users and liquidity today are likely to dominate the on-chain trading market in the future.
Drift Protocol stands out as one of the Solana-native perpetual DEXs with significant potential amidst this market transformation. It guarantees deep liquidity through three innovative mechanisms: the Dynamic Automated Market Maker (dAMM), Just-in-Time (JIT) auctions, and the Decentralized Limit Order Book (DLOB).
Since launching its perpetual trading service in 2021, Drift has steadily expanded its product portfolio, incorporating spot trading, lending, liquid staking, the Vault service, and BET (Bullish on Everything). These advancements have gradually shaped Drift into a Super Protocol.
This progress is evident in its on-chain data, as perpetual trading volume, trade counts, revenue, TVL, and user growth have all shown consistent increases since the second half of 2024. Notably, the Vault service has attracted institutional participation from players like Gauntlet and Circuit Trading, driving TVL growth. As a result, Drift’s total value locked (TVL) surpassed $1 billion for the first time in December 2024, marking significant growth.
A consumer-centric mobile application, designed to be intuitive and accessible, is set to launch in 2025. Targeting the mass market, this app represents a critical milestone for Drift, aiming to establish a user base exceeding 50 million in the fintech space. Additionally, the second FUEL program, launching in May 2025, is expected to further enhance user acquisition and engagement.
Ultimately, Drift aims to become the standard for decentralized financial infrastructure, replicating traditional financial systems on blockchain. For example, on-chain vaults could replace traditional hedge funds, on-chain DEXs and trading terminals could substitute brokerage accounts, and on-chain lending products could transform the traditional lending market. This reflects Drift’s vision of building a global on-chain ecosystem capable of supporting billions of users.
1. Introduction
Source: Toyota UK Magazine
Keiichi Tsuchiya, famously known as the “Drift King,” shared this thought in an interview with Toyota: “I drift not because it is a quicker way around a corner, but it is the most exciting way.”
In the 1970s, tire smoke and screeching rubber ignited a cultural phenomenon in Japan. Young enthusiasts, dubbed the “drift tribe,” took over highways, turning streets into stages for their high-octane performances. While onlookers saw noise and chaos, car aficionados and professional drivers saw freedom and artistry. Despite crackdowns by authorities and attempts to modify road surfaces to suppress sliding tires, the drift culture not only survived but thrived—ultimately spreading worldwide. Today, drift racing has evolved into a recognized motorsport, celebrated in events like the D1 Grand Prix (D1GP), captivating global audiences with its blend of precision and spectacle.
Source: D1GP
Drifting is not merely a technique for taking corners at high speed. It embodies a fusion of speed and control, freedom and challenge—an art form fueled by the human instinct to transcend boundaries. At its essence, drifting is about pushing limits in unconventional and exhilarating ways.
Much like its motorsport namesake, Drift Protocol seeks to redefine the on-chain trading experience, not by following traditional paths, but by forging its own. Initially launched as a Solana native perps DEX, Drift Protocol has evolved into a multifaceted DeFi platform, encompassing perpetual swaps, spot trading, lending, liquid staking, and prediction markets.
Drift describes itself as a “Super Protocol,” reflecting its ambition to go beyond being a trading venue. It aims to serve as a comprehensive backend infrastructure for wealth generation and a foundational pillar for on-chain finance.
This report delves into the current landscape of on-chain trading markets, analyzes Drift Protocol’s competitive strengths, and evaluates the opportunities and challenges it faces. Through this lens, we seek to uncover Drift’s potential to shape the future of the on-chain derivatives market.
2. What Will On-Chain Trading Look Like in 5 Years?
The infrastructure of on-chain trading has evolved at a breakneck pace. Over the past few years, a series of innovations have laid the foundation for growth in this space. In 2015–2016, wallets like MyEtherWallet (MEW) and MetaMask significantly improved accessibility to on-chain activities. By 2017, MakerDAO (now Sky) introduced the first decentralized stablecoin and lending protocol, setting the stage for DeFi’s emergence. In 2018, Uniswap revolutionized spot trading with its AMM model, redefining on-chain liquidity, while stablecoins such as USDC and USDT simplified transactions. Lending protocols like Compound and Aave enriched the DeFi ecosystem, and the launch of dYdX brought perpetual swaps to DEXs, opening doors to on-chain derivatives trading. Advancements in blockchain scalability and interoperability further improved transaction speeds and cost efficiency, strengthening the infrastructure of on-chain trading.
