Prop AMMs Are Solana's Biggest DeFi Innovation

The trading infrastructure that powers Solana's decentralized finance ecosystem has undergone a profound transformation over the past year. A new category of market makers known as proprietary automated market makers—or prop AMMs—has emerged to capture the majority of trading volume for large-cap assets on the network. These sophisticated systems are delivering spreads tighter than what traders find on centralized exchanges, fundamentally reshaping how liquidity is provided on-chain while raising important questions about transparency, competition, and the future of decentralized trading.

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Chris Hermida, who brings extensive experience from some of the largest trading desks in crypto and currently works with Switchboard, joined the Lightspeed podcast to provide an expert perspective on this phenomenon. His insights reveal not just the technical mechanics of prop AMMs but also their broader implications for Solana's competitive position in the blockchain ecosystem and the evolution of internet capital markets.

Understanding the Foundation: What Are Prop AMMs?

Prop AMMs represent a significant departure from traditional automated market makers that have powered decentralized exchanges since the early days of DeFi. While conventional AMMs like Uniswap determine prices based on the ratio of assets in a liquidity pool—using mathematical constants to price trades based on the last transaction—prop AMMs take an entirely different approach by integrating external price feeds to provide more accurate, real-time pricing.

As Hermida explained during the conversation, he actually takes issue with the term "prop AMMs" because these systems are fundamentally oracle AMMs at their core. "Every prop AMM, if you will, is actually at its core an Oracle AMM," he noted. "There's some logic that can be updated within Oracle, whether it's price, whether it's the curve, whether it's some other components there as part of it." This distinction is important because it highlights the technology that makes these systems possible—the ability to pipe in price data from where true price discovery happens, typically on centralized exchanges like Binance.

The innovation here is substantial. Traditional AMMs suffer from what's known as impermanent loss, where liquidity providers consistently lose money relative to simply holding the underlying assets because the pool's pricing lags behind market movements. Sophisticated arbitrageurs can exploit these stale prices, extracting value from LPs in the process. Oracle AMMs solve this problem by updating prices proactively based on external reference prices, making the liquidity more reactive to actual market conditions.

The Evolution from Reactive to Proactive Liquidity

To understand why prop AMMs represent such a significant advancement, it helps to think about traditional AMMs as providing "reactive liquidity," as Hermida described it. With a simple AMM, liquidity providers must constantly update or withdraw their positions to avoid being picked off by more informed traders. Price discovery for major assets happens primarily on centralized exchanges, and passive LPs on traditional AMMs are essentially always trading against information asymmetry.

Prop AMMs flip this dynamic by allowing liquidity to be more reactive to what's happening in other markets. Instead of waiting for arbitrageurs to correct mispricing through trades, these systems proactively update their prices to reflect current market conditions. This means LPs are less likely to lose money to adverse selection, and they're more willing to commit capital to provide liquidity. The result is tighter spreads for the majority of average users trading these assets.

What makes this particularly compelling is that Solana users are now getting better execution on certain pairs than they would on major centralized exchanges. "There was a bit of a meme," Hermida recalled, referencing how on-chain spreads on Solana have become tighter than centralized exchanges for many assets. "Net of fees, it's definitely the case. And again, obviously it varies on the pair, it varies on the time. But I think you're really actually seeing internet capital markets and you're seeing really efficient DeFi systems out there because of this."

Why Late 2024 Marked the Turning Point

Oracle-based AMMs have existed on Solana for years—Lifinity and others pioneered this approach well before the current prop AMM boom. So why did these systems suddenly explode in popularity toward the end of 2024? According to Hermida, the answer lies in the confluence of two critical factors: the evolution of aggregators and the dramatic increase in on-chain trading volume.

