Resting Liquidity Transparency Proposal, https://github.com/Moonbags/drift-proposal-1/tree/main

General
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Resting Liquidity Transparency Proposal for Drift Protocol

Introduction

Drift Protocol is the premier decentralized derivatives platform on Solana’s Layer 1 (L1), with over $1 billion in Total Value Locked (TVL) across assets like SOL, BTC, ETH, and Solana-native tokens such as JITO, JUP, KMNO, DRIFT, and CLOUD. Our strength lies in leveraging Solana’s global atomic state machine for secure, composable, and efficient trading, making us the only cross-margin perpetual futures DEX on L1. Our just-in-time (JIT) liquidity model protects makers from extractive risks like front-running and maximal extractable value (MEV), but it lacks visible resting liquidity in the distributed limit order book (DLOB), reducing taker confidence and capping trading volume compared to centralized exchanges with transparent orderbooks.

I propose Resting Liquidity Transparency through Decentralized Resting Order Commitments (DROC), a new on-chain order type that mimics centralized limit order book (CLOB) visibility while preserving maker protections and L1 composability. Additionally, I introduce a Resting Liquidity Vault allowing users to deposit assets, including JitoSOL from the JitoSOL/SOL isolated pool, to fund DROC orders with UI access for managing contributions. This aligns with Drift’s recent collaboration with Solana and Jito, as announced by

@davijlu

on June 26, 2025, to deliver exceptional L1 improvements in resting liquidity. By integrating with the JitoSOL/SOL pool, we can deepen liquidity and boost user trust, positioning Drift to lead decentralized derivatives trading.

Problem Statement: The Resting Liquidity Visibility Issue

Visible resting liquidity is a cornerstone of trading platforms, providing takers with confidence in market depth and price stability. Centralized exchanges rely on CLOBs to display resting orders, enabling users to assess liquidity. Drift’s DLOB and JIT model excel at protecting makers but lack traditional resting orders, as makers confirm prices at execution, leading to:

  • Taker Uncertainty: Without visible orders, takers may fear slippage or poor execution, deterring participation.

  • Lower Trading Volume: The absence of a CLOB-like orderbook alienates users accustomed to centralized interfaces, limiting growth.

  • Competitive Pressure: The ongoing CLOB debate, as noted by

@davijlu

on June 26, 2025, highlights liquidity models as key to success. While HyperLiquid’s CLOB thrives due to its liquidity model, not just its orderbook, Drift must innovate to avoid the fate of “dead CLOBs” and compete without isolated environments like rollups.

Our collaboration with Solana and Jito signals a focus on addressing this visibility gap, leveraging L1’s composability and asset availability to rival centralized exchanges, as per Drift v2’s Hybrid Liquidity Mechanism | Drift Updates.

Solution: Decentralized Resting Order Commitments (DROC)

DROC introduces a new on-chain order type, RestingOrderCommitment, enabling makers to provide time-bound, collateral-backed liquidity commitments displayed as resting orders in the DLOB. Leveraging Solana’s high throughput (~0.4s block time) and low-cost transactions, DROC enhances visibility for takers while maintaining Drift’s decentralized ethos.

DROC Mechanics

  1. Order Submission:

  • Makers submit a DROC order specifying price, size, duration (e.g., 10 blocks ≈ 4 seconds), and an optional JIT confirmation flag.

  • A minimum collateral (e.g., 0.01 SOL equivalent or JitoSOL from the JitoSOL/SOL pool) is locked from their cross-margin account (supporting SOL, BTC, ETH, JITO, etc.) to signal commitment and deter spam.

  • Orders are validated against a Pyth oracle for market alignment.

  1. Orderbook Display:

  • DROC orders are aggregated in the DLOB and shown in a CLOB-like interface.

  • Each order includes an expiration timer (e.g., “Expires in 5s”) and depth metrics (e.g., “90% fill probability” based on historical JIT fills).

  1. Execution with JIT Confirmation:

  • Takers match DROC orders, triggering a ~0.1s JIT confirmation window if enabled.

  • Makers can accept, adjust, or reject the fill price, retaining control against MEV or market shifts.

  • Non-JIT orders execute directly, updating cross-margin accounts.

  1. Expiration and Pruning:

  • Orders expire after their duration.

  • A permissionless crank, potentially optimized by Jito’s MEV tools, prunes expired orders, refunding collateral.

