Analyze the future application scenarios of the NFT AMM innovative solution SudoSwap

Since August, SudoAMM has attracted the attention of NFT users with its rapid growth in volume and users, with Dune Analytics data showing that as of August 14, current SudoAMM volume has exceeded 6900 ETH (>$10 million), with nearly 85% of the volume since August. Launched in early July, the “Uniswap V3 in NFTS” has received renewed attention thanks to what the community calls the “official Pool,” Based Ghouls Pool. Its novel model attracted retweets of Crypto CTs, media publicity, and pools set up by well-known NFTs such as Azuki and Clone X, and increased visibility, and the data reached a mini-peak in August.

SudoSwap uses the mechanism of AMM to try to solve the NFT liquidity problem, and the mechanism is not really complicated. If you are a user familiar with DeFi, Uniswap AMM V3 and the function curve of x*y=k will not be new to you. The LP in Uniswap V3 allows users to make a market against TokenA-TokenB within a self-determined price range. Similarly, SudoAMM cleverly treats NFT as TokenA and ETH as TokenB, allowing users to make a market against NFT-ETH on SudoAMM within a specified price. For buyers and sellers, instant trading is possible through the pool, while selling can take place in an order transaction similar to OpenSea. For LPs, they can choose bilateral market making for NFT-ETH similar to V3 to earn transaction fees, or they can choose only unilateral market making for NFT or ETH to earn ETH or NFT.

With SudoAMM’s recent impressive performance, the topic of NFT liquidity solutions has increased, and this article will try to talk about SudoSwap’s adaptation to the liquidity scenario.

First of all, I recognize SudoAMM’s attempts and contributions to NFT liquidity, but again, my basic view is that different types of NFTs should be adapted to different liquidity solutions based on different demand scenarios. In my opinion, SudoAMM only represents a specific usage scenario, representing one of the layers of NFT liquidity hierarchy. In the future, as the NFT market becomes more specialized and vertical, and the scenarios are split more carefully, I believe that the adaptation of NFT liquidity will become more hierarchical.

Top art or NFT does not need high liquidity

The lack of liquidity in NFTS is a familiar problem. But for some NFTs, liquidity is not exactly a problem worth solving, and therefore SudoSwap is not necessary. These products can be broadly divided into two categories: art and blue chip.

Art, such as ArtBlocks, reflect the style of the work, the thought of the creator and even the status of the artist, and have a high appreciation and collection value, which is priceless.

The top blue chips may also not need high trading liquidity, because most of them may be loyal long-term Holders, and in the far future, the top blue chips will gradually become financial collaterals, applied in lending and leasing markets. Seller orders on the trading market are likely to be very scarce. The two top blue chips on the market, BAYC and CryptoPunks, qualify for this, but may still not be expensive enough at the moment.

SudoAMM is perhaps more suitable for NFTs like cc0/Meme

SudoSwap is the equivalent of trading the entire NFT series as if it were only 10k or a fixed number of FTs, with less focus on rarity and properties. For cc0, SudoSwap is more like a “platform” that fits highly with its derivative re-creation and Vibe. The biggest pitfall of unofficial derivatives is their vulnerability to being taken down by NFT platforms. OpenSea, as the current NFT platform with the best trading depth and visibility, is the preferred platform for all kinds of Meme, but often under the banner of “protecting the genuine”, has the centralized power to downgrade or withdraw an NFT at will, which is fatal for all kinds of cc0 protocols of second creation.

With the influence of OpenSea, cc0 down means death and liquidity drying up. A recent example is that after Moonbirds announced its transformation into cc0, knockoffs emerged, led by Moonbirds2, which was favored by many users, but OpenSea took him down in the name of copyright infringement, and Moonbirds2 knockoffs died out with it.

However, approval or disapproval of Meme or knockoffs should not be managed by a centralized platform, but should be left to the users, the community, to judge. When a Meme is recognized by the market, its trading volume can be very crazy. In other words, whether a Meme is interesting enough or not can actually depend on how liquid it is at a certain point in time. If its floor price rises quickly with the help of SudoAMM’s function curve, then it’s a win-win for both the LPs and the NFT user. SudoSwap not only provides liquidity support, but is also a counter to centralized power. If one day a Meme NFT that was taken down by OpenSea instead sees explosive growth in SudoSwap, it will be the best blow to centralized power from a decentralized protocol.

Game props are suitable for SudoSwap, but may not need it

Meta-universe game props need to have the non-homogeneous properties of NFTs, but most do not have a high need for rarity and are a great target for using SudoSwap. However, the problem is that metaverse games tend to be exclusive in the initial stage, and platforms prefer to control the flow of NFT themselves and form their own NFT market for game props, so that on the one hand they can collect most of the revenue for themselves, and on the other hand they can control the balance of supply and demand in the secondary market to avoid inflation. Objectively, most of the game props are currently separated from the game itself, so there is no need for a third-party market.

NFT project owners have their own liquidity through SudoSwap

Game props may not be suitable for building their liquidity through third party marketplaces, but other PFP avatars may be. Some project owners tend to set aside x% of their NFTs to increase revenue from additional sales or auctions. Now they can create an official Sudopool on SudoSwap with the reserved NFTs and ETH earned from public sales and earn a 0.5% LP fee from it, which will no longer rely on royalties for secondary revenue.

Bring in NFT market makers through SudoSwap

The introduction of an NFT market maker (which may still be initially introduced by the project owner or a large Holder to contact third-party institutions) allows the NFT to be applied to quantitative trading strategies, such as arbitrage, volatility hedging, etc., as a way to achieve a programmatic market. For traders, they do not have to be forced to do holder, or even to understand the culture and Roadmap of this NFT.

When the volume and liquidity of an NFT is strong enough, then a package buy is going long the floor price and vice versa. On the other hand, if an NFT can be traded instantly, then its price can be supported, thus providing the conditions for it to become collateral, which in turn increases the stability of the NFT market to some extent.

SudoSwap’s exploration of NFT liquidity focuses on floor price NFT, which admittedly accounts for most of the volume, but if rarity is not taken into account, the price of the same series of NFT will tend to be the same, which is no different from FT. SudoSwap cannot solve the pricing problem caused by the rarity/attributes of NFT. In addition, SudoSwap has a particularly large pool of sellers, and some users just want to use SudoSwap to make a faster exchange, even to the extent that it facilitates some NFTs with unknown prospects, which is also a challenge for NFT loyalty.

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