The rise of Jupiter as the dominant DEX aggregator on Solana created a natural point of integration for prop AMMs. These systems don't operate their own front-ends that users interact with directly—instead, they plug into aggregators like Jupiter, Camino, Titan, and OKX Wallet. When a user executes a swap through one of these platforms, the aggregator routes the trade to whatever liquidity source offers the best price. This architecture created a competitive marketplace where prop AMMs could compete directly with traditional AMMs for order flow.

The other crucial ingredient was volume. The meme coin explosion and broader resurgence of interest in Solana brought massive amounts of retail trading activity on-chain. This volume made it economically viable for sophisticated market makers to invest in the infrastructure required to run prop AMMs—systems that push price updates every slot to maintain competitive pricing. Without sufficient volume, the costs of operating these systems wouldn't be justified.

The Dramatic Shift in Market Share

The data tells a compelling story about how quickly prop AMMs have come to dominate Solana's trading landscape. Looking at SOL-stablecoin swaps in February 2024, the market was dominated by familiar names: Orca, Lifinity, Raydium, Phoenix, and Meteora. These were the established AMMs and DEXes that had powered Solana trading for years.

Fast forward to the present, and the landscape looks completely different. Humidify has emerged as the dominant player in many pairs, despite the identity of its creators remaining unknown to the public. Solphi, which is built by Ellipsis Labs—the team also developing the Phoenix order book and the Atlas L2—has captured enormous market share. Other new entrants like Stable and Obric have appeared seemingly out of nowhere to claim significant portions of trading volume.

For stablecoin swaps specifically—trading USDT for USDC or similar pairs—the transformation has been equally dramatic. Where Orca, Meteora, and Raydium once dominated, now Solphi and a entity called Stable lead the pack, with Obric and other new entrants following closely behind. This isn't just a minor reshuffling; it represents a fundamental change in the competitive dynamics of Solana's DEX ecosystem.

The Mystery Behind the Market Makers

One of the most intriguing aspects of the prop AMM phenomenon is the secrecy surrounding their operators. For months after these systems began capturing significant volume, nobody knew who was behind them. Even now, while some creators have stepped forward, many of the largest prop AMMs remain associated with anonymous addresses.

Hermida offered some insight into why this opacity persists. "Don't never ask a man his salary, a woman her age, or a dex aggregator who's behind a certain prop AMM," he joked. But the reasoning goes deeper than mere privacy preferences. If a market maker has developed a proprietary edge in how they price assets or manage risk, publicly revealing their identity and methods would invite competitors to reverse-engineer their approach.

There's also a cultural component at play. Traditional high-frequency trading firms are notoriously secretive—they rarely issue press releases, avoid media attention, and guard their strategies jealously. As these firms have entered the crypto space, they've brought this culture of secrecy with them. The on-chain nature of blockchain creates an interesting tension here, as sophisticated analysts can often deduce who controls certain address clusters, but public confirmation remains rare.

The podcast featured an amusing aside about one prop AMM called "Goonfi." Apparently, Connor from Temporal had claimed on the Validated podcast that his team was behind it, explaining that the colorful name was chosen after he beat someone named Ben in a game of chess and was given naming rights as a reward. However, Jack followed up during the episode to confirm this story was fabricated—a bit of crypto humor that underscores how little is actually known about these operations.

The Competitive Dynamics of Order Flow

The central battleground in the prop AMM wars is order flow—the stream of trades from retail users that these systems compete to fill. Understanding why order flow is so valuable requires appreciating the concept of "toxic flow" that Hermida explained during the conversation.

"Toxic flow doesn't mean bad. It doesn't mean necessarily illegal. It doesn't mean what you might think," Hermida clarified. "It just means a trade where the other side of it is informed flow and you will likely lose money on that." Consider a market maker who receives an order to sell a large amount of Solana that's being broken into smaller chunks. If they take the other side of the first few pieces without realizing more is coming, they'll likely end up underwater as the price moves against them.

