Forget DeFi Summer: NFT Autumn is Arriving

While we’ve all heard the well-trodden 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 Luna PTSD. And on top of it all, the Tornado Cash Sanctions make us wonder if the risk of building in DeFi is higher than we expected.

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 crypto influencer Cobie and what seemed like the entire population of NFT Twitter. Cobie had sparked NFT collectors when he referred to NFTs as “altcoins with pictures.”

What many saw as a low-key insult, I saw as a reset of mine Overtone window and a litmus test of my cognitive biases. It changed my view on NFTs. If you ignore all the nuances and strictly consider the smart contract, altcoins with images is actually what NFTs really are.

Sudoswap is the next new thing

The simple but provocative idea is part of why Sudoswaplike just announced a governance token (SUDO), is fast becoming the “it” place for NFTs these days.

Sudoswap launched in July – the name is a riff on Uniswap for reasons that will soon become clear – and it’s the first honest-to-god, functioning, on-chain decentralized NFT exchange automated market maker (AMM).

In other words, Sudoswap is a protocol, and as such it is intended to interoperate with other protocols. The liquidity it provides via its AMM can be accessed by other protocols, dapps and even marketplaces. In contrast, a massive NFT marketplace like OpenSea is a closed ecosystem with a closed order book; Although customers provide liquidity, the platform incurs transaction fees.

As always, cutting out the middleman is a great idea. Although others have attempted to solve the NFT liquidity problem, Sudo – created by the pseudonymous team of Statesman, 0xmons, 0x Hamachiand boring Genius– was the first to actually solve it. Platforms like OpenSea and LooksRare are marketplaces, but Sudoswap works more like an exchange.

Sudoswap is to NFTs what Uniswap is to altcoins

The way I see it, Sudoswap is doing for the NFT space what Uniswap did for DeFi.

Part of the reason Uniswap was a big deal when it launched was because it took the fees typically held by centralized exchanges and gave those fees to the liquidity providers, removing the need for traditional market makers.

I actually think this can be the spark that finally brings excitement to the 2020s 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 may follow the same path – but there are altcoins with images and AMMs.

Liquidity is a crucial financial building block, a necessary element of any successful token (fungible or not). It is also a building block that was missing from the NFT ecosystem until Sudos AMM was launched. And a small portion of Sudoswap’s SUDO supply will be distributed to persons who have obtained liquidity for the platform in the past (a la Uniswap), a move that could draw more liquidity to Sudoswap and its AMM because it will entice speculators.

The difficult royal question

This is not to say that Sudoswap’s ascension to heaven is assured. Society has broken out of a debate about another feature of the marketplace – namely royalties. It has been the practice so far for some marketplaces to allow creators to claim royalties (as much as 10% in some cases) when their NFTs change hands on that marketplace. This has actually been one of the things that has made crypto so exciting for creators – theoretically, they get paid forever as long as there are new buyers for their art.

Sudoswap nixed royalties. Instead, the protocol charges a “trade fee” of 0.5% and allows NFT collectors to trade for significantly cheaper.

Statelayer (one of the Sudoswap founders) told me that he and his team are not surprised by the backlash regarding royalties. The real surprise (at first) was the creators who came to the platform specifically to create their projects.

“We didn’t expect that,” Statelayer said.

Why Sudoswap might be better for creators than royalties

It turns out that the advantage for the creator is that they get to be the artist, the seller and broker, if they do it right. In other words, the artist can act as an entrepreneur, launch his project on Sudo, set up liquidity and take the trading fees from the pool. It can amount to more than they can earn from a traditional NFT sale.

The most successful collection to try this approach so far was Sudonauts, by Brentskite. Launching through Sudo’s AMM, each sale of a Sudonaut NFT added liquidity to the pool, creating a more liquid, and dare I say it, less volatile market. It’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, the current floor price is a modest 0.23 ETH, but it generated a sales volume of 563 ETH. And that earned the artist a tidy 40 ETH in trading fees from his liquidity pool. He also kept 200 of the 2,000 NFTs for him and his team to “showcase how artists can make money while providing deep liquidity to their collection.”

The total market cap for the collection is $590,000 – and there’s now $315,000 in liquidity to back it up. Along the way, he’s helping to create a safer and healthier market for his collectors, with a system designed for longevity rather than hype.

Brentsketit called the experiment a “definitely viable” alternative to royalties, though he told me it “needs to be made easier to use.”

Another bold explorer venturing into the depths of Sudoswap is John Patten, CEO of Tax DAO. John recently published a blog posts outlines an upcoming NFT project called DAO cats which plans to launch via SudoAMM. DAO Cats refer to themselves as “an experiment in DAO-owned IP”, but I’m most interested in their plans for “protocol-owned liquidity”. They lock 40% of the total supply of Cats and Catcoin (a token that NFT holders can get by depositing their Cat NFTs into the DAO’s vault) in liquidity pools, only to be removed if the holders vote for it.

John’s goal with DAO Cats is “to create an NFT where much of the supply is held back by the protocol to provide liquidity, and hopefully create a more reliable floor price.”

“Altcoins with images” is a feature, not a bug

I think sooner or later creators will understand that “NFTs are just altcoins with images” is a perfectly fair summary – and that’s fine.

I’m not trying to troll NFT collectors. Seeing NFTs in this setting opened my mind to a whole world of new possibilities for NFTs.

I’ll close 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, and build it—but add pictures.