How Does Serum Work?
Serum was a pioneering on-chain central limit order book (CLOB) on Solana that served as the shared liquidity layer for much of Solana's DeFi ecosystem. After the FTX collapse in November 2022, the protocol was effectively abandoned because FTX controlled the program upgrade key and held 97% of the SRM token supply. The community forked the protocol to OpenBook, and Serum's TVL collapsed from $121.7M to under $500K. It received a C+ risk grade primarily due to its catastrophic track record and abandoned state, despite the original technical design being relatively straightforward.
TVL
$15M
Sector
DEX
Risk Grade
C
Value Grade
F
Core Mechanisms
Market Structure/Order Book
NovelOn-chain central limit order book (CLOB) on Solana with sub-second matching
One of the first fully on-chain order books on Solana, leveraging Solana's speed for real-time order matching
Token Supply/Fixed Supply
SRM token with 10B max supply, fee discount utility
SRM provided 50% trading fee discounts; 97% of supply held by FTX/Alameda
Value Capture/Fee Discount
SRM staking for trading fee discounts on the order book
Tiered fee discounts based on SRM holdings — standard exchange token model
Governance/Token Voting
SRM-based governance with upgrade authority
In practice, upgrade key was controlled by FTX rather than DAO governance
Market Structure/Market Maker Integration
Professional market maker integration for order book liquidity
Alameda Research was primary market maker — centralization risk realized
Cross-System/Composability
Serum order book as shared liquidity layer for Solana DEXs
Raydium, Jupiter and other DEXs routed through Serum order book for liquidity
How the Pieces Interact
Centralized upgrade authority (FTX-controlled key) meant the entire order book could be modified or drained without community consent
97% token supply concentration with the primary market maker created reflexive collapse when FTX failed — token and liquidity collapsed simultaneously
Serum's role as shared liquidity infrastructure meant its failure cascaded to all dependent Solana DEXs and protocols
Fee discount utility became worthless as trading volume collapsed, removing the primary demand driver for SRM
Withdrawal of Alameda as primary market maker left the order book with insufficient liquidity, breaking composability for dependent protocols
What Could Go Wrong
- Protocol is effectively abandoned after FTX collapse — the upgrade authority key was controlled by FTX, and the community forked to OpenBook rather than continuing Serum development
- FTX/Alameda held approximately 97% of SRM token supply, creating extreme centralization that was fully realized when the exchange collapsed
- No active development, maintenance, or security monitoring — any remaining TVL faces smart contract risk with no team available to patch vulnerabilities
Centralized Upgrade Authority Exploit (Realized)
ElevatedTrigger: Entity controlling the program upgrade key uses it maliciously or loses control of it — this scenario actually materialized during the FTX collapse
- 1.FTX collapse reveals that the Serum program upgrade key is controlled by FTX rather than a DAO multisig — Community realizes the protocol can be unilaterally modified by a potentially compromised entity
- 2.FTX hack occurs and attacker potentially gains access to the upgrade key — All funds in Serum contracts face immediate theft risk
- 3.Solana community emergency-forks Serum to OpenBook with new upgrade authority — Original Serum protocol abandoned; liquidity migrates to fork
- 4.SRM token collapses 99%+ as utility evaporates — Holders suffer near-total loss; dependent protocols scramble to integrate OpenBook
- 5.Broader Solana DeFi ecosystem temporarily disrupted — Multiple DEXs lose their primary liquidity source until OpenBook integration completes
Risk Profile at a Glance
Overall: C (45/100)
Lower score = safer