Prop AMMs and aggregators alike try to bifurcate flow—separating the informed, potentially toxic flow from uninformed retail orders that are generally profitable to fill. This is why prop AMMs don't operate public front-ends; exposing themselves directly to any trader would invite sophisticated players to game their pricing algorithms. By routing exclusively through aggregators that have their own filtering mechanisms, prop AMMs can focus on the retail flow that represents genuine opportunity.

This dynamic creates an interesting ecosystem where the fundamental question becomes: can you give a better price to retail users while still accounting for market maker spreads and protecting against toxic flow? The success of prop AMMs suggests the answer is yes, at least for now.

How Prop AMMs Actually Function

The technical mechanics of prop AMMs involve continuously pushing price updates to the Solana blockchain, typically every slot (approximately 400 milliseconds). These updates reflect the latest price information from wherever primary price discovery is happening—usually centralized exchanges like Binance—plus whatever proprietary adjustments the market maker's algorithms apply.

When a user initiates a swap through Jupiter or another aggregator, the system queries all available liquidity sources—traditional AMMs, order books, and prop AMMs alike—to find the best execution. If a prop AMM is offering the tightest spread, the trade routes through them. The user never needs to know or care about this routing; they simply receive a better price than they might have otherwise.

This architecture is remarkably capital efficient. Prop AMMs don't need to maintain massive liquidity pools in the traditional sense. Instead, they're essentially streaming quotes that they're willing to fill, backed by the market maker's inventory and risk management systems. This efficiency is partly why these systems have been able to capture such enormous market share so quickly.

One important constraint is the cost of pushing these frequent updates. Maintaining a prop AMM requires paying transaction fees every slot to keep prices current. This cost structure inherently limits prop AMMs to high-volume assets where the trading revenue justifies the infrastructure expenses—or alternatively, to assets with wide enough spreads that occasional updates can still be profitable.

The RFQ Alternative and Why It's Losing

Request-for-quote (RFQ) systems represent an alternative approach to the same problem prop AMMs are solving. In an RFQ system, a trader requests quotes from multiple market makers, who compete in an auction to provide the best price. The trader then accepts or rejects the winning quote.

Jupiter does have an RFQ system, and RFQ protocols exist throughout the Solana ecosystem and beyond. However, Hermida explained why prop AMMs have generally outcompeted RFQs on Solana: the required acceptance window introduces pricing optionality that must be accounted for.

When a trader receives a quote in an RFQ system, they have some window of time—even if just 5 or 10 seconds—to decide whether to accept it. During that window, market conditions could change. This optionality has real value, and market makers must price it into their spreads. A prop AMM that's proactively streaming prices doesn't face this same constraint because trades execute immediately against the current quote.

"Because of that, it will almost always be a worse price, all things being equal, than say a prop AMM that's constantly being proactive and updating this in that same time period, because it doesn't have that same level of data decay there," Hermida explained. However, he noted that RFQs may still excel in certain niches—particularly for like-kind swaps (such as exchanging one stablecoin for another) where the trade is really about cost of capital rather than price risk, or for very large trades where capital constraints become relevant.

The Long Tail Problem

One area where traditional AMMs will likely maintain their dominance is the long tail of newly launched tokens—particularly meme coins. The fundamental premise of prop AMMs is that they relay off-chain price information to provide better on-chain execution. But for a meme coin that launched yesterday, there is no established off-chain price to reference. Primary price discovery is happening on the launch platform itself.

"For new assets, particularly launchpad meme coins where they're just so volatile and primary price discovery is happening on those launchpads, it doesn't make sense as a product there because you don't really have a reference point elsewhere," Hermida noted. Even if a new token does get listed on centralized exchanges quickly, the majority of liquidity and price discovery might still be happening on-chain, making prop AMMs moot.

This creates a natural segmentation of the market. Large-cap assets like SOL, BTC (wrapped), and ETH (wrapped)—plus stablecoins—will increasingly flow through prop AMMs and Oracle AMMs. Mid-cap assets might follow as infrastructure improves. But the long tail of meme coins and newly launched tokens will likely remain the province of traditional AMMs like Raydium and Meteora, as well as specialized launchpad platforms.

