How Sudoswap Is Changing The NFT Game w/ Owen, Co-Founder of Sudoswap

Sudoswap

Sudoswap is an NFT AMM decentralized exchange, which has catapulted itself into the ranks of NFT marketplaces with the highest daily volume traded. For more info on the project, check out our introductory and tutorial article on it here!

Owen

Owen is the anon founder of Sudoswap. Owen is a programmer who has worked on several applications on Ethereum, where he first got involved in 2020 during DeFi Summer (food farm szn). At the time, NFTs were much less prominent (for context, Rarible had just launched) but he built something that spun out to become 0xMon’s NFT project, which led to the community of collectors there further building more applications, the one most pertinent today being Sudoswap.

Ep.71 Podcast Summary / Notes

What is Sudoswap? Why buy an NFT on Sudoswap vs. OpenSea?

Sudoswap was first conceived as a protocol for P2P OTC trades between any assets, based on the 0x protocol
Now there’s a separate protocol that’s an NFT AMM exchange, which offers features that aren’t present in incumbent marketplaces like OpenSea
Has similar UI/UX to incumbent marketplaces, but backend works differently
On OpenSea/LooksRare, orders are routed through a central orderbook which is stored on platform servers. On Sudo, all orders are on-chain on Ethereum as pools. Similar to Uniswap where people can create on-chain listings. More gas is involved to list assets, but Sudo remains efficient and competitive with even gas-optimized exchanges like SeaPort, e.g. bulk listings are more efficient

Interesting stats on Sudoswap + why Sudoswap has become popular recently

Protocol in development for >1 year, open to public in July
Big uptick in usage starting August, a lot of innovation happened where all sorts of interesting community driven pools launched, some projects natively launched on Sudo etc.
600 ETH daily volume at peak
Main obvious upside being minimal fees (e.g. creator / royalty / platform fees), only 0.5% fee for protocol treasury
Appeals to price sensitive NFT traders, being more suited for traders vs. collectors
Better for more homogenous collections, ones where you don’t mind which specific NFT you get
AMM architecture feels more natural for DeFi natives and degens

Owen’s opinion on royalties + Sudoswap platform

Liquidity can be in of itself attractive to some NFT projects
Sudo is an extension of other groundbreaking work e.g. NFTx where the idea is liquidity can be attractive for certain NFT collections
Again, there will be better venues to trade certain types of digital art catered to collectors/creators with better gallery/auction/collector support
Sudo may be more suitable for specific collections, e.g. more defi-native collections with more inclination to set up liquidity pools, PFP projects which already made 7+ figures in primary sale - their goal might probably be to make something liquid, so continuing to collect 3-5% in royalties becomes a less defensible position
However, Sudoswap platform is agnostic with possibility to build things on top which can bake in extra fees, e.g. on the pool level itself
Even if Sudo is not the primary place to trade, the fact that it’s on-chain and composable means there will be ways to leverage the tech that could be useful

Scattered musings from Ben/Owen

Ben: Sudoswap’s popularity shows that there are many more NFT traders than there are collectors, that Sudo addresses the demand for liquidity
Owen: Speculation is hard to disentangle from crypto, everything is always 1 - 2 steps away from price
Owen wonders the degree to which extra liquidity hampers pumps or makes them easier to engineer - he can see both sides happening e.g. subsequent listings of your NFT in 1 ETH increments each time makes next buy price a lot higher, conversely deeper liquidity in a tight price range props up sell walls which make it harder to artificially pump prices
Ben: Sudoswap seems to be the natural course of crypto, where markets get more efficient and finds ways to reduce fees and automate trading activities
Owen: Sudo borrows features from other first-mover projects e.g. fractional NFT sales on NFTx also don’t charge royalties, etc.
Attention is on Sudo because it behaves more efficiently as an automated marketplace, rather than dealing with another individual on the other side
Interesting trend Owen notices being that platforms are moving more towards helping with primary sales to generate revenue (vs. platform fees etc) e.g. Zora released some software which users can use Zora’s studio editor to release editions, and Zora takes an initial cut of that
Owen thinks that specializations support the thesis that markets are separating into different types; degens might head to Sudo, while collectors and creators head to platforms which cater to more curated experiences

What are Sudo’s short and long term plans?

Open to other people building on top of Sudoswap, especially when the protocol further decentralizes
Short term:
- New bonding curves that can give LPs more options on how they want to set their ranges or fees
- Upcoming support for other asset types like ERC-1155 e.g. gamefi tokens
Medium term:
- There's much more to leverage because protocol is on-chain. Can facilitate multisigs or DAOs which want to deploy capital into these on-chain markets, or having on-chain incentivisation e.g. MasterChef (SushiSwap’s incentivized pools) for Sudo pools

An aside - NFT lending has gained prominence recently due to the recent BendDAO liquidity crisis, is Sudo affected by this in any way?

Context: devaluation of collateral assets lead to liquidation crisis in BendDAO, those lending ETH/stables got rekt because no one wanted to buy valueless JPEGs
Is Sudo affected in any way by strong NFT collateral devaluations?
- Sudo can be helpful in some ways e.g. for certain collections, lending can be made much easier because you have an external pool of liquidity that liquidators can use
- What happens in a liquidation cascade, how rekt could Sudo LPs be? One of the strengths of Sudo’s AMM is users can adjust their price point any time, or how much slippage is incurred. So if someone foresees some event happening, and they want to capture some of the resulting liquidations/volume, but don't want their pool to be drained etc. they can adjust prices to be lower, or allow higher slippage so as people sell into it at unfavorable prices, the LP will not spend too much on the next marginal asset (i.e. people dumping unwanted assets into the pool)
- Lending for NFTs is difficult because markets are inherently illiquid, personal thoughts is that NFT lending is best when it’s fixed-term, 0xngmi did a cool thing with tubbysea where they’re essentially the underwriter for fixed duration loans collateralized by NFTs.
- Another way is instead of having one underwriter, you ensure that you only lend out funds if you have someone as a counterparty willing to fully collateralize the loan for some duration. So instead of doing something like LTV or estimating liquidity or floor price, you just make sure that the money you’re lending out is being backed by someone else.

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