Benefits of DROC

  • Takers: Gain a CLOB-like orderbook, reducing uncertainty and boosting trading.

  • Makers: Retain JIT protections and earn DRIFT rewards.

  • Protocol: Increased visibility drives volume, strengthens trust, and reinforces Drift’s L1 advantage.

  • Composability: DROC orders are accessible to other Solana protocols (e.g., Jito, Jupiter) via public DLOB accounts.

Integration with JitoSOL/SOL Pool

Drift’s collaboration with Jito, including the JitoSOL/SOL isolated pool announced by

@jito_sol

on June 13, 2025, enhances DROC by:

  • Expanding Collateral Options: Makers can use JitoSOL as collateral, leveraging the pool’s liquidity to fund DROC orders, increasing orderbook depth.

  • Dual Rewards: Depositors in the JitoSOL/SOL pool can earn $JTO rewards alongside DRIFT rewards, incentivizing participation, as per Jito, the Ruler of Solana MEV | Four Pillars.

  • Optimizing Execution: Jito’s MEV solutions, like the Jito Bundle Engine, can streamline keeper bot operations for DROC matching and pruning, ensuring real-time visibility. This integration aligns with Drift’s goal of asset availability, enhancing liquidity without rollups, as noted in DeFi Dev Partners With $1B Drift Protocol for Liquid Staking | StockTitan.

Resting Liquidity Vault

To broaden participation, I propose a Resting Liquidity Vault where users deposit assets (e.g., SOL, JitoSOL, USDC) to fund DROC orders, with UI access to manage contributions and view orderbook impact. Key features:

  • User Access: Depositors see their funds’ contribution (e.g., “Your Orders: 10 JitoSOL at $100, Expires in 5s”) and earned rewards via the Drift Gateway UI.

  • JitoSOL Integration: Supports JitoSOL deposits from the JitoSOL/SOL pool, enabling stakers to earn dual DRIFT and $JTO rewards.

  • No Impact on Delta-Neutral Vaults: Operates separately from market-making vaults, preserving their role in risk management, as per Introducing Drift Vaults | Drift Updates. This vault enhances liquidity depth and aligns with Drift’s collaboration with Jito, boosting user engagement and orderbook visibility.

Reward Model for Makers

To incentivize high-quality liquidity, DROC includes a DRIFT token reward system based on order duration and spread tightness.

Reward Formula

\text{reward} = \text{base_reward} \times \text{duration} \times \left(1 - \frac{\text{spread}}{\text{oracle_price}}\right)

  • Base Reward: 100 DRIFT tokens per block (governance-adjustable).

  • Duration: Blocks the order is active (e.g., 10 blocks = 10).

  • Spread: Absolute difference between order price and Pyth oracle price, normalized.

  • Example: A 10-block order with a 0.5% spread on a $100 oracle price yields:

100×10×(1−0.005)=995 DRIFT tokens.100 \times 10 \times (1 - 0.005) = 995 \text{ DRIFT tokens}.100 \times 10 \times (1 - 0.005) = 995 \text{ DRIFT tokens}.

Funding and Sustainability

  • Funding Source: Rewards draw from trading fees (10bps taker, 1bps maker rebate), with 9bps funding DROC rewards and operations, as per Trading Fees – Drift Protocol.

  • No Impact on Delta-Neutral Vaults: Fees are separate from vault capital, managed by the Hyperliquidity Provider (HLP) for market-making and risk absorption, ensuring stability, as per JLP Delta Neutral Vault | Hedgy.

  • JitoSOL Rewards: Vault depositors using JitoSOL may earn additional $JTO rewards, enhancing incentives.

  • Market Conditions:

    • Bull Markets: High volumes ($900,000/day at $1B volume) cover rewards ($1,080,000/day at 100 DRIFT/block, $1/DRIFT).

    • Bear Markets: Low volumes ($9,000/day at $10M) may require adjustments (e.g., 50 DRIFT/block).

    • Mitigations: Dynamic scaling, fee adjustments, or Insurance Fund buffers ensure sustainability.

Governance Adaptability

Drift’s token-holder governance may lag in fast markets. I propose a pre-approved emergency framework:

  • Triggers: 20% TVL drop in 24 hours, 50% volume decline, or liquidation risks.

  • Security Council Authority: Adjust fees, rewards, or collateral requirements instantly, including JitoSOL parameters.