This segmentation helps explain why established AMM protocols aren't simply being eliminated by prop AMM competition. They're finding their niche in a market structure that's becoming more sophisticated and differentiated.

The Push Versus Pull Model

A key technical distinction that could shape the future of prop AMMs is the difference between push-based and pull-based oracle systems. Currently, most prop AMMs operate on a push model—market makers actively push price updates to the chain every slot, paying transaction fees each time. This works well for high-volume pairs but becomes economically unfeasible for less actively traded assets.

Pull-based oracle systems, which Switchboard and Pyth pioneered in the oracle space more broadly, work differently. Instead of continuously pushing updates, prices are updated on-demand when a trade actually needs to be executed. This dramatically reduces costs and could potentially extend prop AMM-style benefits to a much broader range of assets.

Hermida suggested this could be transformative: "If you do see that, that opens up Oracle AMMs and prop AMMs more broadly to just really effectively support a much broader number of assets in a much more cost effective way and opens that up to a lot of competition." Combined with upcoming protocol upgrades like BAM (the new block builder mechanism from Jito), the efficiency gains could make prop AMMs viable for mid-cap tokens that currently don't justify the infrastructure costs.

Implications for Real-World Assets

The prop AMM revolution has important implications beyond crypto-native assets. Real-world assets (RWAs)—tokenized stocks, bonds, and other traditional financial instruments—face the same fundamental challenge as crypto assets: price discovery happens primarily off-chain, but there's value in having liquid, efficient on-chain markets.

"If you think of things like X stocks and sort of these RWA products, the majority of price discovery around those assets is happening off chain," Hermida observed. "Having good infrastructure for prop AMMs and Oracle AMMs allows those end users to get better prices, reflects that liquidity that you see off chain and provides a better fair ecosystem for people to trade and participate in DeFi."

This is significant because RWAs represent one of the most promising growth areas for blockchain technology. If Solana can offer efficient trading of tokenized versions of traditional assets—with spreads and execution quality comparable to or better than traditional venues—it becomes a much more attractive platform for institutional adoption and mainstream financial applications.

The Centralization Critique

Not everyone views the rise of prop AMMs positively. One valid criticism centers on transparency and decentralization. These systems operate as black boxes—users and even aggregators don't know exactly how prices are determined or what algorithms are being used. This stands in tension with the crypto ethos of open, transparent, permissionless financial infrastructure.

Hermida acknowledged this critique while offering a pragmatic response: "If you did have all of that exposed, then it would kill the edge. Somebody else would reverse engineer it. And ultimately, they would be the ones getting picked off." The reality is that market making is inherently competitive, and competitive edges require some degree of secrecy to maintain.

Moreover, he argued that the end result justifies the means: "Ultimately, this structure allows the average end user to benefit more than if it were forced to be out there. The end user gets better fills. They're able to trade more assets in a more liquid manner. And ultimately, they're able to participate in the ecosystem in a better way because of it."

This doesn't entirely resolve the tension, but it does highlight the tradeoffs involved. Perfect transparency might be philosophically preferable, but if it results in worse execution for users, is it actually the better outcome?

Security and Trust Considerations

The opacity of prop AMMs raises legitimate concerns about potential malicious behavior. A prop AMM operator could theoretically exploit their privileged access to order flow information—front-running trades, manipulating prices, or otherwise acting against users' interests.

Hermida noted that Jupiter takes these risks seriously: "Jupiter does take the process of integrating new prop AMMs very seriously, require security audits on both sides, and also checks to make sure that they're not really doing any funky behavior because that order flow does have valuable information and having it and seeing and exposing it does open up risks if exposed to bad actors."

