While we’ve all heard the well-trod mantra that “bear markets are for builders,” until very recently, it felt like hardly anyone in crypto was building anything very interesting these days.
All the NFT drops have used the same old recycled concepts. DeFi still hasn’t recovered from the Luna PTSD. And to top it all off, the Tornado Cash sanctions have us wondering if the risks of building in DeFi are higher than we anticipated.
But when I was doomscrolling a few weeks ago, I finally found the excitement and the new new thing I’ve been looking for. It began when I stumbled into a spirited debate between the crypto influencer Cobie and what looked like the entire population of NFT Twitter. Cobie had triggered NFT collectors when he referred to NFTs as “altcoins with pictures.”
It’s extremely simple. They are altcoins with pictures. Anything suggesting otherwise is larp and cope.
— Cobie (@cobie) August 14, 2022
What many saw as a low-blow insult I saw as a reset of my Overton window and a litmus test of my cognitive biases. It changed my perspective on NFTs. If you ignore all the nuance, and strictly consider the smart contract, altcoins with pictures is indeed what NFTs really are.
Sudoswap is the next new thing
Sudoswap launched in July—its name is a riff on Uniswap for reasons that will soon become apparent— and it’s the first, honest-to-god, working decentralized NFT exchange with an on-chain automated market maker (AMM).
In other words, Sudoswap is a protocol, and as such it's meant to work in conjunction with other protocols. The liquidity it provides via its AMM can be accessed by other protocols, dapps and even marketplaces. By contrast, a massive NFT marketplace such as OpenSea is a closed ecosystem with a closed order book; though the customers provide liquidity, the platform gets to take transaction fees.
Removing the middleman, as always, is a big idea. Though others have tried to solve the NFT liquidity problem, Sudo—created by the pseudonymous team of Statelayer, 0xmons, 0xHamachi, and boredGenius—was the first to actually solve it. Platforms like OpenSea and LooksRare are marketplaces, but Sudoswap operates more like an exchange.
Sudoswap is to NFTs what Uniswap is for altcoins
The way I see it, Sudoswap is doing for the NFT space what Uniswap did for DeFi.
Part of why Uniswap was a big deal when it launched was because it took the fees usually kept by centralized exchanges, and gave those fees to the liquidity providers, which removed the need for traditional market makers.
In fact, I think this could be the spark that finally brings the excitement of 2020’s DeFi Summer to the NFT world. Call it NFT Autumn. One of the moments that turbocharged DeFi was when AMMs created liquidity for trading altcoins. NFT Autumn could follow the same trajectory—but it’s altcoins with pictures and AMMs.
Liquidity is a crucial financial building block, a necessary element of any successful token (fungible or not). It’s also a building block that was missing from the NFT ecosystem until Sudo’s AMM launched. And a small portion of Sudoswap’s SUDO supply will be distributed to people who have provided liquidity for the platform in the past (a la Uniswap), a move that might draw more liquidity to Sudoswap and its AMM because it will lure speculators.
The thorny royalty question
This isn’t to say that Sudoswap’s ascent into the heavens is assured. The community has been roiled by a debate about another feature of the marketplace—namely, royalties. It’s been the practice thus far for some marketplaces to allow creators to charge royalties (as much as 10% in some cases) whenever their NFTs change hands on that marketplace. Indeed, this has been one of the things that has made crypto so exciting to creators—theoretically, they get paid forever as long as there are new buyers for their art.
Sudoswap nixed royalties. Instead, the protocol takes a 0.5% “trading fee” and lets NFT collectors trade for significantly cheaper.
Statelayer (one of the Sudoswap founders) told me that he and his team aren’t surprised about the backlash regarding royalties. The real surprise (initially) was the creators who came to the platform specifically to mint their projects.
“We didn’t expect that,” Statelayer said.
Why Sudoswap might be better for creators than royalties
It turns out that the advantage to the creator is they get to be the artist, seller and broker, if they do it right. In other words, the artist can act as an entrepreneur, launching her project on Sudo, putting up liquidity, and taking the trading fees from the pool. That can amount to more than they might make in a traditional NFT sale.
The most successful collection to attempt this approach so far was Sudonauts, by Brentsketit. By launching through Sudo’s AMM, every sale of a Sudonaut NFT added liquidity to the pool, creating a more liquid, and dare I say it, less volatile market. That’s great for collectors, giving them confidence that there will always be a buyer for their Sudonaut.
The Sudonauts project is only two weeks old. But so far, the results are encouraging. Yes, its current floor price is a modest 0.23 ETH, but it generated a sales volume of 563 ETH. And that gave the artist a tidy 40 ETH in trading fees from his liquidity pool. He also retained 200 of the 2000 NFTs for him and his team to “showcase how artists can profit while providing deep liquidity for their collection.”
Right now there is 315,000$ of liquidity backing an nft collection with a circulating MC of 590,000$
Liquidity basically locked (on 2/2 Multisig w/ matty and I)
will be interesting to see how this collection does w/ this liquidity
think is most liquid nft collection rn AAAA
— Brent 🟪 (@Brentsketit) August 17, 2022
The total market cap of the collection is $590,000—and there’s now $315,000 liquidity backing that. Along the way, he’s helping to create a safer and healthier market for his collectors, with a system that’s designed for longevity rather than hype.
Brentsketit pronounced the experiment a "definitely viable" alternative to royalties, though he told me that it "needs to be made easier to use.”
Another bold explorer venturing into the depths of Sudoswap is John Patten, CEO of Treasure DAO. John recently published a blog post outlining an upcoming NFT project called DAO Cats that plans to launch via SudoAMM. DAO Cats refers to itself as “an experiment in DAO-owned IP,” but I’m most interested in its plans for “protocol-owned liquidity”. They’re locking 40% of the total supply of Cats and Catcoin (a token that NFT holders can get by depositing their Cat NFTs into the DAOs vault) into liquidity pools, only to be removed if holders vote to do so.
John's goal with DAO Cats is “to create an NFT where a lot of the supply is held back by the protocol to provide liquidity, and hopefully create a more reliable floor price.”
“Altcoins with pictures” is a feature, not a bug
I believe that sooner or later, creators will come to understand that “NFTs are just altcoins with pictures” is a perfectly fair summation—and that’s okay.
I’m not trying to troll NFT collectors. Seeing NFTs in this framing opened my mind to an entire realm of new possibilities for NFTs.
I’ll end with a question: If you could go back in time to before DeFi Summer, knowing what you know now about what worked and what didn’t, what would you build? Answer that question, then go and build it—but add pictures.