Exploring Saber: a Solana-based Decentralized Exchange

Introduction

In exploring the ongoing development of the Decentralized Finance (DeFi) space, Saber provides a case study as a Solana-based Decentralized Exchange (DEX). As a platform focused on stablecoin and wrapped asset trading, Saber occupies a unique position in the DeFi ecosystem with its innovative Automated Market Maker (AMM) model. The purpose of this paper is to fairly and impartially analyze Saber’s core functionality, application scenarios, and role in the current DeFi environment, as well as to examine its potential to improve trading efficiency and reduce transaction costs. From this neutral perspective, we will delve into how Saber plays a role in the development of blockchain technology and the challenges and opportunities it may face in the future.

Basic Concept

Saber: Solana-based decentralized exchange (DEX) using the Automated Market Maker (AMM) model, primarily supporting stablecoin and wrapped asset trading.

Solana: High throughput blockchain which is known for low transaction costs and high speed processing power.

Stablecoin: A digital currency whose value is pegged to a stable asset (e.g. USD).

Wrapped Assets: Solana versions of other cryptocurrencies on the blockchain.

Liquidity Pool: A pool of funds where users deposit assets to provide market liquidity.

AMM (Automated Market Maker): An algorithm used in decentralized exchanges that allows digital assets to be traded automatically.

What is Saber？

Saber is a decentralized exchange (DeX) based on the Solana blockchain that plays an important role in the cryptocurrency market. It operates primarily through the Automated Market Maker (AMM) model, a model that enables users to trade cryptocurrencies without the supervision of a centralized institution, enhancing the decentralized nature of trading.

Dylan Macalinao (Co-founder of Sabre and ShipCapital) shared an article on cryptopedia with an accompanying image (Source: Gemini)

Saber demonstrates the diversity of its marketplace when it comes to trading stablecoins and wrapped stablecoins. So-called stablecoins are digital currencies whose value is pegged to some stable asset (e.g., the U.S. dollar), while packaged stablecoins are a method of transferring value between different blockchain platforms. Saber supports these trading pairs, offering users the convenience of switching between different crypto assets.

In addition, Saber offers liquidity pooling and staking. Users can invest their funds into Saber’s liquidity pool as a way to support the liquidity of the exchange and receive a portion of the transaction fees in return for doing so. This not only improves the efficient utilization of funds but also creates a revenue stream for users.

Saber’s operation on the Solana blockchain gives it an advantage in terms of processing speed and cost-efficiency. Solana is a high-performance blockchain platform capable of supporting high-frequency transactions and low latency, which is critical for exchanges. In addition, Saber’s user-friendly interface design lowers the barrier for users to participate in the DeFi market.

Overall, Saber operates as a decentralized exchange on the Solana blockchain, offering trading services for stablecoins and wrapped stablecoins. It employs the Automated Market Maker (AMM) model and has demonstrated its technological capabilities in providing fast transaction processing and user-friendly design. These features of Saber have an impact on the development of the DeFi market. In addition, the professional experience of its team and the history of the project provide some basis for its possible future growth and expansion.

The Origin and Development of Saber

Saber was developed by Saber Labs, led by the Macalinao brothers - Dylan and Ian - and officially launched in June 2021. Saber Labs is headquartered in the Philippines. In July 2021, Saber Labs closed a $7.7 million seed funding round, led by Race Capital with participation from Chamath Palihapitiya’s Social Capital, Jump Capital, Multicoin Capital and Solana Foundation.

Saber Official Website （source: saber.so）

Technically, Saber adopts the Automated Market Maker (AMM) model, which allows users to trade cryptocurrencies without a centralized authority. Saber operates multiple liquidity pools, with each pool representing a trading pair, such as USDT and USDC. Liquidity providers can earn revenues through transaction fees. In addition, Saber’s technical features include low transaction fees, low slippage, and fast execution times. These advantages are made possible by its native blockchain, Solana, which boasts higher throughput and lower transaction costs compared to Ethereum.

One of Saber’s competitive advantages is the number of assets it supports. For example, Saber supports a larger number of assets than other DEXs on Solana such as Mercurial Finance, thus attracting more liquidity. Saber places special emphasis on support for stablecoin and wrapped stablecoin pairs, emphasizing the current and future applications of these assets in the decentralized finance (DeFi) market.

