Analysis of Centralized Liquidity Protocols in the Sui and Aptos Ecosystems

Cetus is a decentralized exchange and liquidity protocol based on the Move ecosystem. It employs an algorithm similar to Uniswap V3, building a centralized liquidity protocol and a series of ancillary functions, aimed at providing DeFi users with a high-quality trading experience and higher capital efficiency. In addition, Cetus also leverages the unique characteristics of the Sui ecosystem to create some composable features that differ from Uniswap.

Target Audience of DEX

The on-chain cryptocurrency trading market, although relatively small in scale, is growing rapidly. The biggest characteristic of this market is that the vast majority of assets belong to the low liquidity, low market cap category, and a large number of new assets are generated every day, with strong demand for price discovery. In this market environment, how to better conduct price discovery to attract liquidity is key to promoting the prosperity of on-chain trading. Therefore, the primary target audience for DEX should be liquidity providers (LP).

The demand for LP varies in different trading scenarios. Based on previous views, we can categorize on-chain assets into two types: mainstream assets (the top ten assets by trading volume on major public chains) and long-tail assets. Their LP demand differs.

• Mainstream Asset LP: Pursuing more fee income and less impermanent loss (Uni V3 has more advantages)
• Long-tail asset LP: Requires a more economical, controllable, and flexible market capitalization strategy (Uni V2 is more convenient, with lower liquidity management costs)

In the long run, V3 with higher capital efficiency is the development trend, but due to differences in demand, Uni V2 and V3 can still coexist in data. However, new players that can meet both demands will inevitably emerge in the market. In an emerging ecosystem like Sui, Cetus has shown stronger competitiveness.

Cetus: The First Centralized Liquidity Protocol DEX in the Move Ecosystem

Cetus has currently developed a complete product line including Swap, permissionless Liquidity pools, and cross-chain bridges.

Concentrated Liquidity

Cetus adopts a concentrated liquidity market-making algorithm similar to Uniswap V3. LPs can create multiple positions in the same pool by setting different price ranges to simulate various price curves, achieving customized strategies. As prices change, the smart contract will consume the available liquidity within the current quoted price range until it reaches the next price Tick. At this point, the contract will immediately switch to the new Tick, activating the dormant liquidity within the new Tick interval. The interval of the Tick is associated with the trading fee level; the higher the fee, the smaller the point interval of the Tick.

By concentrating liquidity, LPs can earn more trading fees and improve capital efficiency.

Permissionless Pool Creation

Cetus allows users to create liquidity pools without permission, and project parties can also launch new tokens on the platform without permission. This feature helps attract more early-stage projects and quickly establishes pricing power for long-tail assets.

Flexible trading fees

Cetus offers teams and users the option to customize trading fee tiers. The same token can have multiple pools with different fee tiers, currently supporting 0.01%, 0.05%, 0.25%, and 1%. This design encourages the market to find the most suitable liquidity allocation scheme on its own, providing greater flexibility for LPs and trading users.

Position Automatic Management

Users can execute profit-taking orders and limit orders based on range orders. After a liquidation, users typically need to quickly exit their position assets to avoid the spot price re-entering the price range. Users can also use third-party position managers integrated with Cetus for management, reducing the difficulty of liquidity management and facilitating long-tail asset LP.

Composability

Cetus supports high composability, allowing other project teams to easily build swap interfaces on their own front ends by integrating the Cetus SDK, quickly accessing Cetus's Liquidity. For example, the options project Typus within the ecosystem has achieved one-click hedging for long-tail assets by connecting to Cetus, while also enhancing the Liquidity and coverage of its own options.

Cross-chain bridge

The cross-chain bridge based on Wormhole created by Cetus was launched in November last year, allowing users to securely and conveniently transfer assets across nearly 20 public chains.

token economic model

Cetus adopts the xToken economic model. Users can earn protocol revenue sharing by holding CETUS tokens and xCETUS, ensuring alignment of interests between the community and the protocol.

Cetus Team: Experienced Centralized Liquidity Market Making Algorithm Developers

The core of Uniswap V3 is the Concentrated Liquidity Market Making algorithm (CLMM), which significantly improves the capital efficiency of LPs. However, Uniswap established a commercial source code license in March 2021 to prevent others from forking its source code. On EVM chains, several competitors have launched V3 alternatives. However, there are fewer competitors in the CLMM track on non-EVM high-speed chains. In the future, competition among CLMM-type DEXs will be more focused on operations.

Behind Cetus is a DEX team with mature development and operational experience, and its APTOS version has been deployed and is running stably. With reliable products, strong business development capabilities within the ecosystem, and continuous operational narrative capabilities, the Cetus team is expected to achieve a leading position in CLMM infrastructure within the SUI ecosystem.

Innovations in DeFi Opportunities Brought by Centralized Liquidity Protocols

LP Automated Liquidity Management Protocol

Under a concentrated liquidity protocol, LPs typically choose to provide liquidity near the market price. However, when the market price exceeds the strategy range, LPs not only face impermanent loss but also cannot continue to earn LP fees. Automated liquidity management protocols have emerged to help LPs automatically execute market-making strategies.

This type of protocol can also achieve:

1. Unilateral asset LP mining: LP can deploy initial liquidity in a skewed manner, and the protocol can help absorb the underlying assets to achieve a balance in the liquidity pool.
2. Issuing ERC20 LP tokens for LP providers: These LP tokens are not only liquid but can also be re-collateralized, further enhancing the capital efficiency of LP assets.

new machine gun pool and leveraged mining

Under the CLMM algorithm, capital advantages are amplified, allowing professional quantitative institutions and market-making teams to implement more customized strategies. The machine gun pool can obtain funds from protocol users or lending protocols, adopting proactive and robust strategies to generate returns, which holds immense value for large-scale users with investment needs.

New Derivative System

Under the CLMM system, while LP yields increase, they also face higher impermanent risk. In extreme market conditions, the liquidity set by LP may be drained by arbitrageurs. How to construct derivatives that can hedge against LP market-making risks, in order to buffer the damage to LP interests caused by malicious project sell-offs, is a field worth关注.

The composability advantages of the CLMM algorithm present many potential DeFi protocols yet to be developed. Especially after events such as the FTX collapse and the regulation of BUSD, the importance of DeFi has become increasingly prominent. The three DeFi products mentioned above are just the tip of the iceberg.

Summary

The Cetus team has demonstrated mature product delivery capabilities, strong business development abilities among ecosystems, and operational capabilities. They have a profound and unique understanding of DEX as a product and a track. Within a unique ecosystem track like SUI, Cetus has great potential to become a leading project.