May 2, 2023, Cetus has successfully closed its seed round of funding led by OKX Ventures and KuCoin Ventures. This round also included participation from a list of prominent institutions in the industry, such as AC Capital, Comma3 Ventures, NGC Ventures, Animoca Ventures, IDG Capital, Leland Ventures, Adaverse, Coin98 Ventures, etc.

Cetus is a DEX and liquidity protocol based on the Move ecosystem, using an algorithm similar to Uniswap V3 to build a concentrated liquidity protocol and a series of ancillary functions, providing DeFi users with the best trading experience and higher capital efficiency. At the same time, using the unique ecological characteristics of SUI, it creates composable functions that differ from Uniswap.

Cetus is a DEX and liquidity protocol based on the Move ecosystem, using an algorithm similar to Uniswap V3 to build a concentrated liquidity protocol and a series of ancillary functions, providing DeFi users with the best trading experience and higher capital efficiency. At the same time, using the unique ecological characteristics of SUI, it creates composable functions that differ from Uniswap.

What are the demands of LP?

In different trading scenarios, the demands of LP are not the same. We proposed the view that the audience determines liquidity at the beginning of the year, and divided on-chain assets into mainstream assets (the top ten assets in terms of trading volume on major public chains) and long-tail assets into two categories. Their LP demands are different:

• Mainstream LP: Obtain more swap fee income, less impermanent loss (Uni V3 is better)
• Long-tail assets LP: Cheaper, controllable, and flexible market value strategy (Uni V2 is more convenient, and liquidity management costs are lower)

In the long run, V3 with better capital efficiency is the trend, but due to such demand differences, Uni V2 and V3 can still coexist in the data. However, the market will inevitably produce players who take into account the needs of both. In an emerging ecosystem like SUI, Cetus is a stronger candidate.

Cetus: The first concentrated liquidity protocol on the Move ecosystem

Cetus has a comprehensive product system that includes Swap, permissionless liquidity pools, and cross-chain bridges.

Concentrated liquidity

Cetus uses a concentrated liquidity market-making algorithm similar to Uniswap V3. Liquidity providers can create multiple positions in the same pool and simulate different price curves by setting different price ranges to implement their customized strategies. As the price changes with the execution of new swaps, the smart contract will consume all available liquidity in the current price range until reaching the next price tick, at which 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 trading fee level, with higher fees leading to closer tick points.

Through concentrated liquidity, LPs can earn more trading fees and achieve higher capital efficiency.

Permissionless Pool

Before the emergence of SUI, Solana was one of the representatives of high-speed public chains. However, one of the reasons why Solana’s ecosystem development lacks momentum is the lack of permissionless DEX for creating pools for a long time within the ecosystem. This led to difficulty in the emergence of community-native or MEME projects, resulting in insufficient attention and lack of new hot money, and becoming a “whale chain.” Today, with the launch of SUI, the status of community-native projects will be crucial to the rapid prosperity of the ecosystem. In Cetus, users can create liquidity pools without permission, and projects can launch new tokens on Cetus without permission. This will attract more early-stage projects and quickly establish pricing power for long-tail assets.

Flexible Trading Fees

Cetus allows teams and users to choose custom trading fee levels, and multiple pools can be set up for the same token with different trading fee levels. Currently, the platform allows four levels of trading fees: 0.01%, 0.05%, 0.25%, and 1%. This design encourages the market to find the most suitable liquidity allocation scheme, providing greater flexibility for LPs and swap users. Stablecoin trading pairs with low volatility assets may be concentrated in pools with the lowest fees, while high volatility or low trading volume assets may be more concentrated in pools with higher fees to hedge risks.

Automated Position Management

Users can implement profit-taking and limit orders based on range orders. After liquidation, users generally need to exit their positions in a timely manner 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 LPs.

Composability

Cetus supports high composability, and other project teams can easily build an exchange interface on their own frontend by integrating Cetus SDK, enabling fast access to Cetus liquidity. For example, the options project Typus on the Sui network achieved one-click hedging of long-tail assets by integrating with Cetus, while also improving the liquidity and coverage of their own options.

Secure Cross-chain Bridge

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

Strongly Associated Token Economic Model

Cetus has adopted xToken’s economic model. By holding CETUS tokens and xCETUS, users can receive protocol revenue sharing, ensuring consistency between the interests of the community and the protocol.

Cetus Team: Experienced Concentrated Liquidity Market-Making Algorithm Development

Uniswap v3 is an innovation in the DeFi architecture, and its core is the concentrated liquidity market-making algorithm, which maximizes the utilization of LP funds. However, in March 2021, Uniswap introduced a commercial source code license to prevent others from forking its source code, which expired in April. On EVM chains, competitors such as Pancake and Quickswap have launched V3 alternatives. However, there are few competitors in the CLMM race on non-EVM high-speed chains. In the future, competition among CLMM-type DEXes will tend towards operations, and the lightly-operated Uniswap will gradually become weaker.

Cetus has a team of experienced developers and operators, and its APTOS version has been deployed and is running smoothly. With a guaranteed product, strong BD capabilities within the ecosystem, and continuous narrative ability in operations, the Cetus team is expected to become the leader of CLMM infrastructure on SUI.

Defi innovation brought by concentrated liquidity protocol

LPs Automated Liquidity Management Protocol

Under the concentrated liquidity protocol, LPs generally 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 earn LP fees anymore. LPs need to actively deploy market-making strategies again. Automated liquidity management protocols have emerged, which can help LPs automatically execute market-making strategies. Top projects such as Arrakis Finance have already reached a TVL of $440 million.

These types of protocols can also achieve:

• Single-sided asset LP mining, where LPs can deploy initial liquidity in a skewed manner, such as only deploying the project’s native token. The protocol can help absorb underlying assets such as USDT or ETH to balance the liquidity pool. As trading occurs, the project’s native assets will gradually be converted into underlying assets. In this case, LPs can achieve liquidity without selling their own tokens or incentivizing external capital.
• Issuing ERC-20 LP tokens for LP providers. These LP tokens can not only be traded, but also used for re-collateralization, further improving the capital efficiency of LP assets.

New Type of Smart Pools and Leveraged Mining

In the past, passive liquidity mining also involved leveraged mining, but due to the even distribution of liquidity, the overall yield of leveraged mining was not ideal. With the CLMM algorithm, the advantages of capital are amplified, and professional quantitative institutions and market-making teams can achieve more customized strategies in a granular way. The smart pool can obtain funds from protocol users or lending protocols and adopt an active and stable strategy to generate profits, which has tremendous value for large-volume users with investment needs.

New Derivatives System

When using the CLMM mechanism, while LP yields are increased, they also face higher impermanent loss. In extreme market conditions, the liquidity of LPs’ set intervals will be drained by arbitrageurs. It is worth paying attention to how to construct derivatives that can hedge LP market-making risks and mitigate LP losses caused by malicious dumping of tokens by project teams.

Based on the composability advantage of the CLMM algorithm, there is still a lot of potential for Defi protocols to be mined. Especially after events such as FTX’s collapse and the regulatory scrutiny of BUSD, the importance of Defi has become increasingly apparent. The above three Defi products are just the tip of the iceberg.

Summary

We believe that the Cetus team is capable of delivering mature products and has strong business development and operational capabilities across ecosystems. They have a deep and unique understanding of the DEX product and industry. We believe that Cetus has great potential to become a leader in the unique ecosystem of SUI.