The Biggest Airdrop in Solana’s History - A Deep Dive on Jupiter

Following the tremendous success of the last Jito airdrop, valued at more than $450 million at its peak, the next one on the list is JUP, the token behind Jupiter - a key DeFi aggregator on Solana. 
Scheduled for January 31st, this airdrop is the most highly anticipated one in Solana's history.
What sets Jupiter apart? Will JUP live up to its promises? At what price should we sell? Or when should we buy more?
In this report, I’ll delve into everything you need to know about Jupiter’s product line, future plans and the potential opportunities presented by the JUP airdrop.

Jupiter - The One Stop Shop for DeFi on Solana

Since its inception in October 2021, Jupiter has consistently pursued its vision of building the best decentralized trading experience on Solana. The platform achieves this by aggregating various DeFi features into a single app, and with the most seamless user experience possible.
Though Jupiter was initially conceived as a swap engine, the protocol has evolved significantly to include a number of different products for different kinds of users such as: Dollar-Cost Averaging (DCA), limit orders, perpetual trading, and, most recently, a launchpad.
In my opinion, the DCA tool is probably the best product in DeFi right now.

Source: Jupiter Exchange
Jupiter's growth was exceptional in 2023, with monthly volume surging approximately tenfold (10x) - from $650M in January to an impressive $7.1B in December. Notably, November marked an all time high with monthly volume exceeding $16 billion following the announcement of the JUP token at Breakpoint.

For context Uniswap’s monthly volume in the same time fluctuated from $17.4 billion in its lowest month to over $70 billion in its highest month.
Now, with over $66.5 billion in trading volume and over 1.2 million transactions processed to date, Jupiter has become a critical layer of the Solana ecosystem. It accounts for over 70% of organic volume among all Solana DEX, establishing itself as the platform of reference for retail traders on Solana.

Source: Dune Analytics
Nonetheless, Jupiter remains dedicated to continuous innovation, aiming to improve existing features and introduce new products aligned with its three main business model anchors:

• Delivering the best UX possible 
• Maximizing the potential of Solana’s technical capabilities 
• Improving Solana’s liquidity landscape as a whole 

Given its unique position, I believe that Jupiter is a bet on two things:

1. Solana’s long term adoption: 2023 was a year of rebirth for Solana as network activity picked up. I believe that it is well-positioned to continue growing and take a larger share of the L1 market. This could benefit Jupiter.
2. DeFi going mainstream: The future of trading is on-chain, and even CEOs of large traditional finance institutions, like Larry Fink, are beginning to talk about the “tokenization of every financial asset.” Hence, it doesn’t seem too far-fetched to think that Jupiter could facilitate this transition.

The recent announcement of the JUP token further exemplifies Jupiter’s strategic step in that direction.

JUP - The symbol of DeFi 2.0

The JUP token marks a significant milestone in Jupiter’s development and ethos. Much like UNI, the governance token of Uniswap, symbolized the first wave of DeFi on Ethereum, JUP aspires to embody the essence of DeFi 2.0 on Solana.
Designed as a governance token, JUP will allow holders to influence crucial aspects of the ecosystem. This includes voting on the critical aspects of the token itself, such as the timing of initial liquidity provision, future emissions beyond the initial mint, and key ecosystem initiatives.

Source: Jupiter exchange
The key objectives of the token are: 

• Energizing the Solana ecosystem by attracting new capital flows and users.
• Generating momentum for the launch of new ecosystem tokens: JUP is poised to act as a catalyst for the introduction of more ecosystem tokens.
• Build a Strong and Distributed JUP Community.

As outlined by the pseudonymous co-founder Meow, JUP aspires to establish “the most effective, forward looking, decentralized, non-insider voting DAO in [the] history of DAOs.” 
Furthermore, the utility of JUP will evolve over time depending on the direction taken by the community. Potential future utility for the token could include:

• Fee reduction on the perpetual exchange.
• Improved access and allocation to the launchpad.
• Fee sharing on the Automated Market Maker (AMM).

