Drift

Drift (DRIFT) is a decentralized exchange (DEX) built on the Solana blockchain, primarily focused on perpetual futures contracts. The project has undergone significant development and growth since its inception in 2021.

Drift launched in 2021 as one of the first DeFi projects on Solana. Initially, it started as a pure-play perpetual futures exchange, facilitating the trading of perpetual futures contracts. These contracts track the price of an underlying asset, such as Bitcoin or Solana, without an expiration date, making them suitable for leveraged and speculative trading.

In November 2021, Drift V1 was launched, introducing the dynamic automated market maker (DAMM) concept. This innovation offered guaranteed liquidity, minimized slippage, and an exceptional trading experience. Within six months, Drift V1 garnered over 15,000 users and facilitated a trading volume close to $10 billion. The limit order feature was also released, powered by a hybrid decentralized order book (DLOB) model that settled trades against Drift’s DAMM.

On December 19, 2022, Drift V2 was launched, enhancing 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. This update included robust security measures such as multi-step oracle validity checks, P&L asset weight calibration, and an auto-settlement mode for long-tail events.

In April 2024, the Drift DAO Foundation introduced the DRIFT governance token, marking a significant advancement in growing a fully community-driven protocol. The DRIFT governance token enables the Drift community to shape the protocol's future with a direct influence on the long-term vision. The token is designed to empower loyal users of Drift Protocol by granting them tangible ownership of the protocol and a significant voice in guiding its development trajectory through the Drift DAO.

As of 2024, Drift stands as the largest open-source perpetual futures DEX on Solana, with over $350 million in Total Value Locked (TVL), more than 175,000 traders, and a cumulative volume of $20+ billion. The project continues to grow and evolve, with the DRIFT governance token playing a pivotal role in empowering Drift users and contributors to impact decision-making processes and guide the future direction of the Drift ecosystem.

Drift Protocol is a decentralized exchange (DEX) built on the Solana blockchain, designed to address the limitations of traditional on-chain exchanges. It offers four primary products: Spot Trading, Perpetuals Trading, Borrow & Lend, and Passive Liquidity Provision with Backstop AMM Liquidity (BAL).

Spot trading on Drift allows users to directly purchase or sell assets with immediate settlement on-chain. It integrates margin trading, enabling traders to leverage their assets as collateral to amplify their positions.

Drift's perpetuals trading mechanism enables users to speculate on the price movements of underlying assets without the need for physical delivery. This feature offers high liquidity and flexibility, making it suitable for hedging, speculating, and accessing markets with leverage.

In Drift's decentralized money markets, users can deposit assets to earn yield or borrow assets at a variable interest rate. This symbiotic relationship between lenders and borrowers fosters a dynamic ecosystem where assets are put to work efficiently, benefiting both parties.

Drift's virtual AMM acts as a constant liquidity provider, supplementing market liquidity when needed and maintaining optimal trading conditions. Users can provide backstop liquidity to selected markets, enhancing execution quality and reducing price impact.

Drift's liquidity is supported by three primary mechanisms:

1. Just-in-Time (JIT) Auction Liquidity: Market makers compete to provide liquidity through short-term auctions, ensuring swift and efficient order fulfillment.
2. Limit Orderbook Liquidity: Drift's decentralized orderbook aggregates limit orders placed by makers, allowing for continuous liquidity provision and price discovery.
3. AMM Liquidity: Drift's virtual AMM acts as a constant liquidity provider, supplementing market liquidity when needed and maintaining optimal trading conditions.

The DRIFT governance token allows token holders to participate in the Drift DAO, shaping key decisions regarding protocol development, governance upgrades, and ecosystem initiatives.

Drift has a dynamic fee system, which includes a hidden fee for "renting" an account. This fee is currently around 1.8 SOL and can be recovered after 13 days if the user deletes their subaccount.

The token Drift (DRIFT) has several strengths that contribute to its value and potential in the decentralized finance (DeFi) space:

1. Decentralized Governance: Drift is a community-driven governance token that empowers users to participate in the decision-making process of the protocol. This decentralized governance model ensures that the protocol is controlled by its users, rather than a central authority, which enhances transparency and fairness.

2. Multi-Branch DAO: Drift's governance structure consists of three branches: the Realms DAO for general protocol development, the Security Council for governing protocol upgrades, and the Futarchy DAO for funding technical grants. This multi-branch setup allows for a more comprehensive and balanced approach to decision-making.

