SUMMARY
This report examines Jupiter’s competitive positioning in the perpetual futures market, focusing on rate structures, market share dynamics, and growth potential. Our research synthesizes data across rate frameworks, comparative funding environments, and detailed volume/OI analysis to demonstrate why reducing fees, rather than capping JLP supply, represents the optimal path for sustainable growth. The current SOL borrowing rate (33.11%) is 3x higher than competitors (HyperLiquid: 10.95%, Binance: -0.833%), while BTC and ETH rates remain more competitive (14.8% and 13.7%)
Recommendations:
- Reduce base borrowing rate from 10% to 3% across all assets
- Implement revised dual slope parameters:
- SOL: 25% target, 200% max, 875% upper slope
- ETH: 15% target, 90% max, 375% upper slope
- BTC: 15% target, 80% max, 325% upper slope
- Stables: 10% target, 20-26% max, 50-77.7% upper slope
- Allow natural market forces to determine JLP pricing rather than implementing caps
- Focus on growing absolute volume through competitive rates rather than maintaining high fees
- JLP consistently outperforms market index on Sharpe ratio metrics since October 2024
Parameter Methodology and Rationale
Our parameter calibration employs a dynamic risk premium framework designed to optimize protocol performance across varying market conditions. The model synthesizes historical market data through carefully tuned multipliers that scale with asset volatility, creating a responsive yet stable rate environment. At its core, the framework targets risk-adjusted returns through implied Sharpe ratios that scale progressively with utilization, ensuring liquidity providers receive appropriate compensation during periods of market stress while maintaining attractive rates during normal conditions. A minimum borrowing rate of 10% annually has been implemented across all assets, aligning with major centralized venues and establishing high/low ranges in the perpetual futures market.
The system’s core mechanics leverage proprietary utilization factors that dynamically adjust to market conditions, with specific enhancements for different asset classes. The framework employs more aggressive scaling factors for traditional crypto assets, while stable assets see the modified treatment through specialized multipliers that reflect their unique risk characteristics. This approach allows traders to naturally size their positions based on their return expectations against our implied risk-adjusted return thresholds, creating an efficient market-driven equilibrium.
The framework’s dual slope methodology creates distinct behavioral zones that help optimize capital efficiency. Primary metrics are derived from a complex interplay of volatility measures and utilization patterns, enabling organic responses to changing market conditions while maintaining protocol stability. Targeting specific risk-adjusted return thresholds through our premium structure creates natural arbitrage opportunities when returns deviate from equilibrium levels, helping maintain balanced market dynamics. This comprehensive approach ensures the protocol can adapt to market evolution while providing appropriate incentive structures for all participants, with rates computed continuously to maintain precision in execution.
Understanding the Parameters
The dual-slope model uses four key parameters to manage borrowing rates and utilization:
Target Rate: The optimal borrowing rate when utilization is at the target level (80%). This rate is designed to be attractive enough for traders while adequately compensating JLP providers. It represents the equilibrium point where borrowing demand and liquidity provision are well-balanced.
Max Rate: The highest borrowing rate applied when utilization reaches 100%. This serves as a circuit breaker during high utilization periods, strongly incentivizing traders to reduce positions or attract new liquidity. The significant increase from the target to max rate helps prevent utilization from staying too high for extended periods.
Lower Slope: The rate of increase in borrowing costs from 0% to 80% utilization. A gentler slope here keeps rates reasonable during normal market conditions while still providing meaningful yields to JLP providers.
Upper Slope: The rate of increase from 80% to 100% utilization. The steeper slope creates strong economic pressure to maintain utilization below the target level, helping protect protocol liquidity during stress periods.
Recommendations
Dual Slope Borrowing Rate Parameters
| Asset | Min Rate APR | Target Rate APR | Max Rate APR | Lower Slope APR | Upper Slope APR |
|---|---|---|---|---|---|
| SOL | 3% | 25% | 200% | 27.5% | 875% |
| ETH | 3% | 15% | 90% | 15% | 375% |
| BTC | 3% | 15% | 80% | 15% | 325% |
| USDC | 3% | 10% | 25.54% | 8.75% | 77.70% |
| USDT | 3% | 10% | 20% | 8.75% | 50% |
Supporting Data
SOL, ETH, and BTC Volatility and Ut metrics:
Rationale
Funding / Borrow Rate Comparison
Funding Rates (as of Jan 30, 2025)
| Asset | Drift | Binance | HyperLiquid | dYdX | Zeta |
|---|---|---|---|---|---|
| SOL-PERP | +7.81% | -0.83% | +10.95% | +2.40% | +58.98% |
| BTC-PERP | -10.87% | +1.34% | +10.95% | +52.44% | -53.87% |
| ETH-PERP | +7.29% | +10.28% | +10.95% | +48.77% | +23.14% |
Borrow Rates
| Asset | Flash | Jupiter |
|---|---|---|
| SOL-PERP | +39.3613% | +33.1152% |
| BTC-PERP | +30.7196% | +14.8587% |
| ETH-PERP | +30.6162% | +13.7646% |
While ETH and BTC rates remain somewhat competitive with Binance, HyperLiquid, and Drift, the SOL rate on Jupiter is at least three times higher than on those platforms. Continuing with higher fees in hopes of retaining trading volume may not be effective, as traders are price-sensitive and gravitate toward venues offering lower fees and deeper liquidity.
While Jupiter’s liquidity is robust, it is also comparatively expensive. Data shows Jupiter’s share of CEX trading volume for SOL ranges from 5–9%, a figure that has remained flat but has potential for growth. We believe setting the base rate at 3% would better align with the broader market and average. funding rates across competitor venues, where fees have been generally lower. Traders actively seek optimal funding conditions. The recommended 3% base rate and adjusted slopes aim to preserve liquidity while keeping borrowing costs competitive, ultimately helping attract and retain greater trading volume.