This gatekeeping function is important but also introduces its own centralization concerns. Jupiter effectively decides which prop AMMs get access to its enormous order flow, creating a single point of control in what's ostensibly a decentralized ecosystem. It's not clear what the alternative would be—some vetting mechanism seems necessary to protect users—but it's worth acknowledging the tradeoffs involved.

Competition and Market Structure Evolution

The current landscape features approximately a dozen significant prop AMMs competing for Solana order flow, and Hermida expects that number to grow. The opportunity remains attractive enough that new entrants continue to appear, each hoping to capture a slice of the market with their own proprietary pricing strategies.

"I think you'll see a lot more prop AMMs pop up to try to compete for that," Hermida predicted when asked about near-term expectations. The competitive pressure should continue driving spreads tighter, benefiting end users even as individual market makers see their margins compressed.

However, there's a natural limit to this competition. Market making is ultimately a capital-intensive business, and only firms with sufficient resources and sophistication can compete effectively. Over time, we might see consolidation as weaker players exit and stronger ones accumulate market share—similar to how traditional equity market making has consolidated around a handful of dominant firms.

Multi-Chain Implications

While prop AMMs have flourished on Solana, the concept isn't inherently chain-specific. Any blockchain with sufficient trading volume and appropriate aggregator infrastructure could support similar systems. The question is whether other ecosystems will see the same dynamic develop.

"Other ecosystems absolutely are going to have prop AMMs. And some already do," Hermida confirmed. However, he noted that Solana's particular combination of factors—Jupiter's dominance as an aggregator, high trading volume, and low transaction costs—created an especially favorable environment. EVM ecosystems have seen more success with intent-based bridge systems and RFQs, at least so far.

The key variable is always order flow. "Where is the end user flow happening? And what do you need to acquire that?" Hermida emphasized. Solana currently benefits from concentrated retail trading activity, much of it driven by meme coin speculation. If that flow shifts to other chains—whether Monad, Base, or somewhere else entirely—the prop AMM ecosystem would likely follow.

The Fat Wallet Thesis in Practice

The prop AMM phenomenon illustrates and reinforces the "fat wallet thesis" that has become influential in crypto discourse. This thesis holds that the most valuable position in the crypto stack is controlling the end user relationship—being the wallet or interface through which users access on-chain applications.

Jupiter exemplifies this dynamic. By controlling the aggregator through which most Solana swaps flow, Jupiter has become the kingmaker for prop AMMs. Market makers compete furiously for the privilege of filling Jupiter's order flow, and Jupiter effectively sets the terms of that competition. The aggregator doesn't need to be the best at market making itself; it just needs to maintain user trust and transaction flow.

Hermida explicitly connected this to broader market dynamics: "The companies, the protocols, et cetera, that control that end user flow are valuable and sort of have the most opportunity in that field." This has implications for anyone building in crypto—controlling distribution may be more valuable than being the best at any particular technical function.

Could Prop AMMs Build Their Own Front-Ends?

A natural question is whether successful prop AMMs might eventually attempt to cut out the middleman by building their own user-facing products. If a market maker is providing the best prices anyway, why share revenue with Jupiter?

Hermida acknowledged this possibility but noted the significant challenges involved: "They're two different businesses. Being in the line of pricing and trading is very different than being the line of acquiring user retail order flow." Market making and user acquisition require fundamentally different skill sets, and most trading firms have no experience or comparative advantage in building consumer products.

That said, the opportunity is real enough that some firms might attempt it. The rise of OKX Wallet as a significant aggregator shows that well-resourced players can compete for wallet share. But even if new aggregators emerge, it wouldn't fundamentally change the prop AMM dynamic—there would still be aggregators routing flow to market makers, just potentially more of them.

Volume as the Fundamental Variable

Throughout the conversation, Hermida repeatedly emphasized that trading volume is the fundamental variable driving prop AMM economics. Everything else—the number of competitors, the tightness of spreads, the sophistication of pricing algorithms—flows from whether there's sufficient volume to justify the infrastructure costs.

