Non-fungible tokens have been used in various use cases since their inception. The ERC-721 standard initially finding its use in art and then mass Pfp collections. A trend started in Jan 2021 with hashmasks and found quick popularity with various subsequent collections. Many agree that NFT narratives dominated the cycle in the latter half of 2021. We saw art blocks, punks, apes and other derivatives so on and so forth.

Where does one buy NFTs? The available marketplaces include Super rare, Zora, Foundation, Rarible, Opensea, Looksrare, and NFTX. The first 3 are marketplaces for 1/1 art pieces, Rarible never found its groove or capitalized on the relatively early mover advantage they had. Lookrare didn’t exist until earlier this year, and while NFTX was a novel product, it didn’t precisely capture the market demand that is usual to marketplaces (which it wasn’t exactly meant to be). Nftx essentially unlocked the index idea for NFTs, wherein you didn’t have to own the entire Nft and could own fractions of it, thereby maintaining exposure to the tokens you like/blue chip Nfts.

Opensea has found its place as the king of marketplaces with its superior discovery and relatively easy-to-use platform and clocks in about a 100 million volume every week, reaching as much as 1.5 billion dollars at its peak, and has had about 2 million unique users and much more. At the end of the day, though Opensea is still a traditional marketplace experience and isn’t anything crypto native, its simplicity and ease of use have found a loyal customer base.

There haven’t been many crypto-native (not just in origins but ideas) solutions to the NFT marketplace problem. The attempts have gone awry in various ways, such as misplaced or hyper incentivization, which has led to false growth of revenue or volume but hasn’t led to sticky usage, or relatively niche-r products which have hit the ceiling on their growth arc.

Sudoswap is a new, not just in concept but in execution as well, NFT marketplace. A promising difference from the likes of other marketplaces which have just tried to import the Opensea playbook onchain. Sudoswap uses Automated market makers (custom-tailored to NFTs) to allow NFT selling and buying.

Background of various models for tokens

Order book models are usually the most efficient when it comes to trading tokens, stocks etc. The CLOB (Central limit order book) model, as usually seen in crypto in centralized exchanges, offers a way of efficiently selling your tokens at a particular price (the fancy word being tick), i.e., if you want to sell a token at 1$, you can place your order at the same and often have increased levels of tick granularity from 0.001 to 10-100$ spreads. This works very well in the token model because of the existence of market makers who profit from the fees and trading the spread. CLOB market making requires you to have an inventory of the token, and of course, in extreme cases, as is true for all markets, you can be left with a bag in case the token crashes.

Automated market makers popularized by Uniswap allow you to deploy 50-50 pools along the xy=k curve and don’t need you to manage the position actively but suffer from impermanent loss (tl;dr when the token price moves very rapidly compared to when you deploy the position, your Liquidity position undergoes value erosion). Uniswap-v3 fixed this with the CLAMM (Concentrated Liquidity AMM) model by allowing LPs to deploy capital over specific ranges, and you could almost argue that when this tick size approaches the 0.01 level, CLAMMs can virtually emulate an order book.

Taking a step back, though one thing necessary for the CLOB model and the AMM model is fungibility, in simple words, the existence of vast amounts of access to the tokens on both sides of the pair in the absence of which a token is very illiquid. Illiquid tokens are very volatile because even a relatively sizeable order moves the token's price. and Illiquid markets also give rise to high slippage. You've encountered slippage when a buy or a sell order doesn’t get filled at your prices and moves a few ticks or percentages away with your order. More endemic to AMMs because of inefficiency (even CLAMMs), but not entirely absent in CLOB models.

NFTs (or Non-fungible tokens) are inherently meant to be illiquid and are literally (non-fungible). If you were to think of these as tokens and deploy them in either marketplace, you would see any sizeable order move the price of this token.

Current NFT marketplace models employ the order book model almost, wherein if you have an NFT to sell, you list it for a price, and it either gets sold at that price or interested parties offer bids on this which the seller can accept. But due to the inherent illiquid nature of these assets finding buyers/sellers is hard at the price point you might be interested in, and the liquidity is essentially pocketed in various silos, wherein if you were interested in buying multiple NFTs, you’d have to visit every order and buy it separately. This aggregate buying problem has lately been solved by NFT order/marketplace aggregators like GEM and GENIE. But aren’t still convenient for any NFT collectors who possess multiple NFTs of the same collection.

One thing to note is that I have almost treated NFTs akin to simple tokens until now when talking about market dynamics. Still, NFT collections may have an inherent rarity property wherein, for example, in a 10k collection, 8k may be common, 1k may be uncommon, and the top 1000 might possess increasingly rare traits, which also attaches a rarity value to the pricing of NFTs.

The Sudoswap model

Sudoswap is an NFT model tailored to the illiquidity problem of NFT collections. It allows NFTs to be listed in a pool pair, in single-sided pools (either just buy or sell), and the model essentially results in relatively sticky liquidity, which isn’t the usual case with NFTs.

A small dive into the AMM model

The prevalent model of the AMM is the xy=k constant product AMM. While this works in the case of tokens, it still suffers from slippage even when it comes to tokens at volume. While AMMs in NFTs are not entirely new, previous models, i.e. those used by NFTX and NFT20, discretized (not entirely) the curve instead of keeping it continuous. The NFTX and NFT20 model minted an ERC 20 token against your NFT, and you could hold that to experience the gains or loss of the collection that you liked. But given the relatively small and thin liquid books that NFTs usually this also resulted in high slippage. In this case, the NFTs are automatically priced according to the constant product.

