Drift Protocol: Revolutionizing Decentralized Derivatives I Consumer Spotlight

In the world of decentralized derivatives, Drift Protocol emerged as a disruptor on Solana. This case study explores Drift's journey from its inception to its latest iteration, before analyzing how Pyth Price Feeds enabled Drift’s success as an innovative perps protocol.

The Solana Advantage

Drift's decision to build on Solana was driven by the blockchain’s low-latency block times and high bandwidth. This in turn enables rapid settlement times with minimal transaction fees. More specifically, Solana’s sub-second block time enables precise oracle data integration, a vital component for accurate margin value calculations, PnL updates, and real-time liquidations.

Drift V1: Redefining Automated Market Making

In November 2021, Drift V1 launched with the aim of revolutionizing the virtual automated market maker (vAMM) concept.

It introduced the dynamic automated market maker (DAMM), offering guaranteed liquidity, minimized slippage, and an exceptional trading experience. Within six months, Drift V1 garnered over 15K users and facilitated a trading volume close to $10 billion.

During this rapid growth phase, Drift released its limit order feature. This development is powered by a hybrid decentralized order book (DLOB) model that settles trades against Drift’s DAMM.

Drift also launched Maker Orders which allow users to provide liquidity to the exchange actively. This feature enabled users to become ‘market makers’ and in return, earn exchange spreads and limited-time rebates.

The V1 exceeded expectations in terms of adoption and use and shaped what the future of Drift and its V2, would look like.

Drift V2: Evolution and Innovation

On December 19, 2022, Drift V2 launched as a significant evolution from V1. It enhanced liquidity depth through the "Liquidity Trifecta": combining decentralized order books, Just-in-Time (JIT) Liquidity, and passive Liquidity Providers (LPs).

Drift V2 transformed into a full-service decentralized exchange, offering spot trading, borrowing and lending, passive LP participation, and Insurance Fund staking.

As part of this V2 update, Drift introduced robust security measures. This included multi-step oracle validity checks, P&L asset weight calibration, a new P&L accounting mechanism, and an auto-settlement mode for long-tail events.

V2 was a success, with the Drift platform seeing over $100M in volume in less than two months and $10M in TVL in seven months.

Notable Achievements

The Drift Protocol has achieved notable milestones, including reaching $1 billion in cumulative volume by September 2023.

As of the time of writing, Drift stands at $19M in TVL, 9K total users, and 4.3 million trades.

You can discover more of Drift’s stats on DefiLlama here.

Drift is #PoweredByPyth: Ensuring Data Integrity

Part of Drift’s popularity among traders is the diversity of tradable markets the platform offers. Thanks to Pyth Price Feeds, Drift offers fifteen markets across popular assets such as SOL, BTC, ETH, HNT, BONK, and many others.

Drift was able to launch new perp markets for ARB and SUI on the same day those blockchains launched on mainnet—a testament to the speed of execution of the Pyth oracle network. Being able to launch highly anticipated markets quickly allows Drift to become a hotbed of trading activity among strategic and sophisticated users.

When it came time to launch the JITOSOL Pyth Price Feed, Drift was immediately on the ball with adding new markets and enabling JITO as collateral for their platform.

Pyth prices are low-latency, which allows Drift to deliver a responsive and smooth UX. The Pyth confidence interval feature also enables the Drift protocol to respond to market volatility and unusual price dispersions to better protect users and funds.

We can’t wait to hear what you think! You can join the Pyth Discord and Telegram, follow us on Twitter, and be the first to hear about what’s new in the Pyth ecosystem through our newsletter. You can also learn more about Pyth here.