"The thing that would make these sorts of products much less interesting and much less attractive is quite frankly, if volume goes elsewhere or on-chain volume just falls off a cliff," Hermida warned. The cyclical nature of crypto markets means this is always a risk. On-chain trading volumes during bear markets can be a fraction of bull market peaks, potentially making prop AMM operations unprofitable.

This creates interesting incentive dynamics. Prop AMM operators are implicitly betting on sustained on-chain trading activity—they're long Solana DeFi volume, essentially. If that bet doesn't pay off, the infrastructure they've built becomes expensive overhead rather than a competitive moat.

The BAM Upgrade and Future Efficiency Gains

Several upcoming protocol changes could significantly impact prop AMM economics. BAM (Block Aware MEV), once it goes live, promises to make block production more efficient and potentially reduce the costs of pushing frequent price updates. Hermida suggested these improvements could expand the range of assets for which prop AMMs are economically viable.

"Post BAM and post [other upgrades], assuming it passes, it'll get more efficient, even more efficient and even more competitive on a lot of this," Hermida predicted. "And hopefully you'll see that kind of pan out, not just for the SOL USDC sort of large cap pairs, but also start to impact the mid cap."

This matters because the current prop AMM ecosystem is essentially limited to high-volume pairs. Expanding coverage to mid-cap tokens would bring better execution to a much broader range of assets, extending the benefits of this market structure innovation to more users and use cases.

What This Means for Solana's Competitive Position

The prop AMM revolution strengthens Solana's position as the preferred venue for on-chain trading. By offering execution quality that rivals or exceeds centralized exchanges, Solana has become genuinely competitive for traders who might otherwise stay on Binance or Coinbase. This is a significant achievement that few other blockchain ecosystems can claim.

Hermida drew a connection to the broader thesis around internet capital markets: "Those raise, if you will, and sale, I think was just incredible to see how much, not judging it one way or another, just the actual size that happened and was fulfilled mainly on chain for it. I think is a big win for the ecosystem and shows you that you can have internet capital markets."

The ability to issue, trade, and settle assets entirely on-chain with competitive execution quality opens possibilities that simply don't exist in traditional finance. If this infrastructure continues improving, Solana could become the default venue for an expanding range of financial activity—not because of ideology or speculation, but because it simply offers a better product.

The Terra/Luna Lesson

In discussing what drives adoption, Hermida offered a perhaps uncomfortable comparison to Terra/Luna and the Anchor protocol. Despite having terrible user experience and requiring convoluted bridging processes, Anchor accumulated $14 billion in deposits at its peak. Why? Because the yield was there.

"I'm not saying that everybody should do that. Don't always follow the yield, don't always follow the opportunity, right, always evaluate it with risk," Hermida cautioned. But his broader point stands: if the opportunity is compelling enough, users will tolerate significant friction to access it.

This has implications for how we think about Solana's competitive position. Good UX helps, but it may be less important than offering genuinely superior products or returns. The prop AMM ecosystem represents exactly this kind of substantive advantage—not just a better interface, but fundamentally better execution.

Looking Forward: What to Watch

As we look toward the remainder of 2025 and beyond, several developments could shape the prop AMM landscape. More competitors are likely to enter, continuing to push spreads tighter. Protocol upgrades like BAM could expand the range of viable assets. Pull-based oracle systems might enable more cost-effective prop AMMs for mid-cap tokens.

Perhaps most importantly, the volume picture will determine whether this infrastructure remains economically sustainable. If Solana maintains or grows its on-chain trading activity, prop AMMs will likely continue thriving. If volume shifts elsewhere or declines significantly, the ecosystem could contract.

Hermida also highlighted the possibility of cross-chain expansion: "I think if you just like go back to like, why did so many firms get involved? Why are so many people trying to build this? It's because a lot of that retail order flow moved on chain." Wherever retail trading activity concentrates, sophisticated market makers will follow. Currently that's Solana, but it could shift.

