In-Depth Analysis of the Centralized Liquidity Protocols in the Sui and Aptos Ecosystems

A decentralized exchange and liquidity protocol based on Move has emerged in the Sui and Aptos ecosystems. This protocol uses an algorithm similar to Uniswap V3, constructing a centralized liquidity protocol and a series of related functions aimed at providing DeFi users with a quality trading experience and higher capital efficiency. At the same time, it fully leverages the unique ecological features of Sui, creating some composable functions that differ from Uniswap.

01. Target Audience of DEX

Although the on-chain cryptocurrency trading market is relatively small in scale, its growth rate is very fast. A notable characteristic of this market is that the vast majority of assets belong to the low Liquidity and low market capitalization categories, and a large number of such assets are generated daily, leading to a very strong demand for price discovery. In this market environment, finding better ways to conduct price discovery to attract Liquidity has become a key prerequisite for the prosperity of on-chain trading. Therefore, the primary target service of DEX should be Liquidity providers (LP).

The demand for LP varies across different trading scenarios. We can roughly categorize on-chain assets into two types: mainstream assets (the top ten assets by trading volume on major public chains) and long-tail assets. The LP demand for these two types of assets is different:

• Mainstream Asset LP: Hope to earn more fee income while reducing impermanent loss (Uniswap V3 is more suitable)
• Long-tail asset LP: Requires a more economical, controllable, and flexible market value strategy (Uniswap V2 is more convenient, and the liquidity management cost is lower)

In the long run, the V3 model with higher capital efficiency is the trend. However, due to the differences in demand, Uniswap V2 and V3 can still coexist in terms of data. Nevertheless, the market will inevitably give rise to new players that can meet both demands simultaneously. In an emerging ecosystem like Sui, certain protocols may become stronger candidates.

02, The first centralized Liquidity protocol DEX of the Move ecosystem

Currently, a certain protocol has launched a complete product line including Swap, permissionless Liquidity pools, and cross-chain bridges.

Concentrated Liquidity

The protocol 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, thereby implementing customized strategies. As new trades execute and cause price changes, the smart contract will consume all available liquidity within the current quoted range until it reaches the next price Tick. At this point, the contract will immediately switch to the new Tick, activating any dormant liquidity within the new Tick interval. Meanwhile, there is a correlation between the Tick interval and the transaction fee level; the higher the fee, the smaller the interval between Tick points.

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

Permissionless Pool Creation

In this protocol, users can create liquidity pools without permission, and project parties can freely launch new tokens. This feature helps attract more early projects and quickly establish pricing power for long-tail assets.

Flexible trading fees

The protocol allows teams and users to choose customized trading fee levels. The same token can have multiple pools with different fee levels, currently offering four levels: 0.01%, 0.05%, 0.25%, and 1%. This design encourages the market to find the most suitable liquidity distribution scheme on its own, providing greater flexibility for LPs and trading users.

Position Auto Management

Users can implement profit-taking orders and limit orders based on range orders. In addition, users can also manage using third-party position managers that integrate this protocol, thereby reducing the difficulty of liquidity management and facilitating long-tail asset LP.

Composability

The protocol supports high composability. Other project teams can easily build exchange interfaces on their own front ends by integrating the SDK, quickly accessing the protocol's liquidity. For example, options projects within the ecosystem have achieved one-click hedging of long-tail assets by connecting to the protocol, while also enhancing the liquidity and coverage of their own options.

Secure Cross-Chain Bridge

The cross-chain bridge created based on a certain cross-chain infrastructure was launched in November last year, allowing users to safely and conveniently transfer assets across nearly 20 public chains.

Strongly correlated token economic model

The protocol adopts the xToken economic model. By holding the native token and xToken, users can receive protocol revenue sharing, ensuring the alignment of interests between the community and the protocol.

03, Background of the Development Team

The protocol is backed by a DEX team with mature development and operational experience, and its Aptos version has been deployed and is running stably. With guaranteed products, strong BD capabilities within the ecosystem, and the ability to sustain operational narratives, the team is expected to achieve a leading position in centralized liquidity infrastructure on Sui.

04. The DeFi Innovation Soil Brought by Concentrated Liquidity Protocols

LP Automated Liquidity Management Protocol

Under centralized Liquidity protocol, LPs usually 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:

• Unilateral Asset LP Mining
• Issue ERC20 LP tokens for LP providers

New Type Gun Pool and Leverage Mining

Under the centralized Liquidity market-making algorithm, the capital advantage is amplified. Professional quantitative institutions and market-making teams can implement more customized strategies, and the gun pool can obtain funds from protocol users or lending protocols, adopting proactive and robust strategies to gain returns.

new derivatives system

In a centralized liquidity system, while LP yields increase, they also face higher impermanent risks. How to construct derivatives that can hedge LP market-making risks to mitigate the impact of malicious project sell-offs on LP interests is a track worth paying attention to.

The composability advantages of centralized liquidity algorithms have a lot of potential DeFi protocols yet to be explored. Especially after a series of risk events involving centralized financial institutions, the importance of DeFi has become increasingly prominent.

05, Summary

The protocol team has demonstrated mature product delivery capabilities, strong business development abilities across ecosystems, and operational capabilities. They have a profound and unique understanding of the DEX product and its track. Within a unique ecological track like Sui, this protocol has a high potential to become a leading project.