More recently, platforms like Jupiter, Hyperliquid, and Aerodrome have dramatically enhanced usability, while self-custodial wallets have become both more secure and user-friendly. Innovations such as account abstraction (AA) have simplified onboarding and made on-chain trading more accessible to everyday users.
Thanks to these advancements, the usability gap between on-chain and off-chain trading has narrowed considerably. However, technical improvements alone have struggled to attract a broader user base unfamiliar with on-chain processes. While efforts to popularize crypto through DeFi, NFTs, and gaming have made some headway, they have yet to achieve mainstream adoption.
This is where memecoins have emerged as a game-changer over the past year, defying expectations and proving their ability to onboard entirely new cohorts of retail users. Riding on speculative demand, memecoins have not only captured attention but also pulled users into on-chain ecosystems at an unprecedented scale, demonstrating the untapped growth potential of on-chain markets.
The memecoin market has experienced explosive growth. As of December 31, 2024, cumulative trading volume had reached approximately $839.2 billion, with most of that activity taking place on the Solana blockchain. On December 2, 2024, Solana accounted for 65% of total memecoin trading volume and 87% of transactions. Phantom, Solana’s flagship wallet, underscored this mainstream adoption by surpassing Google to claim the top spot in Apple’s App Store utility category on November 22, 2024. Phantom also crossed 10 million downloads on the Google Play Store, further cementing Solana’s rise.
Source: Dune Analytics (@jhackworth)
Source: Apple Pay Store
This surge in adoption has also driven structural shifts within the market. Spot DEX trading volume rose from 0% in 2019 to 11% in just six years, while derivatives DEXs expanded their market share to 10%. Momentum continues to build, spurred by emerging narratives like AI agents, which are accelerating interest in on-chain trading ecosystems. (For a deeper dive into AI agent trends, readers can refer to “The AI Agent Cycle: How Hype Fuels Crypto Innovation”).
The structural transformation of the derivatives market signals that liquidity and users are gradually migrating to on-chain platforms. This trend points toward a long-term paradigm shift where decentralized markets could rival, and in some cases surpass, their centralized counterparts.
The fundamental advantage of DEXs over centralized exchanges (CEXs) lies in the depth and breadth of user experiences they offer. Unlike CEXs, which focus primarily on trading, on-chain platforms integrate with DeFi applications, enabling users to maximize returns through lending, yield farming, and liquidity provision. As the ecosystem matures, applications are also expanding beyond trading to areas like gaming, DePIN, and stablecoin payments, transforming on-chain platforms into multifaceted ecosystems akin to app stores. Over time, the increasing sophistication of users and applications will only amplify the potential of decentralized finance.
Permissionless remains a defining feature of on-chain ecosystems. DEXs allow anyone, anywhere to list and trade assets without intermediaries, broadening financial access for billions globally. In contrast, CEXs face strict regulations that often limit offerings, as seen in Binance’s exclusion of U.S. users from derivatives trading. Meanwhile, Solana-based DEXs like Raydium and Meteora are listing thousands of assets daily, highlighting the scalability and flexibility of permissionless systems.
Lastly, DEXs excel in cost efficiency. Unlike CEXs, which require costly infrastructures—customer support, custody solutions, and compliance—DEXs streamline operations, translating to lower fees and faster innovation cycles. For instance, SushiSwap, a Uniswap fork developed by just two engineers, processed billions in trades shortly after launch, proving the model’s efficiency. In contrast, traditional exchanges like NASDAQ and NYSE require thousands of employees, demonstrating the inherent cost advantages of decentralized platforms.
As markets continue to evolve, DEXs are poised to take a larger share of the pie. The influence of CEXs is likely to erode over time, with a handful of well-positioned DEXs absorbing the bulk of liquidity and user activity. Drift Protocol, in particular, stands out as a contender well-equipped to capitalize on this transition.