However, Meow has made it clear they won’t be turning on revenue sharing until they have 10x their user base at least.

Tokenomics

Tokenomics reflect the ethos of a project and Jupiter vision is to make it as simple as possible. With a max. supply of 10 billion JUP, the token distribution is equally split between 2 cold wallets - the team wallet, and the community wallet. The team wallet will be used for allocations for the current team, treasury, and liquidity provision, while the community wallet is geared towards airdrops and various early contributors. 

Airdrop Breakdown

 The first round of airdrop is scheduled for January 31st, with 10% of the total supply initially distributed among the community. The breakdown of the airdrop will be as follows:

1. Even distribution for all wallets (2%):

200 million tokens will be evenly distributed among all users who used Jupiter before November 2nd 2023 This equates to approximately 200 JUP per user.

1. Tiered score-based distribution, with score based on non-adjusted volume (7%):

The distribution will look approximately like this:

• Tier 1: Top 2,000 users, 100,000 tokens each (estimated >1M trading vol)
• Tier 2: Next 10,000 users, 20,000 tokens each (estimated > 100K trading vol)
• Tier 3: Next 50,000 users, 3,000 tokens each (estimated > 10K trading vol)
• Tier 4: Next 150,000 users, 1,000 tokens each (estimated >1K trading vol)

1. Community members on discord, twitter, developers (1%):

100 million tokens will be allocated to the most valuable contributors and community members.
There will be three more rounds of airdrops in the future.

JUP Token Valuation - Comparison with JTO

One common question that arises with new airdrops is determining the fair value of the token.
While there are no straightforward ways to answer this question for JUP, one approach could be to conduct a comparative analysis based on the last recent airdrop on Solana: the JTO token.
JTO serves as the governance token of Jito lab, a liquid staking platform built on Solana. This airdrop distributed 10% of JTO supply to approximately 10,000 users. At its peak the value of the airdrop exceeded $450 million.

JTO price analysis

Using the reference price (Ref Price) of the first quoted price on Binance (after the initial market volatility) of $2.13, this is a summary of the price action of JTO upon launch:
Source: Binance
A few trends from this table:

• Initially, during the first trading day, the token price exhibited strong volatility fluctuation from $1.74 to $3.77. Moreover, the price spent 83% of its time trading higher than the initial quoted price of $2.13
• Additionally, it is worth noting that the first week of trading was really positive for JTO. The token traded over 97% of the time above its reference price and reached an all time high (ATH) of $4.45.

Now looking at the percentage of time spent in different price zones, we see that JTO did not spend a lot of time on its ATH level as only 0.18x of time was spent above a 2x from the reference price of $2.13.

Moreover, we also see that JTO didn’t experience any drawdown of more than 50% with respect to the first quoted price. Further it only spent around 8.6% of its time at a drawdown superior to 25%.

While the price action of JUP may not necessarily mirror the path of JTO, you can draw some assumptions:

• The initial trading day of JUP is expected to be highly volatile, potentially providing opportunities for short-term traders.
• The launch of JUP could generate significant excitement with a potential local peak in the first week of trading. A rapid increase, surpassing twice the initial quoted price, might signal a selling opportunity.
• Conversely, a drawdown exceeding 50% from its initial quoted price could be interpreted as a buying opportunity.

An “Overbought” Indicator - The JTO FDV / LDO FDV ratio

Jito is similar to the Lido protocol. Their key distinction is that Jito is on Solana whereas Lido is on Ethereum. Therefore, when JTO was launched, a sound approach to pricing the token involved looking at the relationship between JTO Fully Diluted Valuation (FDV) and LDO’s (the governance token of Lido) FDV. This comparison allowed us to gauge how the market was valuing JTO in relation to its counterpart on Ethereum.
This is the JTO FDV / LDO FDV ratio over time since the inception of JTO:

We observe that upon its launch, JTO quickly traded above LDO FDV, reaching a ratio of nearly 1.9, indicating double the FDV of LDO. However, this spike likely reflected a peak of euphoria and the market quickly repriced JTO to lower levels. In the subsequent weeks, the JTO to LDO FDV ratio trended downward until the 0.4 mark where it rebounded strongly to the 0.7-0.8 levels. By now, it seems that the market has finally settled on a fair value around this range. This aligns closely with its average over the past months, which stood at 0.9.
We can conclude that for JTO, a ratio of over 1.6 represented a clear overbought signal whereas 0.4 represented a strong oversold signal.