The Bigger Picture: Internet Capital Markets

Stepping back from the technical details, the prop AMM phenomenon represents a significant milestone in the development of internet capital markets. For the first time, on-chain trading infrastructure can compete with—and sometimes beat—centralized alternatives on execution quality, not just on ideology or permissionlessness.

This matters because it demonstrates that decentralized systems can be genuinely competitive with centralized alternatives when properly designed. The common critique of DeFi has always been that it's less efficient than centralized alternatives. Prop AMMs challenge that narrative by delivering superior execution through open market competition.

The implications extend beyond just trading. If blockchain-based markets can match or exceed traditional finance on execution quality, it opens the door to tokenizing and trading a much broader range of assets on-chain. Real-world assets, novel financial instruments, prediction markets—all become more viable when the underlying trading infrastructure is genuinely competitive.

Conclusion

Prop AMMs represent perhaps the most significant infrastructure innovation in Solana DeFi over the past year. By leveraging oracle feeds to provide proactive, informed liquidity, these systems have transformed the trading experience for Solana users—delivering spreads tighter than centralized exchanges while creating a competitive marketplace that continues driving improvement.

The phenomenon raises important questions about transparency, centralization, and the nature of decentralized finance. But it also demonstrates something profound: that open, permissionless infrastructure can attract sophisticated participants who make it genuinely competitive with traditional alternatives. Not because of ideology, but because of economics.

As Hermida summarized: "I think you're really actually seeing internet capital markets and you're seeing really efficient DeFi systems out there because of this." That's not just marketing—it's a verifiable claim backed by execution data. And it points toward a future where on-chain finance isn't just an alternative to traditional systems, but a genuinely superior one.

Facts + Figures

• Prop AMMs began gaining significant traction in late 2024, coinciding with the dramatic increase in on-chain trading volume on Solana and the dominance of Jupiter as a DEX aggregator.

• Jupiter controls approximately 90+ percent of DEX aggregator volume on Solana, making it the primary gateway through which prop AMMs access retail order flow.

• Humidify has become the dominant prop AMM for SOL-stablecoin swaps as of the recording, despite the identity of its creators remaining unknown to the public.

• Solphi, built by Ellipsis Labs (the team behind Phoenix and the Atlas L2), has captured roughly 50% of certain trading pairs' volume.

• The story about Temporal being behind "Goonfi" was confirmed as fake news during the podcast, with Jack receiving verification from a source that the claim was fabricated.

• On-chain spreads on Solana for certain pairs are now tighter than centralized exchanges, particularly when accounting for net fees—a significant milestone for DeFi.

• Prop AMMs push price updates every slot (approximately 400 milliseconds) to maintain competitive pricing, which creates inherent cost constraints limiting their viability to high-volume assets.

• The cost structure of maintaining prop AMMs limits them primarily to large-cap trading pairs, though pull-based oracle systems could potentially extend coverage to mid-cap assets.

• Jupiter requires security audits and behavior checks before integrating new prop AMMs to protect users from potential malicious activity.

• RFQ (Request-For-Quote) systems have generally lost to prop AMMs on Solana because the acceptance window introduces optionality that must be priced into spreads.

• EVM ecosystems have seen more success with intent-based bridge systems and RFQs rather than the prop AMM model that dominates Solana.

• Terra/Luna's Anchor protocol accumulated $14 billion in deposits despite terrible UX, illustrating that compelling opportunities can overcome significant friction.

• BAM and other protocol upgrades could expand prop AMM viability to mid-cap tokens by reducing the cost of maintaining price updates.

• Traditional HFT firms entering crypto bring a culture of secrecy that explains why many prop AMM operators remain anonymous.

• The fundamental question driving prop AMM design: Can you give a better price to retail users while accounting for market maker spreads and protecting against toxic flow?

