Spotlight on NFT in August — CC0 Policy & Sudoswap

Although the crypto market had a temporary relief from the previous dip surrounded by the increased certainty of the Merge on Ethereum and declined CPI and unemployment rate, NFT market actually went on the opposite direction, unsurprisingly. As more liquidity being sucked out from NFT market, blue chip projects such as BAYC and Moonbirds were routed and failed to hold the battle line. However for Moonbirds the case is slightly different, as Kevin Rose announced the collection with become CC0.

For anybody unfamiliar with CC0 policy, here is a good thread to start with: https://twitter.com/omrlxs/status/1561080640744951808

Right after the sudden announcement, Moonbirds community became furious and flurried for many reasons. The most apparent one is that they thought team will give up on the project, or even worse, rug. It is understandable that holders were lack of knowledge of CC0, as it is very controversial right now in NFT world. Supporters think that it will facilitate the construction of ecosystem around the ‘genesis collection’, as more derivatives and vibes will eventually build up more invisible value onto it. But since the market is very pessimistic, objectors and fudders successfully dragged the floor price down to 12 eth from 20+ eth. But why CC0 exactly? What is Kevin Rose’s long-term plan on this?

Well although it is all speculation, the cruel reality is that NFT industry need more new players from outside world. And CC0 policy is not only the best option to curate derivative collections, but also the bridge between NFT/web 3 and IRL. And this is completely compatible with Kevin Rose’s idea of building Highrise, a web3 social kingdom for the whole ecosystem. The end goal is for Highrise to be the hub for all communities and creating diversity will be an important component. In order to achieve this, the sacrifice of exclusive IP rights becomes necessary.

More information about Highrise potential roadmap could be found here: https://twitter.com/mikewunyc/status/1559544783684751360

So will the industry follow this CC0 policy trend? The answer is uncertain yet. But the question should be, if there is a better platform for CC0 projects along with derivatives to make sufficient profits to keep themselves running?

Well, the answer is the fast rising of Sudoswap/SudoAMM this month. A good reading about SudoAMM can be found here: https://twitter.com/corleonescrypto/status/1559206562685747202?s=20&t=udYD6SFHdzibrBxeUnVQiQ

Basically it introduces the “Automated Market Maker” (AMM) model to NFTs. It allows users to trade and swap NFTs using liquidity pools — Uniswap. Users will be able to provide liquidity to investment pools that buy and sell NFTs to earn revenue and create pools that gradually buy or sell NFT collections along price curves. So the most obvious advantage is that SudoAMM provides way more liquidity for instant trading than conventional centralized marketplaces like Opensea, and there is no censoring. CC0/derivatives might be the most suitable unofficial NFT collections for SudoAMM as most of them are facing high risks of taken down by centralized marketplaces. Moreover, rarity doesn’t weight much in CC0’s point of view. It tends to be a platform to incubate derivatives and different vibes. For CC0 projects, it is not the centralized marketplace’s responsibility to manage, instead, communities and users shall determine the liquidity of those meme or derivative projects by borrowing the bonding curve of SudoAMM.

As NFT project teams will normally reserve certain percentage of NFTs, they are enable to obtain “official” liquidity by creating Sudopool on SudoSwap and providing both reserved NFTs and Eth earned from public sales. Eventually Sodoswap will become a platfrom for all CC0 projects or even any general projects who have demand of maintaining liquidity for their own projects, as liquidity plays an important role in determining project’s performance on secondary markets.

Unfortunately, this hypothesis has not been practiced in real case yet, as it would expose market makers hired by project teams under the sunshine. Although the NFT secondary trading supervision has not been implemented yet, based on the previous Opensea employee’s inside trading case, regulations will be improved sooner or later. Therefore, it is still waiting to be verified that if project can build their own liquidity pools.

On the other hand, Sudoswap has some obvious defects. For example, most of the top ranking projects are utilities/pass type projects, or meme projects with low floor price, based on the accumulated transaction volume. And traits/rarities are not important to those projects. And in top 10, blue chip projects’ share is as low as 18%. Apparently, this ratio is not acceptable to gain recognition by the public. It is still unclear that how much transaction volume comes from the expectation of future SUDO token listing, but it’s certain that majorities of newly created transaction pools have no trading activities. And this is very abnormal to a decentralized marketplace.

Moreover, the current ETH-NFT swap conduction 0x11132000 points to contract method swapETHForSpecificNFTs, which requires four parameters:

• swapList: token to trade and NFT ID accordingly
• Recipient: wallet address to receive unused ETH
• nftRecipient: wallet address to receive output NFT
• deadline: time stamp, default if timeout

Therefore, there is no concept of rarity embedded in the pricing or trading. This will cause the problem that SudoSwap focuses on increasing the liquidity of floor NFTs, and rare traits will be ignored. And NFT will become FT which doesn’t apply to loyal trait lovers or rarity-based traders.

So is there an option to enhance liquidity for NFT projects that need to emphasize rarity and feature diversity? In fact, as early as May 2021, DRepublic team proposed a protocol called EIP-3664 (also known as NFT traits expansion protocol). According to Foresight News article, the solution does not need to modify the existing ERC-721 protocol and ERC-1155 protocol, it supports the NFT mint method in the IERC721Receiver or IERC1155Receiver callback function for NFT directly attached traitss, but also by overriding the mint A custom implementation of the mint contract method can be used to attach any number of traitss to the NFT. NFT traitss are tokenized.

Now the more well-known NFT fragmentation protocols such as NFTX, etc., are simply by turning NFT into FT to increase liquidity, but this approach sacrifices the nonfungible nature of NFT itself, far from satisfying the demand for rarity and feature diversity of NFT projects. If different types of tokens are issued for different rarities of NFTs in the same project, it further loses the integrity of the project and also fails to justify the value of different features possessed by the same NFT.

The difference of EIP-3664 is that the update, transfer and evolution of traits can be realized by extending the basic EIP-3664 protocol, and currently EIP-3664 has realized six core trait operations: upgradeable, modifiable, addable, removable, detachable and combinable. In other words, EIP-3664 provides NFTs with detachable and combinable features, allowing all NFTs to be freely assembled with each other. The initial version released by Genesis is a combination of several different parts, similar to a Lego set, and each part can still be sold in the secondary market as a complete NFT asset after detachment.

If EIP-3664 can solve the liquidity dilemma, then the value of the rare feature traits itself will be very high, which further enhances the value of the IP itself. For the CC0 project, is it possible for the project owner to keep the ownership of these rare traits and only open up the common rarity traits for ecological construction? This may be a future development trend. Maybe in the near future we will be able to trade individual traits on SudoSwap, and then the liquidity of NFT will be greatly improved. And this may also attract more NFT projects that require high rarity and feature diversity, such as game props, old PFP blue-chip projects, generated artifacts, etc. This will also help to improve the problem of poor gold content of Sudoswap’s existing projects, after all, only by attracting more head project parties can they truly establish a greater voice in the industry.

References

“Sudoswap.” Sudoswap, https://sudoswap.xyz/#/.

Fourteen Monarchs . “One article to clarify — the AMM mechanism of SudoSwap, a rookie in the NFT market — innovation challenges and limitations.” WeChat public platform, 21 Aug. 2022, https://mp.weixin.qq.com/s/S9oRPtLEp1IHJ76BHOJGDQ.

Black Mario. “Composable NFTs? A Look at the EIP-3664 Standard.” Foresight News, 12 Aug. 2022, https://www.foresightnews.pro/article/detail/11502.

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