The TVL Controversy in the Solana Ecosystem

The U.S. Department of Justice is investigating the founders of Saber Labs, the Macalinao brothers. According to CoinDesk, the brothers created an interconnected ecosystem of financial products through the use of 11 pseudonymous identities, and by cycling tokens between their projects, they were able to increase Solana’s key growth metric TVL (Total Locked Value) at the peak of the cryptocurrency market in 2021, the TVL spuriously by billions of dollars.

The report notes that Ian Macalinao orchestrated a scheme to enable the value of a single dollar to be counted multiple times by constructing protocols that overlay each other to optimize Solana’s Total Value Locked (TVL) in the summer of 2021. This metric was considered extremely important at the time. The investigation also involved Saber-related projects such as Sunny Aggregator and Cashio, which were allegedly developed in secret by Ian under a pseudonym.

This controversy and subsequent investigation have led to significant changes in the operations of Saber and its related projects. The Macalinao brothers have exited their crypto venture capital firm, Protagonist VC, and have turned over many projects built under pseudonyms to other entities. While Saber is still operating, some of the affiliated projects have seen a decrease in activity or have become inactive. This situation also highlights the complex challenges and ethical considerations of the decentralized finance space, underscoring the need for transparency and accountability in decentralized financial operations.

Saber’s Market Performance

Technically, Saber benefits from its operation on the Solana blockchain, which gives it a significant advantage in terms of transaction processing speed and low cost compared to other blockchains like Ethereum. For example, Solana can achieve up to 65,000 transactions per second, far surpassing Ethereum’s processing capacity of 15 transactions per second.

In terms of liquidity pools, Saber operates approximately 25 liquidity pools, providing users with opportunities for stablecoin swaps and staking. Liquidity providers can earn a portion of the transaction fees as rewards by staking their funds. Although these yields may fluctuate in the short term, Saber’s liquidity pool staking yields are relatively high according to DeFi standards.

Regarding Saber’s native token, $SBR is used not only as a transaction token but also for platform governance.

Data of $SBR（source: gate.io，2024.01.13）

In terms of overall market performance, $SBR’s trading volume has declined by 19.30% over the past 24 hours, indicating a downward trend in market activity. However, Saber, Solana’s first decentralized exchange focusing on stablecoins, still has the potential to make its place in the market.

Data of $SBR (Source: coingecko, 2024.01.13)

In summary, Saber has demonstrated its advantages as a Solana-based decentralized exchange in terms of market performance, especially in terms of trading efficiency and liquidity pools. However, compared to the global cryptocurrency market and similar Solana ecosystem cryptocurrencies, Saber’s performance is relatively weak. The price volatility of $SBR and the decrease in trading volume reflect market volatility and uncertainty.

Saber’s Role in DeFi

Saber plays an important role in the DeFi ecosystem. As a decentralized exchange, Saber focuses primarily on stablecoin exchanges and liquidity pool stakings. Users can easily exchange between different stablecoins, such as USDT for USDC, a feature that is especially important in the DeFi space. Additionally, users can earn by staking funds into Saber’s liquidity pool.

Token Swap（source：saber）

In terms of trading mechanisms, Saber leverages Solana’s high processing power and low transaction costs to provide the benefits of fast trading and low transaction fees. Saber’s Automated Market Maker (AMM) model allows users to trade directly with liquidity pools without waiting for a trader on the other side. This mechanism not only improves the efficiency of trading but also brings convenience to Saber’s users.

Liquidity Provision（source：saber）

Saber has also improved liquidity and trading activity in the DeFi market with a diverse set of trading pairs and efficient transaction processing capabilities. Saber’s liquidity pool staking not only provides a way for users to earn revenue but also promotes the overall health of the DeFi market.

Liquidity Mining (Source: saber)

Compared to other DeFi platforms, Saber stands out for its low fees and high-speed transactions, as well as its focus on stablecoin exchanges. These features give it a unique position in the DeFi market. However, like any DeFi project, Saber also faces challenges such as smart contract security and project transparency. Therefore, when considering an investment, investors should assess the project’s technical architecture, team background, smart contract audit history, and tokenomics.

Saber’s Uniqueness and Core Features

Saber’s uniqueness is reflected in several aspects of being a decentralized exchange (DeX). The core functionality of Saber is based on the Automated Market Maker (AMM) model, which allows users to trade directly with the liquidity pool without having to wait for another trader. This is particularly important for stablecoin trading, as stablecoin transactions require a fast and efficient trading mechanism to maintain their value stability.