3. Voting Rights: Holders of the DRIFT token have voting rights within the DAO, enabling them to propose or vote on changes, upgrades, or adjustments to the project's operations. This ensures that the community has a direct say in shaping the future of the protocol.

4. Reward Mechanisms: Drift has implemented various reward mechanisms to incentivize participation and engagement. For example, users who wait to claim their airdrop allocation receive a bonus, and top Drifters with large allocations can claim a portion of their allocation and a bonus on the first day.

5. Diverse Ecosystem: Drift offers a range of products and services, including perpetual futures, spot trading, market making, and lending/borrowing. This diversity of offerings attracts a broad user base and enhances the overall utility of the token.

6. Strong Community: Drift has a dedicated community of users, known as Drifters, who are actively involved in the protocol's development and governance. This strong community support is crucial for the long-term success and adoption of the token.

7. Solana-Based: Drift is built on the Solana blockchain, which is known for its high performance, low fees, and scalability. This allows Drift to handle a large volume of transactions efficiently, making it an attractive option for users.

These strengths collectively contribute to the value and potential of the Drift (DRIFT) token, positioning it as a significant player in the DeFi space.

Drift (DRIFT), a cryptocurrency project, is exposed to several financial risks that investors should be aware of. These risks include:

1. Smart Contract and UI Risk: There is a risk that the smart contract or user interface (UI) has a bug or exploit, leading to unexpected behavior and potential loss of funds. This risk is inherent to all smart contracts and relies on the discipline of the development community, core contributors, and auditors.

2. Blockchain Risk: As Drift operates on the Solana blockchain, it is susceptible to technological and security risks associated with the blockchain's ongoing development. This includes variable transaction costs that may increase or decrease, affecting activities on the blockchain and potentially leading to losses or price fluctuations.

3. Oracle Risk: Drift relies on Pyth for price feeds to power liquidations. There is a risk that these oracles report incorrect prices, resulting in wrongful liquidations and loss of all funds.

4. Levered/Social Loss Risk: In the event of sharp price movements, traders with levered positions can lose more than their collateral value. If the Insurance Fund is not sufficiently capitalized, these losses will be socialized across market participants.

5. Liquidation Risk: Drift offers both leveraged perpetual swaps and borrow/lend. For perpetual swaps, there is the risk of liquidation when a user's margin ratio poses a stability risk to the exchange. The user's collateral can get liquidated when the value of the user's collateral drops below the user's maintenance margin fraction.

6. Long/Short Imbalance Risk: Drift's Automated Market Maker (AMM) is the counterparty to all trades taken against the AMM. This means that the AMM itself has delta risk, which is magnified when market conditions skew on either side and the imbalance between longs and shorts increases.

7. No Off-Setting Loss Risk: The unrealized profit and loss (P&L) users can lock in from entering and exiting a trade against the AMM is technically unbounded. However, an offsetting loss or sufficient fees collected are necessary before the unrealized gain can be settled in full and withdrawn as collateral by the user.

8. Untimely Liquidation Risk: In the event of large-scale liquidations or market turmoil, there is a possibility that positions and balances are not able to be liquidated in time and are unable to cover the losses taken out by the liquidated user. The shortfall, or negative balance, is treated as levered losses.

9. 100% Utilization Risk: When an asset is fully utilized (100% of the supply is lent out), there will be no tokens left in the pool, which means withdrawals and borrows will fail. Users will have to wait until the utilization rate goes down, either through some users repaying their loans or depositing new funds before they can withdraw or borrow.

These financial risks highlight the importance of understanding the complexities and potential pitfalls associated with investing in Drift (DRIFT).

• Cindy Leow: Co-founder of Drift Protocol, leading the decentralized exchange (DEX) on Solana, known for her experience in arbitrage and decentralized derivatives projects on Ethereum.
• Josh Chand: CEO of Drift Labs, emphasizing the importance of sustainable tokenomics and game quality in Web3 gaming.
• Paul de Havilland: Chief Marketing Officer of Drift Labs, highlighting the enthusiasm around GameFi and the potential of Drift Labs in the near future.
• Bernard Kiyanda: VP of Engineering at Drift, leading software development teams and bringing extensive experience in AI, cloud computing, and process automation.
• Emily Singer: VP of Marketing at Drift, responsible for the company's global brand and marketing strategy.
• Melissa Leffler: SVP of Engineering at Drift, with a background in leading engineering teams and scaling product infrastructure.
• Matt Tippets: SVP of Product at Drift, leading product management, design, and UX research functions.
• Ben Gardner: VP of Customer Support at Drift, focused on delivering a world-class customer experience.