Avg. 30-day funding rates:
| Asset | Drift Rates | Binance Rate |
|---|---|---|
| SOL | 5.58% | 0.72% |
| BTC | 7.32% | 6.86% |
| ETH | -3.88% | 5.96% |
DEX Perpetual Futures - OI and Volume Comparison
| Venue | Open Interest (m) | Volume (m) | Open Interest % | Volume % |
|---|---|---|---|---|
| Jupiter | 366.74 | 429.56 | 28.39 | 43.32 |
| HyperLiquid | 700.00 | 310.00 | 54.19 | 31.26 |
| Drift | 188.00 | 200.00 | 14.55 | 20.17 |
| dYdX | 37.00 | 52.00 | 2.86 | 5.24 |
This data represents the state of Solana perpetual futures trading across major decentralized exchanges (DEXes).
Their high volume relative to open interest (429.56M/366.74M) indicates active trading rather than just position holding.
HyperLiquid’s dominance in open interest ($700M, 54.19% of total) while having lower volume suggests they might be attracting more longer-term position traders, which is evident as they are offering better funding rates/fees for position holdingThis could also reflect their focus on market making and professional trading infrastructure.
Drift maintains a solid third position with balanced metrics. Their approximately 15-20% market share across both metrics suggests a stable, established user base.
CEX Competitive Positioning Analysis
- Jupiter maintains ~7% volume share for Solana trading, slightly lower than its OI share (~10%)
- Binance dominates with ~50-60% of both volume and OI
- Bybit/OKX account for 15-30% combined volume share
Jupiter’s higher OI share compared to its volume share suggests that it has built features that traders value more highly than centralized exchanges like Binance for position holding. However, Jupiter’s elevated borrowing fee structure suppresses its natural growth potential. The data indicates that Jupiter has developed a superior product that traders actively want to use - the next step is to allow market forces to operate efficiently by bringing fees in line with competitors.
JLP Cap, its impact on growth, and next steps
In any financial market, prices find their natural equilibrium through the interaction of supply and demand. Assets carry inherent risks, and their returns should properly reflect these risk profiles. When an asset’s returns exceed what’s justified by its risk profile, the market naturally corrects this through price discovery. We can observe this principle in traditional markets - when U.S. Treasury bonds see high demand, their yields decline as prices rise, effectively reducing returns to match their risk profile.
This same framework reveals essential insights about Jupiter’s current state. The JLP 30-day Sharpe ratio has consistently outperformed the index since October, indicating returns that exceed what’s justified by the underlying risk. This outperformance isn’t necessarily positive - rather, it signals a market inefficiency that’s creating opportunities for value extraction.
Arbitrageurs are capturing millions of dollars by exploiting the premium between JLP’s fundamental value and market price. This premium exists because artificially high fees create expectations of outsized returns, as evidenced by JLP’s superior Sharpe ratio. The market is already responding to this inefficiency - we see this in the faster growth rate of AUM compared to fees accrued through trading and borrowing rates.
The market is attempting to reprice JLP to reflect its risk/volatility profile better. This is a healthy, “self-healing” process where those naturally replace market participants who demand higher returns with lower return requirements. However, artificially high fees and caps on JLP disrupt this natural adjustment.
The declining utilization rates and rising AUM point to fundamental issues with the current borrowing rate parameters. Rather than artificially capping AUM to maintain high utilization, Jupiter should adjust borrowing rates to align with broader market sentiment. The data shows traders explore platforms with more attractive financing rates, suggesting the market is seeking a more efficient equilibrium.
By reducing fees instead of capping JLP, Jupiter can:
- Allow natural price discovery to establish appropriate risk-adjusted returns
- Capture value currently being extracted by arbitrageurs
- Deepen liquidity pools through increased AUM
- Position itself as the most cost-effective venue for trading
- Build sustainable competitive advantages against venues like HyperLiquid
This approach recognizes that while the current liquidity provider model may not persist indefinitely, maximizing its efficiency now creates the strongest foundation for Jupiter’s eventual transition to alternative market structures, such as order books.
The empirical evidence supports this direction, from market metrics to trading patterns. By embracing rather than resisting market forces, Jupiter can create a more efficient, sustainable ecosystem that better serves all participants while building the infrastructure needed for long-term success in the evolving DeFi landscape.
The relationship between trading volume and volatility shows a clear correlation, while utilization remains uncorrelated. This suggests that during high volatility periods, Jupiter is potentially losing volume to competitors due to high fees rather than a lack of capital. Reducing fees would position Jupiter to capture this volume, potentially generating more total revenue than maintaining high fees with lower volume.
Consider two scenarios:
- High fees + capped JLP: Limited growth, vulnerable to competition, artificially maintained returns
- Competitive fees + uncapped JLP: Natural growth, market-driven returns, sustainable competitive advantage
The data supports scenario 2. Looking at utilization trends, we see periods where trading volume spikes don’t correlate with high utilization, suggesting traders actively seek the most cost-effective venues regardless of liquidity depth.
Furthermore, the perpetual futures market shows signs of maturation, where competition shifts from liquidity depth to execution costs. Jupiter’s strong liquidity and trader base position it perfectly to compete on fees, but only if it moves away from artificial constraints on market growth.
The choice between capping JLP and reducing fees isn’t just about short-term metrics – it’s about choosing between artificial stability and sustainable growth. The market data clearly suggests that embracing competitive fees while allowing natural capital inflow will create a stronger, more resilient protocol in the long term.
