Established OTC NFT marketplace Sudoswap launched sudoAMM in early July, a new NFT trading mechanism that improves liquidity in the NFT market with features similar to Uniswap V3.
This article will introduce the mechanism behind it and the instructions for its use, and discuss its current advantages and disadvantages if you have used it personally.
SudoswapSudoswap got its start as an OTC NFT market by 0xmons, which launched last April.
It allows users to trade a combination of ERC20, ERC721 and ERC1155 tokens, determine counterparties, transaction expiration dates, and charge no transaction fees or royalties.
In early July this year, Sudoswap launched SudoAMM, a centralized liquidity AMM protocol designed for NFTS. The liquidity pool consists of NFTS and tokens (currently ETH only), allowing users to buy and sell NFTS through the liquidity pool.
In the mainstream NFT trading market, the trading method is mostly peer-to-peer, that is, the order book limit order trading method.
Buyers can make an offer on the NFT they are interested in after browsing the current listing price of the seller in the market, or purchase the NFT directly according to the seller’s offer.
The biggest drawback of this kind of transaction is that the seller cannot close the deal immediately, and if he wants to speed up the sale of the asset, he will have to make a loss on the sale of the price.
So what’s so special about SudoAMM?
As mentioned earlier, the transaction is through a liquidity pool composed of NFTS and ETH, and you can imagine the transaction process using Uniswap.
In addition to converting NFTS to ETH and ETH to NFTS, users can also act as liquidity providers (LP).
Liquidity providers can choose to provide unilateral or bilateral liquidity when creating the pool, providing NFTS as liquidity will obtain ETH, and vice versa.
If two-sided liquidity is provided, the NFT price varies by the proportion of the pool, and the liquidity provider earns a portion of the transaction fee on each transaction.
However, the number of NFT projects is generally under 10,000, and if Uniswap liquidity pool x*y=z constant product algorithm is used, it is prone to large price slippage due to one-sided illiquidity.
The following will be explained in Sudoswap’s official documents: Suppose there is a liquidity pool consisting of 10 NFTS and 10 ETH using the constant product algorithm x*y=z, that is, 10*10=100, and the price to buy or sell NFTS in this pool is as follows.
If there are too many or too few NFTS in the liquidity pool after a lot of buying and selling, the price will fall sharply.
The purchase price is 1.111ETH when there are 10 NFTS left in the pool, but jumps to 50ETH when there are only 2 NFTS left in the pool.
Therefore, SudoAMM’s liquidity pool adopts different algorithms, canceles the rule of constant product, and adopts simple pricing functions, namely linear curve and exponential curve.
Whenever a trade occurs in a linear pool, the NFT price moves by a fixed amount;
The NFT price is multiplied by a fixed amount each time a trade occurs in the pool of the exponential curve.
The chart below shows the case of an exponential liquidity pool, which is also composed of 10 NFTS and 10 ETH. Each time a trade occurs, the NFT price is multiplied by 1.1.
Thus, when there are 10 NFTS left in the pool, the purchase price is 1ETH, and when there are only 2 NFTS left in the urinal, the purchase price only rises to 2.144ETH, down from 50ETH in the previous example.
But how does SudoAMM’s approach of offering a narrower price range differ from Uniswapv3?
There are two official explanations: Efficiency: In sudoAMM, native NFTS are paired with ETH.
No additional NFT conversion Fee is required and Gas Fee is saved.
Flexibility: As market conditions change, LP can adjust the parameters of its capital pool at any time, such as adjusting the price range of the NFT, the current liquidity pool price, the proportion of transaction fees charged when buying and selling, etc.
This means that while similar in concept and mechanics to the Uniswap V3 type of AMM, it is simpler and more flexible to use.
After Sudoswap is connected to the wallet, various functions can be used. The following is the process of creating a two-sided liquidity pool.
First, when you create the liquidity pool, click on the rightmost option and select the token and NFT project that you want to store in the pool.
The receiver sets the parameters of the liquidity pool: Fee Amount: proportion of transaction fees charged for each transaction Start Price: Initial NFT price Delta:
On the right side of the ratio of NFT price changes after each trade is the cap on buying and selling. The agreement will help you calculate the amount of NFTS and tokens you need to deposit, and you can see the cost and benefit of the transaction through the drop-down below.
The chart below shows the price of an NFT after a buy or sell transaction.
The final step is to select the NFTS to be added to the liquidity pool and verify that the parameters are set correctly. The contract is created after authorization.
In addition, Sudoswap also provides NFT Make Collection Offer function, similar to the limit order function.
But the idea behind it is to create a pool that provides one-sided liquidity, that is, ETH and NFTS.
As shown in the figure below, you can set the purchase quantity, price, and decreasing amount of quotation.
According to the official Twitter account, Sudoswap has several advantages over the traditional NFT market: Lower friction costs: Sudoswap charges a 0.5% transaction fee compared to OpenSea’s royalty and 2.5% transaction fee per transaction.
Gas Fee savings: Compared to most platforms, the Gas Fee paid for transactions on Sudoswap is lower, which becomes more obvious when the number of purchases is larger.
However, Sudoswap also has some disadvantages when used in practice: less choice of goods and projects: Since Sudoswap’s NFTS are provided by liquidity providers, there is less choice of NFTS, both within and within projects, before Sudoswap is successfully popularized.
Viewed as homogeneous: Bilateral liquidity providers cannot know the rarity and appearance of NFTS when they automatically purchase NFTS, and may buy NFTS that are not to their liking.
Sudoswap has racked up about $6.77 million in trading volume since its launch in early July, with just $33,000 in platform fees, according to DuneAnalytics.
Currently, there are 6,464 liquidity pools with more than 4,000 users.
While relatively small compared to more mature NFT markets like OpenSea and Looksrare, Sudoswap is gaining traction in terms of daily transaction volume and daily user growth.
Uniswap Product Lead Scott also seems to see potential in Sudoswap, saying in late July that Uniswap’s NFT trading marketplace will launch with Sudoswap.