Applying this Valuation to JUP

In the same way that LDO served as a relative peer for JTO, we need to find an anchor of comparison for JUP on Ethereum.
Given that Jupiter operates as the largest decentralized exchange (DEX) on Solana, with features such as Automated Market Maker (AMM), DCA, perpetual trading, and launchpad opportunities, finding a single project on Ethereum with a comparable scope is challenging. Consequently, I decided the combination of Uniswap, dYdX, and DAO Maker can be interpreted as the closest peers for JUP. Hence, their Fully Diluted Valuations (FDV) can be summed for comparison. At the time of writing, the combined FDV of their respective tokens: UNI, dYdX, and MKR is around $10,04 billion.
We can utilize this combined FDV figure, along with various key levels of the JTO/LDO FDV ratio, to estimate the JUP price in different scenarios.
Source: Binance
By employing this same relative valuation analysis, we can have these key price levels to improve decision making upon the airdrop:
However, it is important to note that the daily Beta of JTO to Solana is relatively high at 0.86. Hence, JTO price movement closely follows that of Solana, and it is likely that JUP will follow the same pattern. Therefore, the current market conditions can significantly influence the hype generated by this airdrop.
At the time of writing, Solana is trading at $80-82, down from the $120-130 levels. This represents a dip of more than 30%, signaling that the market conditions may not be as bullish as during the JTO airdrop.

When comparing the month prior to the JTO airdrop to the recent SOL price, it is evident that the market conditions have changed. Therefore, it seems reasonable to argue that this could have a negative effect on the price of JUP.

Potential Airdrop Reward

Can this airdrop be as big as the JTO one? Let’s analyze this together.
If we refer ourselves to the different reward given to each tier, we can derive the potential airdrop potential of JUP for a given price:

Source: Jupiter Exchange
In contrast, this is what JTO reward looked liked for the different tier and at different key prices:
Source: Jito Labs
Even at an all-time-low price of $1.323, the size of the JTO airdrop for each respective tiers was consequently higher than the potential reward for the JUP airdrop, even at a price of $2, which surpasses our valuation for JUP ($20,000 v/s $2,000).
To illustrate, for the lowest JUP tiers to match the reward of the lowest JTO tiers at its historic low price, JUP would need to trade at over $20. This would imply a FDV of $200 billion, a figure which is totally unrealistic.
However, it is essential to highlight that the JTO airdrop was concentrated among only 10,000 users, whereas JUP is distributing its token to nearly 1 million users. This also meant that there were many buyers on the sidelines for JTO that wanted exposure, whereas JUP is being distributed far and wide, so there may be less buyers initially.
The market was also not anticipating JTO would end up at such a large market cap, and it seems the expectations around JUP are very large, so that is also a key difference that should be taken into account. When everyone is expecting the same thing it rarely plays out that way.
Consequently, although the JUP airdrop might not offer as substantial rewards to individual users as the JTO airdrop, its broader impact on a larger user base makes it a crucial and potentially one of the most significant airdrops in Solana to date.
It is very likely that we see a significant increase in on-chain activity post JUP. It will act as a stimulus check for many, and it is very common behavior for degens to move further out on the risk curve to chase higher returns with what they deem “free money” from JUP. 
Last but not least, SOL should also likely benefit from the increased buying pressure as people take profit from JUP into SOL, but it’s clear the market is much less bullish in the short term, so it’s hard to gauge how well SOL may do on lower time frames as a result.