Sudoswap AMM

$10m in total volume on Sudoswap

Sudoswap, a platform for trading NFTs, have been growing exponentially in popularity over the course of the last few months.  Total volume on the Sudoswap AMM has now crossed the $10m threshold.

There are many reasons, not least of which is that Sudo does not charge any royalties on their trades.  This is extremely beneficial for people who are interested in short term speculation.  By contrast, Opensea charges a fee on every trade, and many collections often add substantial royalty fees to their platforms too.

NFT marketplace competition – Coinbase lagging behind

Coinbase’s hotly-anticipated NFT marketplace has been something of a failure, to say the least. Months of advertising campaigns and millions spent on building and testing their infrastructure has ultimately amounted to next to nothing.

Many were hoping that Coinbase’s entry into the world of NFTs would mean that Opensea would be challenged for their dominance in the market.

Not only that, but Coinbase’s entry into the market had the opportunity to bring millions of their users into the NFT space.

People were very optimistic, but now, several months later, Coinbase is yet to show any substantial volume on their NFT platform whatsoever, especially when considering the relative size of the company backing them.

The Sudoswap AMM – a better way to earn yield on NFTs?

The Sudoswap AMM is designed to facilitate a new way to trade NFTs. The goal is to ensure that anyone can add liquidity to an NFT collection and to earn trading fees from doing so.

The use of AMMs as a means to make markets more efficient has worked in DeFi for several years now, but never before with NFTs. Uniswap, Sushiswap, Pancakeswap, Trader Joe’s, and a range of other decentralised exchanges allow people to provide liquidity in exchange for LP tokens.

Rather than an order book based exchange, which is how much centralised exchanges operate, this allows for liquidity to be provisioned in a dynamic fashion: if the price rises a lot, then the ratio of ETH or BNB with whatever alt coin it is in the pool with changes to reflect the change in supply and demand.

Using this concept for NFTs is obviously difficult, given that traditional AMMs function precisely because the tokens are fungible.

Clearly, Sudo has found product market fit: the exponential growth in volume comes at a time when the rest of the NFT market is in the depths of a bearish trend: weekly NFT volume has fallen from a peak of $6bn a week to just around $200m, and yet Sudoswap continues to break ATHs.

Moreover, those who provide liquidity are able to earn trading fees themselves on their NFTs, in a way that wasn’t possible before.

Are royalties for creators unsustainable?

Ever since the days of Napster, and other online streaming services, the royalties paid to artists has been under threat and steadily declining. Nowadays, musicians make almost no money when their songs are played: even famous musicians earn most of their income now from live performances or brand deals rather than sales of their songs themselves.

Many hoped that the ability to embed royalties into NFT smart contracts would help the artists to earn a sustainable revenue stream and to continue to earn for their work even when the art is sold on the secondary market.

NFT collections have used this strategy in order to ensure that they are always generating revenue.  Even if there are no other products, as long as there is a market for the NFTs in question the creator can earn royalties.

In the Pudgy Penguins community last year there was some controversy over how the founders were running the project and the influence that the royalty fee gave them.  In retaliation, the community decided to wrap their penguins and trade the wrapped versions instead, so as to avoid paying the fees.

Sudoswap, as an NFT AMM platform, does not require that people pay fees on each trade. In fact, if people were to pay royalties on each trade the platform wouldn’t work nearly as well since so many fees would need to be paid.

The end result is that of all the volume generated on the Sudoswap AMM, none of it goes to creators and artists in royalty fees.

Some people view this as controversial, but in the context of the high volume for short term speculators making a more efficient (and more stable) market, it seems like a good trade off.  After all, current trades on Opensea can often take a long time, but if someone doesn’t mind which floor price NFT they buy then the AMM offers brilliant liquidity.

As on BSC over the last few years, AMMs can guarantee liquidity indefinitely, as long as LP tokens are locked or burned.

It will be interesting to see how these new models for NFT marketplaces develop, and which are the most sustainable over the long term.

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