  • DAO Ratification: 72-hour vote to ratify or reverse changes.

This ensures DROC and the vault adapt swiftly, maintaining visibility.

No Jelly Clause: Ensuring Robust Liquidity

To prevent disruptions to DROC’s orderbook, I propose a No Jelly Clause to maintain stability:

  • Monitoring: Real-time tracking of DROC orders for unusual patterns.

  • Protections: Circuit breakers for volatile markets.

  • Oracle Integrity: Multiple oracles (Pyth, Switchboard) for accurate pricing.

  • Transparency: UI indicators (e.g., “Order Depth Stability: High”) and market health reports.

This ensures a reliable orderbook, boosting taker trust.

Implementation Plan

  1. Development (4-6 Weeks):

  • Build and audit DROC and Resting Liquidity Vault contracts, integrating JitoSOL support.

  • Enhance UI for orderbook display and vault management.

  1. Testnet (2-4 Weeks):

  • Deploy on Solana devnet for SOL/USDC and JitoSOL/SOL markets.

  • Test order mechanics, rewards, and UI.

  1. Mainnet Rollout (2-4 Weeks Post-Testnet):
  • Launch DROC and vault for select markets, expanding after feedback.
  1. Governance:
  • Submit DIP to formalize emergency framework and JitoSOL integration.

Technical Appendix: Placeholder Smart Contract Code

Below is an Anchor program for DROC and the Resting Liquidity Vault, integrating with the DLOB and cross-margin system, supporting JitoSOL as collateral. Fixes address collateral transfers, multiple maker accounts, and error handling.

Repository for Developer Access

The smart contract code is hosted in a public GitHub repository for the Drift DAO’s developers to review and refine: Revised resting liquidity. It includes a README with instructions for testing and integration.

Addressing Potential Concerns:

  • Maker Adoption: Collateral locking may deter makers. High DRIFT and $JTO rewards (1-2% annualized yield) incentivize participation.

  • Taker Trust: Temporary orders may confuse takers. Clear UI messaging (expiration timers, depth metrics) addresses this.

  • Vault Separation: The Resting Liquidity Vault ensures no impact on delta-neutral vaults, preserving market-making stability.

  • Complexity: DROC and the vault leverage existing DLOB infrastructure, with devnet testing to ensure stability.

  • JitoSOL Integration: Supports JitoSOL as collateral, aligning with the JitoSOL/SOL pool, with governance to adjust parameters.

Conclusion and Call to Action

The Resting Liquidity Transparency proposal, through DROC and the Resting Liquidity Vault, tackles Drift’s liquidity visibility challenge. By offering collateral-backed orders and user-driven liquidity with JitoSOL integration, we enhance taker confidence, incentivize makers, and drive volume while preserving L1 composability. This aligns with our collaboration with Solana and Jito to deliver exceptional liquidity improvements.

I urge the Drift DAO to approve this proposal and allocate resources for development, testing, and deployment. Let’s submit a DIP to formalize DROC, the vault, and the emergency framework, positioning Drift to rival centralized exchanges and lead decentralized trading.

Governance Asks

  • Approval: Authorize DROC and Resting Liquidity Vault development.

  • Funding: Use trading fees or DRIFT treasury for rewards (100 DRIFT/block).

  • Parameters: Approve initial settings:

    • MIN_COLLATERAL = 0.01 SOL or equivalent JitoSOL

    • expiry_duration = 10 blocks

    • JIT_WINDOW_SECONDS = 0.1s

  • Emergency Framework: Formalize Security Council powers with 72-hour ratification.

1 Like
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This might be a very ignorant response because the proposal is very technical.

  • First, I question if liquidity is an issue at this time. I feel like only the team will know but, is liquidity the primary concern potential new clients have with using drift? Anecdotally I’ve seen users enter and exit positions on the order of tens of millions. Is Drift at the stage where it’s trying to target customers for which it doesn’t yet have adequate liquidity?

The rewards and math just seem whack.

  • 100 Drift per block? Solana produces 216,000 blocks a day. That’s 21,600,000 Drift tokens per day? That’s roughly $10M USD to fund it but then for a billion dollars trading volume it’s only generating $900k in fees (9bps). Also keep in mind that although sol tx fees are low, still incur a cost and if the frequency of these orders are on the magnitude of 10 blocks - again 216,000 blocks a day → (216000/10) * 0.000005 SOL = 0.108 SOL per day.

