What is Drift Protocol?

Drift is one of the leading Solana-native DeFi protocols that offer swift perpetual futures contracts with general DEX features such as swapping and lending. Built for both traders and liquidity providers, Drift, through its DRIFT token, governance features, and expanding ecosystem applications, has created a suite of trust-minimized financial products for the Solana blockchain ecosystem.

An Overview of Drift Protocol

The Overview page of Drift provides a summary of the user’s trading account. For a new user, this section is usually blank, with no account from which to aggregate trading data. A brief collation of deposited funds, open market positions and unsettled profit and loss is displayed on the right side of the page. 

Balances

In this section of the protocol overview, the exact figures owned by a trader and the amount owed (if the user has borrowed from the lending market) are displayed. For all the tokens shown, Drift provides its users with an Assets/Liabilities weight. This ratio helps traders realize the health factor of their token holdings to avoid liquidations and loss of funds.

Portfolio 

The total balance of an account (minus borrowed funds) is the user’s portfolio value. The profit or loss (P&L) balance is the amount earned or lost from the trader’s trading endeavours. The Drift dApp records the total volume traded on a particular account and displays it on the portfolio page.  

History

All important details carried out on a user’s trading account are carefully recorded for future access. As shown below, information such as order types, the amount deposited in funding the account, the trade settlement, and the active trades are included in the trading history for better user experience. I deposited some USDC to borrow USDT. The “Borrow” label beside the Withdrawal Type is used to denote that at the time of this activity, no newer transaction shows if I have returned the borrowed USDT or not.

Accounts

To activate an account, traders must deposit their collateral from their wallet to a separate trading account created by Drift. Depositing collateral is necessary before proceeding with any trading activity that can occur on the protocol. Note that creating an account costs about 0.0314 SOL for a service called Rent on Solana. A fee is charged to maintain an account onchain and ensure that the user’s data is stored. Think of this rent as a subscription for keeping the account and its data alive.

After depositing the collateral and the account is created, the “Manage Subaccounts” page provides the details of the user’s newly created account.

Drift Earn

Drift Earn is the protocol’s section for both passive and active earning opportunities for its users. Some of these are highlighted below:

Explore/Compare

By providing a passive way for traders to earn, Drift offers many tokens with pools that traders can deposit into to earn an estimated APR/APY. Unlike other earning opportunities on Drift, depositing in the Explore/Compare section does not need the user’s active participation, as their deposit is used to generate their earnings. 

Borrow/Lend

Drift Protocol has a fully functional lending system for borrowing funds. Select the Borrow/Lend section and deposit the amount that serves as the collateral.

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A deposit of $99 was made in the account below so that I can borrow some more stable coins (USDT).

As much as collaterals are a necessity, traders must monitor all their holdings while trades are open to prevent any random liquidation. 

Liquid Staking

Lastly, on the Drift Earn programs, we have the liquid staking mechanism called dSOL. dSOL is Drift Protocol’s liquid staking token minted by those who exclusively stake their SOL to Drift Validator. Apart from using dSOL as collateral to trade, its advantages and earning opportunities for minting dSOL are high yields, a share of priority fees, and MEV. 

Rewards

FUEL

Drift gives out incentives to its users using a loyalty points system called FUEL. FUEL is earned by using the Drift protocol as a taker or maker in the markets. For every $1 in taker or maker volume, the onchain point is earned. FUEL can also be earned by staking the DRIFT tokens for a period of 28 days.

For the volume traded on the account used in these examples, the account was credited with 1,195 FUEL points. It represents the taker volume of the value in the short trade. If a user borrows for the stipulated time set by the protocol, they are entitled to the corresponding FUEL allotted for the amount borrowed. Below are some of the other activities that can earn FUEL. 

When traders cumulatively reach a $15B volume on Drift, 28,200,000 DRIFT tokens will be unlocked as airdrops for the community. This is what the FUEL points will be used for. The FUEL points will be swapped for DRIFT tokens. 

Referrals 

A common user acquisition is the referral system. Drift implements this by sharing the fees earned from referred users with those inviting more people to use Drift. 

$DRIFT Token and What it is Used For

Drift has a governance token with the same name. It can be used to vote on important protocol decisions that can affect the Drift ecosystem, such as protocol upgrades, fee structures, and treasury usage. Like other exchanges, DRIFT may be used to reduce trading fees and access premium features on the dApp.

Drift Vaults

Strategy Vaults

Drift Strategy Vaults are on-chain investment products offered by Drift Protocol. A vault allows a user, in a permissionless way, to join, create or manage an investment strategy. These vaults are created with the aim of generating yield through various trading techniques, e.g., liquidity provisioning.  

The Strategy Vaults are divided into two - Verified Fund Managers and Ecosystem Vault Managers. The difference between these two vaults is that the Verified Fund Managers is made up of a list of managers who have completed their Know Your Business (KYB) checks and have other information verified on Drift. 

Insurance Fund Vault

To maintain the constant solvency of the trading protocol, Drift employs an insurance fund that guarantees the constant operation of the Drift application. By staking assets in the Insurance Fund, users can help secure the protocol while also earning from the revenue accrued. One of the risks involved in this vault is a bankruptcy event or protocol hack. In this case, the funds in the Insurance Fund will be used to settle users’ accounts. 

How to Trade the Perps Market on Drift 

In this tutorial, I placed a short position on SOL using a 6x leverage. 

Because of the SWIFT version, Drift fills its orders speedily and displays the progress of all the components involved in a single transaction. 

Position

This section combines all the basic information necessary for the trader regarding all opened positions. From this section, a trader can add or edit the set prices for specific actions such as the Take Profit and the Stop Loss actions. 

Orders

This section highlights all the specific orders created in the process of initiating a trading position. For the example used here, I set stop loss and take market price to automatically close a trade when I make about $10 of profit or when I incur a $5 loss, respectively. Drift triggers any of the two orders when the prices match. 

Since users can have multiple trades open at the same time, Drift includes all open trades in the “Positions” section. This makes it easier for all traders to watch their positions go up or underwater in real time. 

Clicking on the details of the trade provides a detailed view of the position, such as the entry price, mark price, break even and liquidation prices.  

Finally, to close a trade, click on the “x” button or the details icon under the “Action” column. Open trades can also be closed from the History or Accounts page, as shown in the Overview section of this article. Make sure that the open orders close successfully before leaving the app.

Spot

Drift offers not just a perpetual market for leverage trading but also a spot market. With the spot feature, users can market buy/sell or limit buy/sell available tokens. A market order buys or sells the selected token immediately at the best available price in the market, while for the limit order, users can specify the price at which they are willing to buy or sell their tokens. The limit order trades will only be executed if the market price reaches the set limit. 

Swap

Powered by the Jupiter DEX aggregator, Drift has an interface for quick swapping of tokens to make trading easier without having to hop different applications. In the image below, I swapped some USDC for USDT. 

Conclusion

Drift Protocol stands out as one of the best Solana-native perpetual exchanges. With its fast execution, permissionless perpetual trading, and strategic vaults, Drift makes trading efficient and smooth for the Solana DeFi user. Whether you're a seasoned trader seeking leverage onchain or a passive investor looking to earn yield through its structured strategies, Drift offers a user-friendly interface into onchain decentralized derivatives.

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