• OKX Wallet has emerged as a distant second to Jupiter in aggregator market share, showing that competition exists but hasn't significantly challenged Jupiter's dominance.

Questions Answered

What exactly are prop AMMs and how do they differ from traditional AMMs?

Prop AMMs (proprietary automated market makers) are trading systems that use external oracle price feeds rather than pool ratios to determine asset prices. Unlike traditional AMMs where the price is determined by the mathematical relationship between assets in a liquidity pool, prop AMMs pipe in real-time prices from where actual price discovery happens—typically centralized exchanges like Binance. This allows them to provide more accurate pricing that reduces impermanent loss for liquidity providers and delivers tighter spreads for traders. They're essentially a hybrid between traditional AMM mechanics and professional market making, running proprietary algorithms that update prices as frequently as every Solana slot.

Why did prop AMMs suddenly become dominant on Solana in late 2024?

The explosion of prop AMMs in late 2024 resulted from two converging factors: the massive increase in on-chain trading volume and Jupiter's dominance as a DEX aggregator. The volume spike—driven largely by meme coin activity—made it economically viable to invest in the infrastructure required to run prop AMMs. Simultaneously, Jupiter's position routing 90%+ of DEX aggregator volume created a single integration point that prop AMMs could plug into to access enormous retail order flow. Without sufficient volume, the cost of pushing price updates every slot wouldn't be justified. Without a dominant aggregator, capturing that volume would require integrating with dozens of different front-ends.

How do prop AMMs benefit regular traders on Solana?

Regular traders benefit from prop AMMs through tighter spreads and better execution prices—sometimes better than what they'd get on centralized exchanges like Binance or Coinbase. When you execute a swap through Jupiter, the aggregator queries all liquidity sources including prop AMMs and routes your trade to whoever offers the best price. The intense competition among prop AMMs to capture this order flow drives continuous improvement in execution quality. Traders never need to know or interact with prop AMMs directly; they simply receive better prices automatically through the aggregator routing.

Why don't prop AMMs reveal who operates them?

Most prop AMM operators remain anonymous for competitive and strategic reasons. If a market maker has developed a proprietary edge in pricing algorithms or risk management, revealing their identity and methods would invite competitors to reverse-engineer their approach. There's also a strong cultural component—traditional high-frequency trading firms are notoriously secretive and rarely engage with media or public relations. As these firms have entered crypto, they've brought this culture with them. Additionally, operators want to minimize exposure to toxic flow, and maintaining anonymity helps prevent sophisticated traders from specifically targeting their systems.

What happens to traditional AMMs like Raydium and Meteora with prop AMMs taking over?

Traditional AMMs will likely maintain dominance in the long-tail of newly launched tokens, particularly meme coins, where there's no established off-chain price to reference. Prop AMMs fundamentally work by relaying off-chain price information, but for a token that launched yesterday, primary price discovery is happening on-chain at the launchpad itself. This creates a natural market segmentation: large-cap and mid-cap assets with established off-chain prices flow to prop AMMs, while new launches and highly volatile long-tail assets remain on traditional AMMs and launchpad platforms.

Could prop AMMs work on other blockchains besides Solana?

Yes, prop AMMs can theoretically work on any blockchain with sufficient trading volume and appropriate aggregator infrastructure. Some EVM ecosystems already have prop AMM-style systems, though they've seen more success with intent-based bridges and RFQ systems. The key factor is order flow—prop AMMs will follow wherever retail trading activity concentrates. Currently Solana offers an especially favorable environment due to Jupiter's dominance, high trading volumes, and low transaction costs. If trading volume shifts to chains like Monad, Base, or Hyperliquid, prop AMM infrastructure would likely follow.

What are the main criticisms of prop AMMs?

The primary criticism centers on transparency and decentralization. Prop AMMs operate as black boxes—users don't know exactly