Credits: Mazi
Introduction
Sudoswap has been gaining the attention of Crypto Twitter (CT) recently, and has been experiencing tremendous growth (more on this later) since the in-house automated market maker (AMM) sudoAMM was released on 08 July 2022.
Let’s take a look at some booming stats.
Since the launch of SudoAMM on 08 July 2022, daily active users have increased by 439x.
A brief overview about Sudoswap:
Sudoswap is a NFT marketplace powered by 0x protocol, that has integrated the AMM model, allowing for NFTs to be traded and swapped using liquidity pools. Sudoswap allows for the trading of any combination of assets - be it ERC20, ERC721 or ERC1155. Coupled with royalty free trades and the ability to earn fees from provision of liquidity, Sudoswap seems like a NFT trader’s paradise.
Founder
Before diving deep into what Sudoswap is about and what it has to offer, just a short introduction about the founder of the project - 0xmons.
0xmons is a pseudonymous developer, considered as a veteran in the NFT vertical, having previously launched the 0xmons pixel monster collection powered by machine learning. Prior to the release of Sudoswap, 0xmons has also written a whitepaper on liquidity provision for NFTs.
Target Problem
So why is it that a AMM model is needed for a NFT marketplace? With the existing NFT marketplaces such as Opensea, LooksRare and X2Y2, there are multiple areas of inefficiencies that Sudoswap aims to target.
1. Low Liquidity
This is one of the main aspects that Sudoswap is tackling, also evident from the founder’s description of Sudoswap ‘capital efficient protocol for NFT liquidity’. Due to the non-fungible nature of NFTs, provision of deep liquidity in NFT marketplaces have constantly been an issue, with sellers being unable to sell their NFTs with ease. In addition, the lack of liquidity has also caused NFT holders to experience slippage when transacting their NFTs.
Efforts have been made to mitigate this issue - through fractionalisation of NFTs. Despite improving the liquidity, the downsides brought about by NFT fractionalisation include that of being limited to trading portions of an NFT, while there might be users who would still want to trade full NFTs. Furthermore, with fractionalisation, NFT composability is negatively affected and limits the use cases outside of the original ecosystem.
2. High Platform Fees
There are mainly 2 kinds of fees that are collected when a transaction is made:
Service fee: Taken by the marketplace
Royalty fee: Fees given to creators
Existing NFT marketplaces poses relatively higher fees, with the following fee structure
For both LooksRare and X2Y2, 100% of the service fee collected will be returned to their token stakers. Nonetheless, these fees are still considered relatively high and would impede traders’ profits.
3. Centralisation Risks
Current NFT marketplaces are typically centralised, relying on centralised orderbooks. With such a system, not only is the marketplace susceptible to downtime, it is also susceptible to events such as frontrunning of purchases etc., making the NFT market less friendly for that of users.
Sudoswap & Its Pros
Enter Sudoswap. With Sudoswap’s AMM model, it has offered solutions to that of the above problems, and has also brought about some additional benefits.
1. Improving Liquidity
One of the main value add provided by Sudoswap would be the provision of liquidity to the NFT marketplace, made possible through SudoAMM. With a concentrated liquidity AMM model, NFTs can be traded using liquidity pools instead of having to match buyers to that of sellers. This allows users to buy or sell an NFT immediately without having to wait.
Furthermore, with concentrated liquidity, users will be free to customise the price ranges that they wish to provide liquidity to, giving them more control over how they wish to price their assets.
2. Lower Fees/Cost Efficiency
Sudoswap comes in with just 0.5% service fees, and the fees collected are kept in Sudoswap’s treasury. Seems like very favourable terms indeed, for the users, granting them a higher profit margin. But without royalty fees, wouldn’t it be a disadvantage for the creators? Hmm, more on this later.
In addition, as mentioned by the founder 0xmons, Sudoswap optimises cost efficiency by having underlying infrastructure that allows users to interact with just a few tokens, thereby reducing the gas fees paid. Bulk transfer is also possible on Sudoswap, helping users to save on the gas fees.
3. Yield for Liquidity Providers
Other than better liquidity and lower fees, Sudoswap also allows for liquidity providers to earn from provision of liquidity, thereby providing a source of yield.
4. Decentralisation
Sudoswap brings about decentralisation by using an on-chain marketplace, removing the issue of front-running.
5. Composability
Tapping on the previous point of decentralisation, other on-chain entities such as that of DAOs can manage the on-chain liquidity pools without the need to delegate for signing or writing of custom governance code. Thus, this lowers the barriers to entry and makes it easier for them to participate in the NFT marketplace.
Cons of Sudoswap
All sounds great and lovely, but are there no downsides at all for Sudoswap> Well, definitely not the case.
1. Lack of Continuous Profits for Creators
When NFTs boomed last year, 2021, one of the greatest value add brought about by the NFT industry was that artists could now stand to gain a larger portion of the profits. 1 distinct example was that of traditional music studios, where most of the profits would be taken by studios, leaving the artists with little profit. By taking away the middleman (studios) away, artists were granted the opportunity to earn the bulk of the profit through NFTs.
By implementing a ‘no royalty fee’ feature, the consistent source of income for artists is essentially removed. This could lead to multiple negative spillovers.
Stumped Project Progress
With the lack of consistent revenue for the team, it might become difficult for the project team to progress accordingly with their roadmap. This would eventually bring up more unhappiness in the community should the project team be constantly falling behind their schedule, due to the financial constraints they might be faced with.
