It is well known that the NFT market suffers from low matching efficiency due to NFTs being indivisible, having limited quantities, rarity differences (delta), and difficulty finding a uniform price. This leads to a big bid-ask spread and insufficient trading depth.

Central limited order book marketplaces like Blur and NFT AMMs like Sudoswap aim to address this issue. However, SeaCows has the potential to be the ultimate solution for NFT liquidity provision in the Web3 world and can transform the current landscape in NFT finance.

Exogenous incentives for NFT liquidity provision

Blur Marketplace aims to reduce the liquidity gap by providing exogenous rewards. It has been successful in attracting daily average users of over 10,000 after the airdrop of $BLUR. On February 15th, Blur surpassed Opensea on transaction volume by a large margin for the first time, and on February 22nd, it had a daily transaction volume of 62,341 ETH, 7.42 times that of its competitors.

One feature that promotes greater participation is the collection-level bidding pool, which helps to generate more liquidity for sellers by driving up bids towards and even above floor prices of collections via $BLUR airdrops.

However, this situation is unsustainable because these incentives are heavily reliant on the lubricating effect of $BLUR. When its price is down and airdrops are unattractive, NFTs devour the bidding wall, and low liquidity depth comes back. Such a situation can lead to challenges in price discovery, potentially stagnating the overall growth and adoption of the NFT ecosystem.

Endogenous solution for NFT liquidity depth

To provide better liquidity and narrow the gap between buyers and sellers, the Sudoswap NFT AMM uses a Smart Order Route over individual pools to aggregate NFT liquidity. To better understand how Sudoswap works, check out this article.

Sudoswap

Sudoswap provides a Smart Order Route(SOR) on each individual NFT pool. When NFT consumers open up an order with 5 CloneX NFT, SOR will automatically calculate the first five advantageous asking prices from these individual pools. This mechanism leads to several shortcomings:

• Competition among NFT liquidity providers: Competition among NFT liquidity providers results in lower profits for them as they have to offer lower prices to secure advantageous positions on SOR, leading to a deviation of the actual market price from the true price expressed by suppliers. This kind of cost is called Price of Anarchy(POA) in game theory. Since a federated decision-making is always more favorable than selfish behavior games(i.e. POA ≥ 1), competitions among individual pools result in profit loss.

• Unfair treatment to smaller NFT liquidity providers: Pools with smaller NFT depth and ETH will be effectively detached from SOR. Smaller pools with limited maket-making ability will have a bigger delta to hedge price volatility. After receiving several large orders, their bonding curve reaches an unattainable position, and it is depleted.

• Low efficiency in tail liquidity: fragmented ETH liquidity in individual pools cannot be shared to give liquidity to additional transactions in the market. As shown below, the first pool has a balance of 2,909 ETH, which cannot support a price of 4,058. The same issue exists for another pool. If they can be shared, a total ETH of 2.909+2.253 is enough to pay for another CloneX.

• Obfuscation between liquidity providers and sellers: In reality, Sudoswap effectively disguises sellers as liquidity providers. The key difference is, providers, gain from pro-rata policy. Think of a mining pool or the Lido protocol. You provide something(computing power or ETH) to the aggregated pool. When you withdraw from it, you receive a pro-rata profit.

SeaCows

SeaCows provide a genuine peer-to-pool AMM NFT marketplace. When you provide asset pairs to the SeaCows pool, you share liquidity and become the LP (Liquidity Provider) for the pool. The price is discovered utilising the constant product market maker (CPMM) first adopted by Uniswap. Additionally, the model is uniquely designed for NFTs (i.e. avoid fractional NFT trading) and offers the following benefits:

• Higher market-making efficiency by providing a consistent price formation: When the first pool in an NFT collection is created by a market maker, they can provide a reasonable asset pair (NFT-ERC20 pair), and liquidity providers follow a consistent price formation and gain from a pro-rata approach. Without inside competition, liquidity providers benefit from a consistent asking price and gain more.

• Less stress across pools and lower market friction: Imagine being able to deposit into a shared pool without having to compete with other pools. This would result in easier returns and less stress.

• Arbitrageurs make the price right: when prices fluctuate within several markets(i.e. Opensea, Blur, Sudoswap and SeaCows) and arbitrage opportunities arise, arbitrageurs will enter the market promptly and make the price at an appropriate level.

Why SeaCows solves NFT Liquidity?

SeaCows has introduced a novel approach to federated decision-making among NFT liquidity providers, similar to the one used by Uniswap. This method is expected to result in market-making efficiency that is 1.5x to 2x higher than alternative platforms.

• A rightful successor of Uniswap in NFTfi: SeaCows has adopted the proven mechanisms of Uniswap in the realm of NFT finance. By implementing a peer-to-pool model and leveraging constant product market maker (CPMM), SeaCows has positioned itself as a major player in the NFTfi space. Its unique approach to liquidity provision and market-making efficiency sets it apart from other NFT marketplaces.

• Enhanced accessibility and user experience: SeaCows offers a more streamlined user experience for both liquidity providers and traders. Its intuitive design and user-friendly interface make it easy for users to navigate the platform and take advantage of the features it provides. This ease of use can lead to increased adoption and greater overall growth of the NFT ecosystem.

• Inclusive platform for all Liquidity Providers: SeaCows ensures a level playing field for providers of all sizes, unlike platforms that may favour larger liquidity providers. This inclusivity fosters a more diverse and robust marketplace, leading to a healthier ecosystem and increased opportunities for all participants.

Conclusion

In conclusion, SeaCows presents a groundbreaking solution to the challenges faced by NFT liquidity providers. The team behind SeaCows is continuously refining and expanding its offerings, ensuring the platform remains relevant and beneficial to liquidity providers, traders, and the broader NFT community.

Follow our Twitter @SeaCowsNFT. Written by @HarrierHarrier4.