We’ve strayed far from God and got to the end of the spectrum in regards to the costs of trading NFTs on the Ethereum blockchain. With sudoswap the creator fees are completely bypassed and the Market Maker (MM) activity is now part of the platform.

In this report we will have a look at how sudoswap assigns new roles to participants, the new price considerations for buyers and sellers, as well as the impact it had on the royalties collected by projects.

With creator fees bypassed and sudoswap functioning as an AMM for NFTs, buyers and sellers only have to pay two fees:

1. Gas fee / network fee: Paid to the Ethereum blockchain to process the transaction and add it to the blockchain. The amount varies based on how busy the network is. Paid by the buyer on top of the price.

2. Platform fee: A flat 0.5% fee on the amount paid for any item sold on sudoswap. Deducted from the price of the item.

However, there is a third hidden fee that users are exposed to:

1. Spread / Swap fee: Set by the creator of each pool, it represents the difference between the buy and sell price quotes. The maximum swap fee is 90%.

All of the data we will look at in this report can be further interacted with and explored using the live dashboard below:

☝️ The dashboard can be updated on-demand by pressing the refresh button 🔄 in the top right corner of the page.

I. Overview

Since late June, over 102k transactions were made on sudoswap with a total volume of $60M which cost traders close to $1M in fees.

Most of the activity and volume can be observed between the months of August and September, which is when all three indicators spike. However, the overall activity on the platform gradually to decreased ever since its peak in mid August and seems to be continuing its descending trend.

II. Fees Breakdown

Throughout the observed period, most of the fees users had to pay were going to the network miners/validators, while the flat 0.5% platform fee applied to all trades accounts for close to a third of all the fees.

This is a larger proportion than in all the other cases we’ve looked at, such as OpenSea, LooksRare and X2Y2. Once again, we can see that when users don’t have to pay a certain fee anymore, they are going to reallocate that amount to another fee. In this case they don’t have to pay royalties so perhaps the purchase price is lower, so they are willing to pay a little more on gas.

Having a closer look at the fees paid per transaction, we see that the gas fees are in a similar range to what we could see on other platforms. However, the platform fees are considerably lower, even compared to X2Y2 which has the same 0.5% fee on all trades.

This naturally means that the value of the transacted tokens is generally lower on sudoswap than on other platforms. And indeed, when we check the platform itself we see that not many of the top collections by market cap are listed, such as CryptoPunks, Art Blocks or Doodles. Even when large cap collections are listed, they generally don’t have a lot of liquidity provided (NFTs or tokens), such as BAYC, MAYC, Moonbirds or Cool Cats.

Compared to NFT marketplaces, it’s even more difficult for sudoswap to collect a lot of platform fees considering that the AMM model disregards traits and rarity and trades all items at the floor price.

Traders on sudoswap are most likely to buy or sell a token when the gas fees add up to 1% on top of the base price. When the gas cost goes beyond that percentage, we can see the number of transactions that occurred rapidly decreasing. Because the platform looks at all tokens as being the same, its likely that sudoswap traders do too, which removes some of the urgency to purchase a certain token regardless of gas fees.

III. Spreads vs. Royalties

The hidden fee. According to sudoswap, the price they are willing to sell a token with represents the floor. In practical terms users always buy the floor but can only sell below it. The difference between the buy and sell price quotes is the spread of the pool and appropriately labeled for liquidity providers as a swap fee.

So while regular marketplace sellers set a price with creator royalties taken into account, sudoswap liquidity providers can list at the same price but with a swap fee, effectively rerouting the royalties to themselves. This makes sudoswap an extremely profitable platform for liquidity providers, but strips NFTs of their creators and artistic attributes, turning them all into simple financial instruments.

Alright, regardless of how you feel about all this, let’s look how sudoswap spreads compare to creator fees (royalties). We’re going to use the collections being swapped on sudoswap and compare their default royalties on Opensea, LooksRare and X2Y2 to the average pool spread for each project on sudoswap.

What we can observe is that in many cases liquidity providers are setting higher spreads on sudoswap than the royalties asked by projects on the three marketplaces.

Each collection can have multiple pools created, each with its own parameters. On sudoswap we can see most pools being set with a spread between 0%-10%, the same range we would normally see for project royalties. But while royalties set beyond that are extremely rare, on sudoswap we see a lot of pools having 20%, 25% or 50% spreads, with some going up to the maximum share of 90%.

IV. Skipped Royalties

Using royalties percentage of collections on marketplaces and their trading volume on sudoswap, we can project the amount of royalties projects could expect to collect from the trading activity of their tokens.

Out of the three, OpenSea has the lowest amount of expected fees, but that is because many of the collections traded on sudoswap are either not listed or have not had any sales on the marketplace.

We can however see a lot of overlap with LooksRare and X2Y2, marketplaces that either allow buyers to pay “flexible royalties” or are notorious for enabling wash trading with their rewards/incentive programs. Either way, if the royalties of each marketplace would be respected by their users, we can see projects are actually missing out on tens of millions of dollars each week.

Across all three marketplaces, the project that missed out on the most royalties is Webaverse Genesis Pass with close to $300k, followed by DigiDaigaku with over $250k.

The rest of the list varies by marketplace, but we can see that many projects have missed out on tens or hundreds of thousands of dollars since June.

Conclusions

• After a mid August peak of activity and volume, sudoswap has been on a gradual downtrend which naturally reflected in the amount of fees users have paid over the same period.

• Most of the fees users are paying when buying or selling NFTs are gas fees, with the platform fees only accounting for a third of the total.

• Although gas fees are comparable to NFT marketplaces, the value of items traded through the platform is smaller, which helps to explain the gas/platform fee ratio.

• Although sudoswap sales bypass royalties, prices remain the same compared to NFT marketplaces where royalties are enabled. The difference created by this is instead covered by spreads/swap fees.

• Spread ultimately are not benefiting NFT buyers despite paying less fees, and neither does benefit NFT sellers who are forced to sell below the floor price. It does however benefit Liquidity Providers that now redirect to themselves what used to be a project’s royalties.

• Spreads set by LPs are often times greater than the royalties set by projects on NFT marketplaces.

• The 0% royalties trading on sudoswap deprives projects of potentially millions of dollars each week.