Kyle Samani is back: this time, we're going to eliminate CEX through efficiency!

This article is from: Kyle Samani

Compiled by Odaily Planet Daily (@OdailyChina); Translator: Azuma (@azuma_eth)

Editor’s note: The man known for calling the most trades on Solana, former co-founder of Multicoin Capital who recently stepped back from the spotlight, Kyle Samani, is making a comeback!

Last night, Kyle Samani posted a lengthy thread on his personal X account. In the post, Kyle revisited his signature “call” (not a pejorative) style of market commentary, using the efficiency dimension—an aspect of the decentralized narrative—as a breakthrough point. He detailed how the PropAMM currently promoted within the Solana ecosystem will match or even surpass traditional centralized models in efficiency, demonstrating that PropAMM is one of the most significant innovations in market microstructure in recent years or even decades.

Related articles include: “The Man Who Calls the Most Trades on SOL, Exits the Crypto World”; “Kyle Samani’s Exit, Is There More to the Story?”.

Below is Kyle Samani’s original content, 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 significant in decades.

To help everyone understand this conclusion, let’s first look at how market makers (MM) quote prices on traditional centralized exchanges (CEX).

Market makers typically co-locate physically with the exchange. Each market maker runs their algorithms on a dedicated server, connected via a uniform cable (e.g., 50 meters) to another server hosting the exchange system.

A continuous flow of data is exchanged between market makers and the exchange. Every time a market maker sends an order—be it a limit order, cancel, or market order—the exchange broadcasts this information to all other market makers; then they update their orders accordingly; this cycle repeats endlessly.

Here’s a simple diagram.

Now, let’s see how PropAMM on Solana’s mainnet works.

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; instead, the market-making algorithms run directly on the same physical machine as the exchange.

The new diagram looks like this. (Yes, just the Solana blockchain is enough!)

In the crypto industry, there’s a common saying: because decentralized systems need to communicate across global nodes, they are inherently slower (higher latency) than centralized systems.

But if you look at this differently, on-chain hosted algorithms may actually have lower latency than traditional centralized financial exchanges.

Why is that? Because the delay in updating prices with PropAMM involves only electronic movement within the same silicon chip. For example, if a market order causes the SOL-USD price to change, this information is immediately visible to all PropAMMs and used for the next market order’s pricing. Everything happens within the same silicon chip, eliminating the need for bidirectional communication between servers.

It’s important to note that PropAMM does require frequent oracle updates, but this isn’t a problem and doesn’t change the overall picture I described above.

The key point remains: when the exchange—in this case, the Solana blockchain—directly hosts the PropAMM algorithms, the market maker’s pricing updates happen in real time within the same physical silicon.

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 on-chain trading model this year, including spot, perpetuals, and even prediction markets.

The biggest challenge for PropAMM is that currently, there’s no guarantee that takers will always get the best execution, because:

• All PropAMM algorithms are not public (which is reasonable, as traditional market-making algorithms are also private);
• Routing trades across multiple PropAMMs results in non-deterministic outcomes.

However, this problem can be solved. I expect all relevant aggregator teams this year to release solutions, such as Jupiter and dFlow for spot trading, and Phoenix for derivatives.

Currently, PropAMM is still under-optimized and limited by various constraints of the Solana blockchain itself. This year, Solana will roll out a series of major upgrades that will significantly improve PropAMM’s performance, including:

1. Higher CU (compute unit) limits per transaction and larger transaction sizes;
2. Increased CU limits per block;
3. Alpenglow: reducing slot time from 400ms to 100–150ms;
4. DoubleZero: lowering global network latency;
5. Application-controlled execution;
6. Multiple concurrent leaders.

If, without these upgrades, PropAMM on Solana’s mainnet can already offer narrower quotes than all CEXs, then imagine how powerful it will become as these upgrades are gradually implemented.