Saber’s StableSwap algorithm is another unique feature that aims to reduce the risk of impermanent loss for asset pairs in transactions. Additionally, the governance power of Saber is held by holders of its native token, SBR, who can acquire governance power by locking SBR and participating in the platform’s decision-making process.

Saber’s operation on the Solana blockchain brings the advantages of high liquidity and low slippage. The high processing power and low transaction costs of Solana provide the technical support for Saber’s efficient operation. Solana can handle a much larger transaction volume than Ethereum, significantly reducing network congestion issues, thus offering Saber the advantage of fast transaction execution and low transaction fees.

Saber also provides cross-chain exchange functionality, supporting over 80 types of stablecoins and wrapped stablecoin trading pairs. This allows users to easily trade wrapped versions of cryptocurrencies on blockchains other than Solana, enhancing its market adaptability and diversity.

In terms of liquidity, Saber offers multiple liquidity pools that allow users to deposit funds and earn passive income through trading fees. These liquidity pools not only provide stable income sources but also incentivize user participation in governance through the distribution of SBR tokens.

In conclusion, Saber’s uniqueness lies in its efficient AMM model, StableSwap algorithm, cross-chain exchange capabilities, and the fast transaction speed and low-cost advantages of the Solana blockchain. These features position Saber as an important player in the DeFi ecosystem, providing users with diversified investment and trading options.

Tokenomics of $SBR

$SBR token plays an important role as the native token of the Saber decentralized exchange. It is based on the SPL standard of the Solana blockchain and has utility and governance functions.

Firstly, Saber’s main advantages lie in its low transaction fees, low slippage rates, and fast execution time. These advantages are due to its operation on the Solana blockchain, which has higher throughput and lower transaction costs. Compared to Ethereum, Solana can process approximately 65,000 transactions per second, while Ethereum can only handle around 15 transactions per second.

The two main use cases of $SBR are:

• Utility: $SBR tokens are used to reward users who provide liquidity to Saber. By contributing funds to Saber’s liquidity pools, users can earn a portion of the transaction fees as rewards. Saber currently operates multiple liquidity pools, each representing a trading pair, such as USDT-USDC. Liquidity providers can earn profits based on every transaction involving the trading pair on the platform.
• Governance: $SBR token holders have voting rights and can participate in the decision-making process of the Saber decentralized autonomous organization (DAO). This increases users’ influence over the platform’s development direction.

Regarding the supply of the $SBR token, the total supply is 10 billion tokens, with a circulating supply of approximately 99,666,196 tokens. The distribution of $SBR tokens includes mining reserves, partners and ecosystems, teams and advisors, strategic financing, and liquidity reserves. For example, mining reserves account for 31.42% of the total supply, partners and ecosystem account for 25.10%, team and advisors account for 19.58%, strategic financing accounts for 15.48%, and liquidity reserves account for 8.42%.

The market performance of the $SBR token shows that its price has decreased by 99.64% since its all-time high of $1.12 on September 10, 2021, and has increased by 699.24% since its all-time low of $0.0005 on December 11, 2022.

$SBR’s Market Performance (Source: bitdegree, 2024.01.13)

In conclusion, the $SBR token plays a central role in the Saber ecosystem, serving not only as a reward mechanism for trading and providing liquidity, but also as a crucial element for platform governance. As Saber continues to evolve, the functionality and value of the $SBR token may further manifest. However, like all cryptocurrencies, investing in the $SBR token comes with market volatility and risks. Investors should conduct detailed market analysis and risk assessment when making investment decisions.

Challenges and Risks Ahead

Here are some key risks and challenges that Saber and its users may encounter:

Smart Contract Risk: Smart contracts are the core of DeFi platforms but they are also a major source of risk. Programming errors, logic loopholes, or economic exploits can lead to attacks on smart contracts, resulting in financial losses.

Oracle Risk: Oracles provide necessary external data, such as price information, to DeFi. If these third-party services encounter issues, it may cause smart contracts to fail or execute erroneously.

Custodial Risk: In DeFi, the assets are held by users, which means that the loss or theft of private keys can result in asset loss.

Regulatory Risk: DeFi is largely unregulated at present, which may invite intervention from regulatory authorities, potentially affecting the operation of DeFi projects and the security of user assets.

Impermanent Loss in Liquidity Provision: In DeFi, users who provide funds to liquidity pools may face the risk of impermanent loss. When the price of an asset in the pool fluctuates, it may cause providers to lose value when exiting.

