dApp Dive: SudoSwap

By @0xLayerTwo

One of the greatest impediments to rapid implementation and growth in NFTs right now is a lack of liquidity and the ability to earn an ROI on your NFT without selling it. DeFi Summer has shown us that investors are attracted to liquidity and yield. Enter SudoSwap.

SudoSwap Logo

What is SudoSwap?

Launched just last month (July 2022), SudoSwap is a decentralized, gas-efficient NFT marketplace that allows users to swap NFT using an automated market maker (AMM) model.

Automated market makers (AMMs) are novel to DeFi and allow digital assets to be traded in a permissionless and automatic way by using liquidity pools rather than a traditional market of buyers and sellers (think of your typical orderbook based CEX). AMM’s are funded by users who supply their respective liquidity pools with crypto tokens, whose prices are determined by a constant mathematical formula that has to do with the ratio of Asset A to Asset B in the pool. Liquidity pools can be optimized for different purposes, and are proving to be an important instrument in the DeFi ecosystem. You can learn more about AMM’s and dig into how they function here.

AMM’s for NFTs?

With SudoSwap, similarly to an AMM decentralized exchange (DEX), liquidity providers (LPs) have to provide the NFT liquidity pool for the pair to be tradable. LPs can choose to provide single-sided buy or sell pools or provide both sides along a specific price range called the bonding curve. It gives LPs a lot of control over the pool structure. LPs will then be able to earn fees whenever other users swap NFTs for ETH or vice versa, opening up a whole new stream of revenue.

Sellers have two choices – to either sell or list their NFTs on SudoSwap. By selling their NFT, it will be instantly sold to the bonding curve at the best price possible. If the seller chooses to list their NFT, they have to set the desired price they want their NFT to be sold at.

Similarly to DEX trading, there may be slippage when swapping. Since slippage is negatively correlated to liquidity, low liquidity would mean high price slippage. In a high slippage environment, the buyer would get less market value for the NFT they purchase.  

With Sudoswap, traders can quickly buy and sell NFTs across the many different pools, allowing for more immediate price discovery and reducing the constant threat that many NFT traders regularly face of being stuck with an illiquid asset. NFT traders have seemingly flocked to the idea, as over the past month Sudoswap’s TVL inside its liquidity pools has increased by 2,400%, from $120,000 to a peak of $3 million (Currently $2.358 Million), DeFi Llama data shows. 

Twitter Personality Corleone had a great thread on SudoSwap, which you can find below.

Corleone @corleonescrypto

Sudoswap has been gaining the attention of the Crypto world lately. Its been quoted the Uniswap of NFTs. Everything you need to know about Sudoswap 👇🧵

Corleone states:

Currently, the NFT market relies on centralized orderbooks that are subject to downtime and centralization risk. sudoAMM changes that by being fully on-chain. Anyone can source the same liquidity used by the sudoswap marketplace in their apps using ETH.

With Sudoswap You can create pools that sell along price curves. If you have 10 @forgottenrunes but don't want to put them all at the floor, you can have gradual increases in price. This allows you to efficiently move out of an NFT position / collection.

On the other side you can also create pools that BUY along price curves. You can make collection offers with the price decreasing after each purchase, with a max number to buy. This allows you to create a floor, purchase over time (DCA) and slowly sweep controlled.

Additionally, the thread below from Cygaar offers a relatively easy to follow visual guide on how to transact on the platform.

cygaar @cygaar_dev

So you've been hearing a lot of talk about @sudoswap, but you're not quite sure how to use it. Maybe the UI is hard to navigate or you don't know what "pools" are. Here's a simple guide (with visuals) to buying and selling NFTs on Sudoswap 🧵:

The Argument Against SudoSwap

One of the appealing aspects for users is that SudoSwap does not charge any fees, including built in Secondary Royalties for projects and artists, making it attractive for traders, while equally unattractive for content creators. Unlike OpenSea which pays on average 5% to NFT issuers on secondary sales, while keeping an additional 2.5% for itself, Sudoswap charges just 0.5% fees on trades, funds it sends to its treasury, not creators. This is a real issue and it has key figures in the Crypto Twitter NFT Space, such as Punk 6529, Zeneca, and Beeple speaking on the subject.

6529 @punk6529

I am 100% certain that "not paying royalties" is not a sustainable competitive advantage for Sudoswap. If it "works" in any significant way it will be copied. So people should state their views on royalties assuming every market evolves to a common approach

Zeneca_33 (🔮,🔥) @Zeneca_33

Perhaps the most significant conversation about the entire NFT market is about to take off, and the topic is creator royalties. They're unenforceable on-chain, and we now have sudoswap capturing market share paying out 0% creator royalties. Discuss?

beeple @beeple

i think the creator royalty argument is actually a lot simpler than people make it out to be. There is ZERO way to FORCE royalties technologically so creators will have to build a collector base that WANT to honor these royalties…. It’s really that simple. 🤷

What side of the argument do you stand on?

Not financial, legal or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. All opinions expressed are solely those of the individual author. This newsletter is not legal advice and does not create an attorney-client relationship. This newsletter does not constitute tax advice. Talk to your independent attorney and/or accountant for any questions specific to you. Always do your own research and use caution when interacting with smart contracts or the blockchain