3. The Drift Playbook
3.1 A Three-Pronged Liquidity Engine
Liquidity is one of the most critical factors that determine the success of any exchange. In decentralized exchanges (DEXs), low liquidity, high slippage, and slow order execution can significantly impact user experience—posing challenges to growth and adoption. To address these issues, Drift introduced Drift V2 in December 2022, integrating a new liquidity model by combining its existing Dynamic Automated Market Maker (dAMM) with Just-in-Time (JIT) auctions and a Decentralized Limit Order Book (DLOB).
These three mechanisms work in tandem to deliver enhanced trading performance, making Drift’s hybrid liquidity architecture one of its standout features. Each component plays a distinct role while complementing the others to optimize liquidity provisioning. Here’s how they function:
3.1.1 Just-in-Time (JIT) Auctions
JIT auctions dynamically supply liquidity at the moment of order execution. When a market order is submitted, it triggers a Dutch auction through Drift’s Keeper Network—a bot system that manages off-chain order books based on on-chain data.
The auction starts at Drift’s oracle price and gradually moves toward the AMM price over approximately five seconds. Market makers compete to fulfill the order, driving prices closer to the user’s acceptable range. If the auction fails to secure sufficient liquidity, the order is automatically routed through Drift’s AMM.
JIT auctions enhance user experience by enabling near-instant execution at competitive prices while minimizing reliance on AMMs. However, orders approaching the auction’s price floor may still experience some slippage risk.
Source: Drift
3.1.2 Decentralized Limit Order Book (DLOB)
Drift’s DLOB mirrors the familiar order book model of centralized exchanges but operates on a decentralized architecture. Instead of relying on centralized servers, DLOB orders are monitored and executed by Keeper Bots.
When a limit order is submitted, it is recorded on-chain, and Keeper Bots execute it once it meets the defined price conditions. Orders are prioritized based on factors like size and submission time, and Keeper Bots receive fees as rewards for execution.
The DLOB is designed to deliver the efficiency of centralized systems while leveraging the trustlessness and transparency of decentralized networks. Drift’s hybrid model handles complex computational tasks off-chain while ensuring final settlement on-chain, optimizing both cost and performance.
Source: Drift
3.1.3 Dynamic Automated Market Maker (dAMM)
The dAMM serves as a fallback mechanism, ensuring liquidity even when JIT auctions and DLOB cannot fulfill orders. Acting as a backstop, it stabilizes Drift’s liquidity infrastructure and ensures consistent performance.
Unlike traditional AMMs that rely on static constant product curves (x * y = k), Drift’s dAMM dynamically adjusts parameters such as the peg price and liquidity constant (k) based on market conditions. Drift V2 enhanced this model with dynamic spreads and Oracle Live Pricing—features that optimize spreads and update prices in real time using oracle data. These improvements minimize slippage and maintain pricing stability.
The dAMM’s ability to handle smaller orders complements JIT auctions and DLOB, which are better suited for large orders. This division of labor ensures Drift can process trades of all sizes efficiently—from institutional investors executing complex strategies to retail traders placing smaller orders.
Source: Drift
3.2 Riding the Solana Wave
Drift has remained a Solana-native DEX since its inception in 2021, opting neither to develop its own chain nor to expand to other networks. This choice goes beyond mere technical convenience—it reflects a strategic decision to leverage the unique advantages offered by the Solana ecosystem. Drift’s position as a Solana-based protocol provides several key benefits.
First, Solana’s thriving trading ecosystem serves as a powerful catalyst. As of December 2024, Solana recorded $115 billion in monthly DEX volume, accounting for approximately 39% of total on-chain trading activity—nearly double Ethereum’s 15%. In addition, Solana ranked second only to Ethereum in 30-day cumulative fees, generating $116 million in revenue. Solana-based projects like Raydium ($132M) and Jito ($122M) also secured leading positions in transaction fees. These figures underscore Solana’s liquidity depth and vibrant economic activity, which Drift can tap into.
Source: Defillama
In terms of Monthly Active Users (MAU), Solana continues to dominate. As of December 2024, Solana reported approximately 102 million MAUs—leaving competitors like Base (24M), BNB Chain (14M), and Tron (13M) far behind. While MAU metrics can be influenced by bot activity, they still provide a somewhat useful proxy for gauging network density and adoption.
