How To Use Raydium? Solana Defi Guide 

Raydium RAY token is an automated market maker built on the Solana blockchain that allows for lightning-fast trades, shared liquidity, and new features for earning yields. Raydium leverages all the efficiencies of the Solana Network to achieve transaction settlements significantly faster than Ethereum, at a fraction of the cost. Before you get started on Raydium, you’ll need to set up Phantom Wallet to store your funds and interact with the Raydium app. Remember that you’ll need a small amount of $SOL in your wallet to complete any transactions on the Solana Network. 

How to trade on Raydium

Trading on Raydium might appear a bit overwhelming at first if you’re not already familiar with centralized exchanges. Raydium uses the Serum DEX as its central order book to facilitate trades on the network. When you trade tokens you are interacting with an organic on-chain order book shared across 30+ exchanges. Trading is how you can view & interact with that shared order book. 

1. Connect wallet

Connect your Phantom Wallet using the “Connect” button in the top right corner. 

2. Pick your trading pair

Pick your desired trading pair from the menu under the Raydium logo. For the following examples, we’ll be using the SOL/USDC pair.

3. Buy or sell

Next, you’ll need to choose whether you wish to buy or sell tokens.

4. Choose the size of your trade

Once you’ve decided, you can use the slider bar to increase and decrease the size of your Trade. You’ll also notice that the current balance of tokens in your wallet will be visible underneath the “Limit Buy/Sell” button. Once you’ve selected your desired amount to trade, click the “Limit Buy/Sell” button just below the slider. 

5. Approve transaction

Approve the transaction to execute your trade.

You’ll quickly receive a prompt that your transaction has been sent. Congrats, your new balance will be reflected in your wallet shortly. 

Swapping Tokens – How to use Raydium Swap?

Swapping Tokens on Raydium is an even easier process. 

Connect your *Phantom Wallet and choose the tokens you would like to swap and the amount you wish to swap. Click the swap button when you’re finished and approve the transaction.

 You’ll receive a prompt that the funds have settled and your wallet balance has been updated.  Just like Uniswap and many others, this swap process remains exactly the same throughout the DeFi space.

Adding Liquidity

Becoming a Liquidity Provider (LP) on Raydium can help earn you some of the highest rewards in DeFi. Like swapping tokens, the process is easy and requires less than a minute to complete. For this example, we’ll be providing liquidity for the RAY/SOL pool. By adding liquidity, you are creating the market for swaps. By doing so you will earn a portion of the fees collected when someone swaps from your chosen pool.

1. Select token

Simply select the Tokens you would like to provide liquidity for at a 1:1 ratio and click the supply button.

2. Approve

Approve the transaction and you’ll receive confirmation that your transaction has been sent and confirmed.

3. Confirm

You’ll now be able to see all of your liquidity and confirm your positions from the main liquidity page you started at.

Make sure you understand the Risks of Impermanent Loss before deciding to be a Liquidity Provider. Here is some more information.

How do concentrated liquidity pools work on Raydium?

Concentrated liquidity pools on Raydium are an advanced feature designed to optimize the efficiency of liquidity provision by allowing liquidity providers (LPs) to allocate their capital more precisely within a certain price range. This system enhances capital efficiency and allows LPs to earn more fees while reducing exposure to price ranges that they might deem irrelevant or too risky.

Here’s how it works:

1. Traditional vs. Concentrated Liquidity

In a traditional Automated Market Maker (AMM) like the original Raydium pools, liquidity is spread evenly across the entire price curve from zero to infinity. This means that much of the liquidity is often unused, especially for assets that trade within a relatively narrow price range.

In concentrated liquidity pools, LPs can choose to allocate their liquidity within specific price ranges, concentrating their capital where they believe it will be most effective.

For example: If you believe that an asset pair (e.g., SOL/USDC) will trade within a range of $20 to $30, you can concentrate your liquidity within this price range. If the price stays within this range, your liquidity is used more effectively, and you can earn more trading fees.

2. Increased Capital Efficiency

By concentrating liquidity, LPs can provide the same level of liquidity with less capital. For instance, if you concentrate liquidity in a narrower range, say $25 to $28, you can earn the same or higher fees as compared to providing liquidity across the entire price curve but with less capital at risk.

3. Active Management

LPs need to actively manage their positions. If the price moves outside the chosen range, their liquidity becomes inactive (i.e., no trading occurs within that range), and they stop earning fees. To remain active, LPs might need to adjust their price range according to market movements.

4. Impermanent Loss Consideration

Concentrated liquidity can potentially increase exposure to impermanent loss because the liquidity is concentrated in a narrower range. If the price moves significantly outside this range, LPs may experience more pronounced IL compared to traditional liquidity pools.

5. Fees and Rewards

Since trading fees are concentrated within a narrower price range, LPs can potentially earn higher returns, especially in markets with high trading volumes within their specified range.

6. Advanced Trading Strategies

Raydium’s concentrated liquidity pools are often used by more sophisticated traders who have a better understanding of price movements and are comfortable managing their liquidity positions actively.

Staking LP Tokens

After becoming a liquidity provider you’re rewarded with LP tokens. 

These are how you will claim your liquidity back from the network whenever you’re ready. In the meantime, these tokens effectively sit in your wallet providing no additional value on their own. With Raydium you’re able to stake these LP tokens in special Yield Farms to earn more rewards paid out in Raydium’s native RAY token. This allows you to double-dip, earning extra APY for providing liquidity to a select list of market pairs.

1. Find your pair

From the farm tab, you can access all available farms on the network. To stake your LP tokens find the correct pair for the liquidity provided. Since we provided liquidity for RAY/SOL we’ve received LP tokens specific to that pair.

2. Stake

Click the “Stake LP” box and you’ll receive the following menu. Choose the amount you wish to Stake and click Confirm.

3. Approve

Approve the transaction and you’ll receive a prompt that indicates your transaction has been sent, and one to confirm the transaction has settled.

4. View rewards

You’ll now be able to view your pending rewards and harvest them whenever you like. 

Don’t forget that you’ll need to unstake your LP tokens from any farm before reclaiming your liquidity. To unstake simply choose the minus sign (-) next to where you “Stake LP” tokens and the amount you wish to unstake. Confirm the transaction and you’ll have your LP tokens returned to your wallet.

Staking Raydium Token (RAY)

Raydium allows users to Stake RAY tokens and earn the highest annual percentage yield available for RAY token. This lets long-term holders earn even more tokens for their existing positions by compounding payouts that can be staked over and over. This method of reinvesting is commonly known as the snowball effect. Combining everything we’ve learned about providing liquidity, we can take the RAY token we earned from being an LP & staking those LP tokens to earn even more rewards. Giving you the ability to earn three times the rewards you would get for providing liquidity alone.

1. Go to the “Staking Tab”

Make your way over to the “Staking Tab” to begin earning rewards for your RAY Token. 

2. Stake RAY

Click “Stake RAY” and you’ll be prompted with the following menu. Choose the amount you wish to stake and click confirm.

3. Approve

Approve the Staking transaction and you’ll receive a confirmation shortly afterward.

That’s all there is to it! You can now view your current staked amount and harvest your rewards whenever you like without needing to unstake your RAY token. If you would like to unstake your tokens, follow the same directions outlined in staking LP tokens by using the minus (-) sign next to “Stake Ray”. The snowball effect occurs when you harvest your rewards and re-stake them every couple of weeks.