“To those who have, more will be given, and they will have an abundance. But from those who do not have, even what they have will be taken away.”

—-Matthew

On-chain, the Matthew Effect — where the rich get richer — has always been in full effect.

For example, Pump.fun has quietly started taking over some of Raydium’s role: today, it launched its own AMM pool, aiming to capture liquidity profits that were once Raydium’s.

At the moment, this self-built AMM (http://amm.pump.fun) page is very simple, allowing users to swap tokens just like other DeFi platforms.

However, there might be more going on behind this product.

As everyone knows, Pump.fun attracts a large number of degens with its unique inner and outer market mechanisms and memecoin culture.

User transactions are first matched within Pump.fun’s internal market, relying on the platform’s liquidity to complete trades. When the internal market is full, the trades are routed to the external market, which actually depends on Raydium’s liquidity pool.

In this model, Pump.fun has always been a “traffic provider” for Raydium but is also subject to Raydium’s rules. Every time transactions flow to the external market, Pump.fun needs to pay a portion of the transaction fee, and this profit ultimately goes to Raydium’s liquidity providers (LPs).

Raydium itself is one of the most important AMM platforms in the Solana ecosystem and a key piece of infrastructure for DeFi users to obtain liquidity. It also provides liquidity pool services for many projects in the Solana ecosystem, and its TVL (Total Value Locked) has long ranked among the top in Solana.

As the “liquidity center” of Solana, Raydium holds an indispensable position in the ecosystem. However, Pump.fun’s new move is challenging this structure:

Pump.fun is no longer content with being Raydium’s “traffic provider” and is now attempting to become the “controller” of liquidity.

The Business Behind Pump.fun’s Self-built AMM Pool

By creating its own AMM, Pump.fun can shift liquidity from Raydium’s external market to its own platform, taking full control over transaction fee distribution.

If Pump.fun’s strategy succeeds, Raydium won’t just lose some of its liquidity; its revenue model and position in the ecosystem will be threatened as well.

But how exactly does the math work?

1.Raydium’s Revenue Model: The “Hidden Costs” for Pump.fun

In the current setup, Pump.fun routes its external market transactions through Raydium’s liquidity pool, and each transaction incurs a fee, with that fee eventually benefiting Raydium’s ecosystem.

• Raydium’s Standard Fee Structure: Raydium charges a 0.25% fee on each transaction,where:
  • 0.22% is distributed to Raydium’s liquidity providers (LPs).
  • 0.03% is used for buybacks and supporting the $RAY ecosystem.
• Pump.fun’s Trading Volume: Let’s assume Pump.fun handles $100 million in daily trades, with 5% of that volume (about $5 million) routed to Raydium’s external market.
• Pump.fun’s Hidden Costs: At a 0.25% fee, Pump.fun is paying Raydium $12,500 per day, which adds up to about $4.56 million annually.

While this is a lower cost compared to the past, for a rapidly growing platform like Pump.fun, it still relies heavily on an external platform.

2.The Potential Gains from Running Its Own AMM

With its own AMM, Pump.fun can shift liquidity from Raydium’s external market to its platform, meaning it will control the entire fee structure. How much could this generate?

• New Revenue Model: Let’s assume Pump.fun charges the same 0.25% fee on its self-built AMM, but all fees go to the platform:
  • The daily external market trading volume is still $5 million.
  • Based on a 0.25% fee, Pump.fun can directly earn $12,500 per day.
  • The annual income would be approximately $4.5625 million.
• Net Revenue After LP Costs: If Pump.fun’s AMM doesn’t rely on external liquidity providers but instead uses its own, all the revenue from those fees will stay with the platform.

3.What Else Does Pump.fun Stand to Gain?

Building its own AMM will not only bring more direct revenue, but it will also increase Pump.fun’s control over its ecosystem, laying a strong foundation for future growth.

Right now, Pump.fun depends on Raydium’s liquidity pool for external trades, which means Raydium controls the user experience and the stability of liquidity.

By taking control of its own AMM, Pump.fun can set the rules for liquidity and fee distribution, giving it more power over user interactions.

With full control over liquidity, Pump.fun can launch additional DeFi products (such as perpetual contracts and lending protocols) to build a fully self-contained ecosystem.

For instance, Pump.fun could leverage its AMM to directly support the creation and trading of memecoins, offering more opportunities for community engagement.

Related Token Price Changes

After Pump.fun announced the launch of its self-built AMM, Raydium’s token, $RAY, dropped sharply, with a daily decline of 20%.

This phenomenon may reflect the market’s concerns about Raydium’s future revenue and position.

Pump.fun’s strategy could pose a long-term threat to Raydium, especially in terms of liquidity migration and fee income.

However, on the other hand, after the launch of its self-built AMM, a MEME token used to test the liquidity pool saw its price surge, with its market cap peaking at $4 million.

That:

CitRGsrgU7NjaXsxdMFc7sfsxtSnPdtkhHJqbPvhpump

In the few market hotspots, the AMM pool’s test token may continue to soar for a while.

The Challenge is Clearly Underway

After launching its own AMM, if all goes well, Pump.fun will have complete control over its external liquidity, significantly boosting its revenue.

By integrating both internal and external liquidity, Pump.fun is positioned to build a fully self-sustaining on-chain Meme DeFi ecosystem.

From capturing user attention and traffic to taking control of where the funds flow, Pump.fun is clearly transitioning from “relying on external liquidity” to “owning its own liquidity.”

Once a platform gains a larger user base, it naturally has the opportunity to shake up the status quo of traditional DeFi and disrupt the on-chain ecosystem through strategic adjustments.

However, whether Pump.fun can truly challenge Raydium’s position will depend on how well it balances its liquidity strategy and user growth. More importantly, it depends on whether the bull market is still intact.

Timing and luck are key factors here.

It’s not just retail traders competing in PVP; projects are also battling each other in a high-stakes competition.

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