Lack of Innovation & Lower Quality Releases
One of the possible solutions to tackle lack of royalty fees would be for the projects to drop more frequent collections. However, given the time and effort required for each release, it is likely that if the team decides to go for quantity, the quality might drop, undermining the community.
High Barrier to Entry
Another potential method would be to raise the price of mints. Evidently, this would help the teams to have a longer leeway. However, this would result in a higher barrier to entry for buyers who would have to fork out a larger sum to afford the NFT.
2. Capital Inefficiency (?)
In a podcast with Blockcrunch, 0xmons also mentioned that a differing point between Opensea and Sudoswap is that of auctioning. In the case of Opensea, with a certain amount of WETH available in the wallet, users can make bids on different NFTs. However, when using Sudoswap, users will be required to ‘lock up’ WETH that corresponds to the auction price. This in some sense comes across to me as ‘capital inefficiency’ as users will be limited to making auctions on selected NFTs.
Sudoswap’s Traction
Let’s take a look at some numbers to have a brief understanding of how Sudoswap has performed both quantitatively and qualitatively.
Quantitative
The following values are obtained from:
(1) https://dune.com/0xRob/sudoamm
(2) https://dune.com/vlang/sudoswaporsudoamm
The following chart depicts the traction of Sudoswap across some key metrics from 08 July 2022 (Launch of SudoAMM) to 21st August 2022.
Evidently, Sudoswap has achieved significant traction upon the launch of Sudoswap, with important aspects such as that of total transactions, daily active users and total platform fees increasing rapidly and of a huge magnitude. Thereby showing the market interest and the potential for sustainability should Sudoswap be able to continue maintaining a gradual increase in these metrics.
Qualitative
Upon the release of SudoAMM, Uniswap has announced that they will be launching a NFT platform with Sudoswap integrated. Uniswap is the leading decentralised exchange (DEX) with $1.29 billion in trading volume over the past 24 hours and have recently overtook Ethereum in terms of fee generation. Having the backing of a market leader could be beneficial for Sudoswap’s future traction, both in terms of the market size it could access and also the marketing benefits.
In addition, it should be noted that Sudoswap manage to achieve significant traction despite the general NFT market taking a severe hit, with the NFT trade volume decreasing by 94.8% from a high of $1.77 billion in May 2022 to the current $91.85 million (Aug 2022). Presuming better market conditions and increase NFT volume, it is likely that Sudoswap will be able to perform even better.
Lastly, even before the Sudoswap token has been launched, forks have already appeared. Example of which is SudoRare, with a twitter following of 17.3k. This is evidence that the market is paying attention and keen on what Sudoswap is doing, and as such is attempting to replicate the same product.
What Lies Ahead?
Definitely an exciting project solving some real issues currently within the NFT marketplaces, together with the amazing traction gained within a short period of time. There are some things that we can keep a look out for in the next few months:
$SUDO Token
Sudoswap has announced that there will be a $SUDO token, and right now it is said that it will be used as a governance token. Information has yet to be released with regards to the distribution. Once the $SUDO token has been released, it would be good to keep an eye on the utility and value accrual towards it, for that would determine whether a demand can be created for the token and eventually expanding the ecosystem and user base.
A cautionary note here would be that the market might be anticipating the $SUDO token airdrop and is thus participating in the Sudoswap ecosystem. If this is the case, there is the possibility that the traction achieved up till date might not be entirely organic. We will thus have to keep a lookout and be wary of potential selling pressure after the airdrop.
Royalty Free - Potential Customer Base
Despite the zero royalty fee feature potentially stumping the revenue inflow for the creators, it could be a compelling case for big institutions and corporations (Example: Coca Cola, Adidas etc.) venturing into the NFT vertical. For such big institutions that have alternative cash inflows, having a consistent stream of revenue from NFTs might not be their focus, instead, it is likely for it to be a marketing tactic to bring more awareness to their brand.
Conclusion
Definitely an interesting and exciting protocol in the NFT space. It would be good to monitor the traction of the protocol and see how it does from here on. A 2nd article will be released to compare Sudoswap to that of its competitors. Stay tuned.
Useful Resources
Sudoswap Twitter: https://twitter.com/sudoswap
Sudoswap: https://sudoswap.xyz/#/
Sudoswap Documents: https://docs.sudoswap.xyz/
Sudoswap Discord: http://discord.gg/KWHFhVnfue
0xmons’s Thread on Sudoswap:
Dune Analytics Dashboard for Sudoswap: https://dune.com/0xRob/sudoamm
Mechanism
Buckle up, let’s drive into a bit more detaily details.
In Sudoswap, liquidity providers (LPs) create their own individual liquidity pools. LPs are able to do any of the following:
Provide single-sided buy pool
Provide single-sided sell pool
Provide both sides of the pool → Trading fees can be earned by LPs
With the above feature, LPs are granted a greater control over the pricing.
The assets within the pool are priced using a bonding curve, simply put:
The more an asset is bought from the pool → The more expensive it becomes
The more an asset is sold from the pool → The cheaper it becomes
Sudoswap offers 2 types of bonding curve:
Linear Curve: Every time an item is bought/sold from the pool → Price of NFT increases/decreases by a flat amount
Exponential Curve: Every time an item is bought/sold from the pool → Price of NFT is increased/decreased by a certain percentage
To have a better understanding of how the pools work, do refer to these threads: