Backing Titan: A New Chapter in Solana's Market Structure Evolution
Alongside our lead investment in Titan, Solana’s premier meta-dex aggregator, we wanted to share our perspective on Solana's evolving market microstructure and where Titan fits within this rapidly transforming landscape.
The Evolution of Solana's Trading Infrastructure
Solana's market structure has undergone a dramatic transformation over the past two years, driven by an explosion in retail activity and the unique demands of high-frequency onchain trading. The journey began with traditional order book exchanges like Serum and Phoenix, where market makers provided active liquidity with tighter spreads than passive automated market makers (AMMs) that use standard xy=k bonding curves. These venues initially dominated price discovery, with Phoenix handling substantial flow for large trades, particularly during the memecoin frenzy of early 2024. But such venues have historically lagged centralized exchange orderbooks (and still do).
Onchain trading infrastructure faced critical challenges. During the peak congestion period of March-May 2024, Solana became nearly unusable for market makers. Traders were sending thousands of transactions per second but only landing 2-3 onchain. Updating quotes on order books required hundreds of thousands of compute units (Solana’s unit for computational effort) , making transactions increasingly difficult to schedule. More importantly, public quotes on exchanges like Phoenix made market makers vulnerable to being "picked off" by sophisticated arbitrageurs, creating toxic flow that degraded profitability despite high retail volumes.
The Rise of Proprietary AMMs
This pressure catalyzed the emergence of "prop AMMs" or "dark AMMs" in Fall 2024. These protocols represent a fundamental shift in how professional market makers provide liquidity on Solana. Unlike traditional AMMs, prop AMMs don't publish their source code or matching logic publicly. Instead, they integrate directly with routers like Jupiter while keeping their pricing algorithms opaque.
A prop AMM uses preference curves that allow updating liquidity across many markets with just a few parameter changes, rather than traversing complex order book structures. This efficiency enables them to provide tighter spreads while protecting against toxic flow by making it difficult for arbitrageurs to interact with their contracts directly. The result is a cat-and-mouse game where sophisticated traders attempt to "dress up as non-toxic flow" to access these better prices through aggregators.
The traditional order book model is fundamentally breaking down on Solana, and this is a feature of DeFi composability rather than a bug. The core issue comes down to state management economics: maintaining a full order book onchain requires updating multiple price levels with every market move, and with Solana's priority fees plus Jito tips, each update can cost hundreds of thousands of compute units, making it economically unviable for market makers to maintain competitive quotes across dozens of price levels. Order books traditionally aggregate different orders into one unified structure so takers get the best available price from an auction process. But aggregators have become Solana's synthetic order book, with prop AMMs acting as intelligent order placers that can update their entire pricing curve with a single parameter change. This is only possible because of DeFi's composability, where smart contracts can interact atomically within a single transaction, something impossible in TradFi's siloed systems or CEX environments with opaque matching engines. Instead of maintaining expensive state across multiple discrete price levels requiring individual updates, prop AMMs use oracle-based pricing curves that can update all quotes with a single transaction, equivalent to placing 100 orders simultaneously on a traditional order book. This composable architecture has unbundled and rebuilt the order book into a distributed price discovery mechanism where aggregators serve as the matching engine, prop AMMs provide the liquidity, and mathematical optimization ensures best execution, all while maintaining atomic composability.
Fragmentation Demands Superior Aggregation
Today's Solana trading landscape is remarkably fragmented. With over 10,000 pools of liquidity, multiple prop AMMs each with proprietary pricing logic, and traditional DEXes all quoting different prices, effective aggregation has become paramount for achieving competitive execution. This fragmentation creates an environment where price discovery cannot happen efficiently without sophisticated routing algorithms that can navigate this complex liquidity maze.
Both elastic and inelastic users on Solana ultimately receive the best price through aggregators, which now handle 81% of all DEX volume on the network. This stands in stark contrast to Ethereum, where only 20% flows through aggregators. The dominance of aggregated flow on Solana creates powerful incentives for continuous innovation in routing technology.
Titan's Mathematical Edge
This is where Titan enters the conversation. While most aggregators employ classical pathfinding algorithms like Bellman-Ford, Titan leverages pure mathematical optimization to achieve superior execution.
The fundamental difference is precision: pathfinding algorithms force "chunking" of liquidity into discrete segments (10%, 20%, etc.), creating inefficiencies in how trades are split across venues. Titan's convex optimization approach can precisely allocate any percentage across multiple pools simultaneously, achieving machine-level precision that extracts maximum value from the fragmented liquidity landscape.
This isn't merely an incremental improvement. The mathematical approach allows Titan to incorporate far more pools into its routing calculations and find optimal paths that classical algorithms simply cannot discover. Mechanically, this means users consistently receive better prices: how much X they get for Y is demonstrably superior.
Titan’s Economics of Incremental Improvement
Consider the compound effect of Titan's demonstrated execution improvements. A trader executing $1,000 swaps who captures Titan's average 21 basis points savings per trade accumulates substantial value over time. For active traders executing 10 trades daily, Titan's superior routing translates to $7,665 in annual savings through linear accumulation alone. When these savings are reinvested and compounded, the value grows to $10,384 annually, a 35% increase over simple linear gains. For algorithmic strategies that dominate Solana's volume, Titan's execution advantage becomes even more meaningful. Both Phantom and other wallets charge fees on what users receive from trades, making Titan's consistent outperformance directly valuable. The difference between receiving 100 SOL versus 99.5 SOL through Titan's optimized routing, compounded over thousands of transactions, represents real portfolio growth that scales with trading frequency and size.
The Path Forward: Market Structure Evolution
Looking ahead, we see several key trends shaping Solana's market structure:
Zero-commission competition will intensify as aggregators compete for market share. The traditional finance Payment for Order Flow (PFOF) market provides a compelling analog for sustainable monetization. In May 2024 alone, US retail brokers received $461 million in payment for order flow, with Robinhood generating over $100 million monthly. This model works because market makers value non-toxic retail flow. Unlike traditional markets with standardized National Best Bid and Offer (NBBO) pricing, Solana's PFOF is more nuanced, with DEXs and market makers able to segment flow by wallet address or execution complexity.
Titan's positioning mirrors Interactive Brokers' evolution: starting as a technology-first execution platform before expanding into a full-service brokerage. Like IBKR, Titan can monetize through execution fees for sophisticated traders, PFOF arrangements for flow, and premium services for institutional clients. The key difference is that Solana's fragmented market structure makes superior routing technology even more valuable.
Liquidity provider fragmentation will continue as more sophisticated trading shops launch prop AMMs. Teams like Wintermute, Wincent, and newer entrants are constantly upgrading their algorithms, creating an arms race in execution quality. This benefits users through tighter spreads but demands increasingly sophisticated aggregation.
Faster finalization times through upgrades like Alpenglow will reduce slippage and enable more confident pricing. As block times shrink and finality improves, aggregators can quote tighter spreads with less buffer for adverse price movement.
Final RFQ integration represents the next frontier. Request-for-quote systems add latency but provide guaranteed fills at quoted prices. The trade-off between speed and certainty can create differentiated offerings for different user segments.
Titan's Strategic Position
We believe Titan is uniquely positioned to capture value in this evolving landscape. Beyond the technical advantages of mathematical optimization, the platform can generate revenue through multiple channels: integration partnerships with wallets, premium products for sophisticated traders, and eventually order internalization opportunities as volume scales.
As Solana's infrastructure matures and institutional adoption accelerates, the demands on execution quality will only intensify. The market may reward platforms that can navigate increasing complexity while delivering consistent value to users.
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