Second, by foregoing the operational complexities of running its own chain, Drift can focus all resources on product enhancement and user experience. Solana’s upcoming upgrades, including the Firedancer client and ongoing performance optimizations, promise faster and cheaper transactions. For Solana-native protocols like Drift, this effectively translates into automatic performance improvements without the added burden of maintaining an independent chain. Unlike exchanges that must allocate vast resources to infrastructure maintenance, Drift benefits from riding on Solana’s shoulders.
Finally, being a Solana-native protocol significantly lowers onboarding friction compared to protocols operating on appchains. Projects like dYdX require users to set up new wallets, bridge tokens, and navigate steep learning curves—barriers that can deter new users. Drift, by contrast, seamlessly integrates with Solana’s existing user base, enabling easier adoption and faster growth. With an already active ecosystem, Drift doesn’t need to create its own network effect—it can simply harness Solana’s momentum.
By aligning itself with Solana’s rapid growth, Drift has positioned itself to capitalize on one of the most active and scalable blockchain ecosystems, enabling it to focus entirely on refining its core product while benefiting from Solana’s ongoing improvements.
3.3 The Endgame
Drift Protocol seeks to establish itself as the standard for decentralized financial infrastructure, replicating traditional financial systems on the blockchain. This vision goes far beyond being a trading platform, aiming to serve as a core backend infrastructure that facilitates wealth creation and asset management. If realized, Drift envisions becoming a SuperProtocol (as referenced here) that billions of users rely on daily. To achieve this, Drift has outlined a clear development roadmap divided into three distinct phases.
Source: X (@cindyleowtt)
Drift has already completed the first phase: establishing itself as a comprehensive DeFi protocol. Since its launch, Drift has continually expanded its product portfolio to support a variety of financial services beyond futures trading, including spot trading, lending, liquid staking, and more. Key innovations like the Vault service for optimizing trading yields, the $dSOL liquid staking solution, Insurance Fund Staking that converts trading fees into interest, and Super Stake Sol for leveraged yield opportunities have elevated the user experience significantly. Notably, the August 2024 launch of BET (Bullish on Everything), a prediction market service, introduced a novel user experience rarely seen in DeFi ecosystems, further diversifying Drift’s offerings. Through these efforts, Drift has transitioned from a perpetual trading platform into a financial services hub within the Solana ecosystem, laying the groundwork to become a central player in the DeFi market.
The second phase focuses on building consumer-centric applications, aiming to transition from offering advanced features for DeFi users to creating an intuitive and accessible platform for the mass market. This approach targets a broader audience while leveraging blockchain’s inherent advantages of lower costs and greater transparency compared to traditional fintech platforms. Currently, Drift is in this phase and plans to launch a mobile application in 2025.
Drift’s mobile app is being designed to integrate smart contract functionality with an intuitive UI/UX, allowing users to seamlessly access trading, asset management, prediction markets, and real-world assets (RWA). This strategy draws inspiration from Web2 financial apps like Robinhood and Revolut, offering comparable ease of use while differentiating itself through blockchain’s decentralized architecture, providing greater transparency and accessibility.
For instance, Robinhood captivated the public after its 2013 launch with a commission-free model and user-friendly interface. It steadily expanded its offerings from stock and ETF trading to include cryptocurrencies, options, credit cards, savings accounts, and IRAs. By 2023, Robinhood achieved $1.8 billion in annual revenue, with 11 million users and a market capitalization of $31 billion, cementing itself as a major consumer financial platform. Drift aims to replicate this trajectory within an on-chain environment, leveraging blockchain technology to offer transparency and clear asset ownership that traditional fintech platforms cannot.
Furthermore, the mobile app aims to lower entry barriers through its on-chain structure, which eliminates the need for KYC (Know Your Customer) processes while maintaining the accessibility of traditional fintech platforms. This enables Drift to rapidly scale its global user base. Drift’s goal is to target over 50 million users in the fintech market, accelerating the mainstream adoption of on-chain financial systems.
The final phase focuses on large-scale expansion. In this stage, Drift aspires to become the standard for decentralized financial infrastructure that can replicate traditional financial systems on blockchain. Moving beyond a single application, Drift envisions itself as a financial backend layer, enabling developers and businesses to build various financial applications on its smart contract foundation. For example, on-chain vaults could replace traditional hedge funds, on-chain DEXs and trading terminals could substitute brokerage accounts, and on-chain lending products could transform the traditional lending market. This approach demonstrates how blockchain can complement or replace existing financial systems, reflecting Drift’s vision of building a global on-chain ecosystem capable of supporting billions of users.