Scalability and High Transaction Fees: As the number of users and transaction volumes on DeFi platforms increase, blockchain networks may face congestion issues, leading to higher transaction fees and slower transaction speeds.

Technical Optimization and Security Concerns: DeFi is still in its early stages, and technical optimization and security remain major challenges. As more security vulnerabilities are discovered, the security of the DeFi ecosystem needs continuous improvement.

These risks and challenges highlight the need for Saber and other DeFi projects to prioritize security, regulatory compliance, and user protection while pursuing financial innovation. It is crucial for users to be aware of these potential risks and challenges when participating in DeFi projects.

Saber Competitor Comparison

Saber, as a decentralized exchange (DEX) focused on stablecoin trading and staking, primarily operates on the Solana blockchain. Its competitors include Raydium, Curve Finance, Mercurial Finance, and Ellipsis Finance, among others. Saber’s unique advantages lie in its low transaction fees, low slippage rates, and fast execution times, thanks to its operation on the Solana blockchain, which has higher processing capabilities and lower transaction costs than Ethereum.

Some key features of Saber compared to its competitors include:

Automated Market Maker (AMM) model: Saber utilizes the AMM model to facilitate trading, allowing users to trade directly with the liquidity pool without waiting for another counterparty.

Cross-chain trading capabilities: Saber supports cross-chain trading, including the trading of wrapped assets from different blockchains such as Binance, Ethereum, and Bitcoin.

High liquidity: Saber provides multiple liquidity pools, allowing users to earn a portion of the trading fees as rewards by staking their funds.

Governance structure: The governance power of Saber is held by the holders of its native token, SBR, who can participate in platform decisions through governance voting.

When comparing Saber to other DeFi platforms, we can see some key differences:

Technical Platform: Saber is built on Solana, while many other DeFi platforms like Uniswap, Aave, Maker, etc. are primarily based on the Ethereum blockchain. This gives Saber an advantage in terms of transaction speed and cost, but it may be limited by the scope and maturity of the Solana ecosystem.

Focus Area: Saber primarily focuses on stablecoin and wrapped asset trading, while other platforms like Uniswap, PancakeSwap, and Curve Finance offer a wider range of cryptocurrency trading services and other functionalities such as lending, liquidity mining, and yield generation.

Governance and Community Involvement: Saber’s governance structure relies on its native token SBR, while other DeFi projects may adopt different governance models and community involvement strategies.

Overall, Saber’s competitive advantage in the DeFi space mainly comes from its operation on Solana, providing fast transactions and low costs. Its strategy of focusing on stablecoin and wrapped asset trading sets it apart from other DeFi platforms in specific areas. However, as the DeFi market rapidly evolves and competition intensifies, Saber needs to continue innovating and adapting to market changes to maintain its competitiveness.

Conclusion

Saber, as a decentralized exchange on Solana, stands out in the DeFi market with its unique services in stablecoin and wrapped stablecoin trading. The platform employs an advanced Automated Market Maker (AMM) model, combined with efficient transaction processing and user-friendly interface design, providing strong support to the DeFi sector. Saber’s success is not only attributed to its technological innovation and liquidity provisioning capabilities but also to the expertise of its team and the robust development trajectory of the project, which lays a solid foundation for its future growth and expansion.

As an active participant in the DeFi ecosystem, Saber has made significant contributions in driving technological innovation, providing liquidity, and implementing decentralized governance, thus establishing its position in the rapidly evolving cryptocurrency market. However, with the continuous evolution of the DeFi space and intensifying competition, Saber faces ongoing challenges to adapt and evolve to maintain its competitive edge in the market. Moving forward, how Saber keeps innovating and remains efficient in the rapidly changing cryptocurrency landscape will be key to its continued success.

References：
[1]What is Saber? Solana Crypto Exchange with SBR Coin | Gemini

[2]What Is Saber: Stablecoin DeX on Solana - Phemex Academy

[3]Saber Documentation

[4]Review Saber Protocol($SBR) – Everything you need to know about Saber Protocol -

[5]What Is Saber? All Information About Saber Token (SBR)

[6]DeFi-ing the Rules: Five Opportunities and Five Risks of Decentralized Finance | CFA Institute Enterprising Investor

[7]Saber is DeFi’s Cross-Chain Liquidity Network [Solana Series] - New To Crypto Podcast

[8]The Beginner’s Guide to Saber

[9]Justice Department Probing Saber Labs Founders Over Solana-Based Projects: Sources