Both the examples below assume 10 eth and 10 nfts deposited into the pool

SudoAMM does a slightly different job, taking the price calculation out of the equation and prices according to preset delta along the possible curves. Below is an example of the delta being set to 10% along an exponential curve.

Because of this external price calculation along a preset exponential curve, the slippage doesn’t worsen.

Also, Sudoswap doesn’t convert the NFTs to erc20 tokens (in some sense, a tokenized NFT, in this case, would allow for concentrated liquidity LP options akin to uniswap v3). Still, the conversion to erc20 always comes at the cost of the UX at some level where the stages of selling or redeeming involve the NFT → ERC20 → NFT cycle, while the Nftx pool initially didn’t allow you to choose the NFT you would like to redeem and was randomized. There’s also the literal cost of wrapping and unwrapping an asset.

The power user playbook

While sellers and buyers can use Sudoswap for single NFT listings, the platform maintains its appeal through low platform fees (0.5%) and cheap transactions achieved through gas optimization.

https://twitter.com/sudoswap/status/1545535675264409600?s=20&t=k0mrrHLoxlP3WLyq2AHRdQ

The natural place where SudoAMM plays an essential role in its use for power users/whales.

One of the NFT whales I follow once revealed his playbook for playing NFT collections. Whenever he liked a collection, he bought about 5-10 from the NFT collection and then sold half at 2x, another half at 3-4x and kept 1 or 2 for the possible moonshot.

It is possible to express this playbook through a simple exponential curve.

The linear curve just sells NFTs in increments of the delta that you specify when you make the pool.

The curves in all unlock

• Allow one to DCA in or DCA out of their NFT collection position with a linear curve.
• Sell using the Exponential curve and let the curve do the job instead of manually doing it.
• Single-sided pools allow Whales to have buy or sell orders for the NFT of their choice, i.e., allowing someone to either sell into their wall or buy from the wall they offer.
• Market-making potential on active NFTs setting the fees of your choice to the pool that you deploy while keeping yourself appealing to other alternatives.

A small note on royalty

The past few weeks have been riddled with arguments about the role of royalties in NFTs. Most collections have, since inception, charged royalties on their secondary sales, thus growing NFT collection treasuries and using that for further project development. Admittedly, most NFT collections that have used this haven’t seen much project development. Sudoswap does away with the royalties, and while it is essentially made for collections, the need to not pay royalties also appeals to sellers.

There are a few other routes that collections can take using Sudoswap though

• Use some part of the sales, to deploy sell-side pools.
• Withhold a small portion of the supply to deploy a pool on Sudoswap and have some fees on top of it, ensuring both skin in the game and earning alongside the growth of the protocol.
• While this does not involve Sudoswap, Apecoin, Loot etc, to some extent, have shown how to use tokens to bootstrap a community project fund.
• Withhold a small portion of the supply just to sell in the market.

While the general ideas surrounding this don’t come near the royalties revenue that could have been collected, some of these ideas can help ensure a steady stream of revenue for project growth. Given the usual 5% royalty fee seen in Opensea, Sellers might prefer Sudoswap just to circumvent this.

[Note: Royalties are not the only way to support the work of the artists you like]

The Future of Sudoswap

Since its inception, Opensea Users and transactions stand at

Since the inception of Looksrare, Opensea has had the following stats

Sudoswap was launched on the 9th of July and has clocked in about 15 million dollars of volume since then.

Daily volume for Sudoswap since inception

Sudoswap is a relatively budding platform and has achieved more than a few days of the daily volume of around a million dollars (in an NFT bear market). While Looksrare has paralleled Opensea volumes since its inception, it also incentivises its platform's use and spent about a million dollars a day at the height of its token value to incentivize LPs to list NFTs on its platform. While not at that scale, the Looksrare incentivization epochs are still on.

While some may believe that the below chart of Sudoswap volume growth is because of shilling, and it could be to some extent, I believe that using the product also lets you experience some of the better aspects of the product. Given that NFT markets and NFT collections will just grow in the future, it’s not unnatural to expect Sudoswap to grow and become a more robust alternative to Opensea.

https://twitter.com/parsec_finance/status/1559644418092793857?s=20&t=GeGArzBLiiZBOB1MO6Uekw

Sudoswap is in the natural adoption arc of its product while users figure out how to use the product.

There are a lot of possible UX improvements in Sudoswap, which can bring User experience to a whole new level, especially for those who own just 1 NFT. The current experience even asks a user of this kind to deploy an entire pool. The UX could be changed to allow a more straightforward listing while handling these things in the background with some defaults. Other changes include simple call-to-action design changes to the buttons to ensure a smoother buyer/seller experience.

Sudoswap isn’t listed on any aggregators yet, which hinders some of the discovery process for some of the NFTs.

There are many possible improvements to this relatively new delta-based AMM model, including other functions, for example, a simple step function (not sure if the linear model works like this) and more customizations in the pool where sellers might want to choose rarer NFTs to be placed towards the higher end of the curve and sell multiple NFTs at the floor. Other improvements may include a milder version of earlier bonding curve NFT sale models for launching NFT collections.

$XMON today is used as a proxy token for realizing the potential of Sudoswap and has a market cap of 100 million dollars at the time of writing this article, while Lookrare is at 200 million dollars. The last known valuation of Opensea was 13 billion dollars.

While $SUDO does not exist today, the right kind of tokenomics can unlock further platform growth, which does not involve hyper incentivization for sudden use of the platform. I, for one, am excited that a crypto-native NFT marketplace has equipped itself with a product with the right motivations and is now taking on Opensea's monopoly.