  • This proposal relies on trading fees. There’s a strong incentive when markets are active and liquid because it’s generating a ton of fees but when the market is dead or risky then the incentive decreases and so liquidity provided by this proposal decrease when it’s needed most.

2 Likes
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The DLOB shows orders but not intent. A large sell at $108,000 might be manipulation or a legitimate exit, and without advanced order flow tools (not native to Drift), it’s hard to confirm in real-time. Solana’s validator-driven architecture risks order prioritization by large players, invisible in the DLOB. A validator could front-run your limit order, masking manipulation, Solana’s high hardware requirements. Sunday’s thin DLOB (30-50% volume drop) obscures manipulation signals. A thinning bid side might look like normal volatility, not a deliberate stop hunt, making it hard to act quickly. As a retail trader, you lack high-frequency trading (HFT) tools to analyze stop clusters in real-time, unlike whales. Drift’s raw DLOB data requires experience to interpret under Sunday’s volatile conditions. The 100 drift is just a placeholder as well as all the metrics for the most part. Drift’s reliance on trading fees creates strong liquidity incentives during active markets but weakens on Sundays when volumes and fees drop, increasing spreads (15-25 bps) and manipulation risks in the transparent DLOB. This scares retail out.

1 Like
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Also it’s not ignorant. I may be. I need feedback. Thanks for the response!

1 Like
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Is This Proposal Noteworthy or Not?

The proposal to adjust Drift’s reward structure aimed at stabilizing liquidity during low-volume periods like Sundays. It tackles a real issue with Drift, and could meaningfully improve its usability and competitiveness. However, its significance depends on how well it’s executed, and it’s not without risks. Let’s break it down
Why It’s Noteworthy,
Drift currently relies on trading fees to incentivize market makers (e.g., $900k for $1B volume), but during low-volume periods like Sundays, trading activity drops 30-50% (e.g., $50M-$70M volume). This cuts fees significantly (to $450k-$630k), reducing liquidity. As a result, spreads widen (from 9-15 basis points to 15-25), and the depth of the decentralized limit order book (DLOB) thins out. For traders, this means higher slippage and increased vulnerability to manipulation—issues that can disrupt strategies, especially during off-peak hours.
This introducing a fixed reward pool or dynamic incentives, and could change this by ensuring market makers are rewarded consistently, regardless of trading volume. If successful, it offers clear benefits.
Better Execution, and tighter spreads as well as a deeper order book mean less slippage on trades, making Drift more reliable for small positions (e.g., $1,000-$5,000).

Reduced Manipulation Risk: A thicker DLOB makes it harder for large players to exploit the transparent order book, where orders are fully visible.
Competitive Edge= Stabilized liquidity this could make Drift more appealing compared to Ethereum-based DEXs like dYdX, which provide consistent liquidity but charge higher fees (0.05%-0.1% vs. Drift’s 0.025%).

For users trading on Sundays or relying on consistent pricing, this could be a significant improvement, enhancing Drift’s appeal as a go-to platform

Why It’s Not a Guaranteed Win

While the proposal has potential, its impact hinges on execution. Here’s where it could falter,
Overfunding Risk: If rewards are too high (e.g., $1M/day), market makers might flood the book with inefficient liquidity. Think bids at $90,000 when Bitcoin’s at $100,000. This wastes resources without improving trading conditions.

Underfunding Risk: If rewards are too low (e.g., $100k/day), they might not attract enough market makers, leaving liquidity as shaky as it is now.

Persistent Transparency: Drift’s DLOB is fully visible, so even with more liquidity, savvy traders or whales could still spot and target orders. Manipulation doesn’t vanish it just gets more expensive.

A well-calibrated system (e.g., $500k/day tied to orders within 1% of the market price) could strike the right balance, but getting it wrong risks either unsustainable costs or minimal improvement.

The Bottom Line

This proposal addresses a core weakness in Drift’s fee-based model and could make the platform more reliable and competitive. For traders, especially those active during low-volume periods, it promises better execution and stability, potentially a game-changer if done right. However, it’s not a cure-all. The risks of poor implementation or lingering issues like order book transparency mean its success isn’t guaranteed. True significance will depend on how Drift balances the incentives. execution is everything here. This all is just a thought that I want to share for the community to determine viability.

1 Like