Source: X (@cindyleowtt)
4. On-Chain Performance
Drift’s on-chain performance offers critical insights into its growth and traction. This section examines key metrics such as trading volume, transaction count, revenue, TVL, and user base to evaluate the protocol’s progress and market position.
Throughout 2024, Drift’s perpetual trading volume demonstrated consistent activity, fluctuating with market conditions. The most active months were March and November, recording approximately $6.5 billion in trading volume each. Notably, November saw heightened activity following the resurgence of bullish sentiment after Trump’s election win, reflecting increased demand driven by market recovery. Drift’s cumulative trading volume reached $47 billion, capturing a 3% market share over the past three months—ranking fifth behind Hyperliquid, Jupiter, dYdX, and GMX.
Revenue followed a similar trend, moving in tandem with crypto market conditions. Drift’s primary revenue source is perpetual trading fees, differentiated through tiered asset classes, leverage ratios, and a referral program. For example, major asset classes like BTC, ETH, and SOL benefit from up to 75% fee discounts, reducing trading fees to as low as 2.5 basis points. Conversely, fees are doubled when high-leverage trading modes are activated, maximizing profitability.
After hitting a low in September 2024, revenue demonstrated steady growth, reaching $3.3 million in December. Notably, while perpetual trading fees increased, their share of Drift’s total revenue declined—from 89% in October to 72% in December. This shift reflects Drift’s expanding performance across other services, signaling diversification. With continued expansion, this trend is expected to accelerate further. Over the course of 2024, Drift generated approximately $21 million in total revenue, and its annualized revenue based on the most recent 30 days has reached approximately $29 million.
Source: Drift Protocol v2 Docs
Drift’s TVL exhibited stable growth throughout 2024, surpassing $1 billion for the first time in December. As of January 7, 2025, TVL stands at approximately $1.02 billion. This growth reflects both the general crypto market uptrend and the long-term trust Drift has established among users in the Solana ecosystem. Notably, Drift’s Vault service has been a key driver of this TVL increase.
The Vault service has achieved significant results, driven by active participation from institutional-grade users such as Gauntlet and Circuit Trading. This participation highlights Drift’s shift from relying solely on retail users to capturing institutional demand and expanding its ecosystem. As of January 14, 2025, Drift’s Vault TVL reached approximately $201 million, reinforcing its position as one of Drift’s flagship offerings.
Source: Defillama
Drift’s user base demonstrated steady growth, particularly in the latter half of 2024. In November, the combination of Trump’s election victory and the release of new features led to a sharp increase in users. From 4,000 users in July 2024, the user base more than doubled to 8,200 by November. As of January 14, 2025, Drift’s cumulative user count stands at approximately 219,000.
Drift has significant potential to further expand its user base through its second FUEL program, scheduled for May 2025. The Season 1 airdrop, which incentivized $DRIFT staking and trading through FUEL points, successfully attracted new users. While the specific details of Season 2 incentives have not been disclosed, it is anticipated to build on the foundation of Season 1 by continuing to drive engagement and attract new participants.
5. Looking Forward
Drift emerged at the peak of the 2021 bull market, only to face existential challenges following the collapse of Luna and FTX. Yet, amidst the rubble of a shattered market, Drift persevered—continuing to build and refine its platform. Its ability to not only survive but also rebound alongside Solana’s recovery is a testament to sustained development and a community-first approach rather than mere luck.
Today, the perpetual DEX market is dominated by Hyperliquid, which commands over 50% of the market share. While this presents a competitive challenge for Drift, it also highlights the opportunities ahead. Hyperliquid’s success has shattered the long-standing notion that DEXs cannot compete with CEXs in derivatives trading. For Drift—leveraging Solana’s speed, scalability, and low fees—this shift creates a favorable environment to grow its presence.
The next chapter of Drift’s story is just beginning. With aspirations to become Solana’s premier trading super app, Drift’s ambitions are both bold and promising. Its continued innovation and focus on user experience will determine whether it can rise to the occasion and solidify its standing in the evolving landscape of decentralized finance.
