Analyzing the Centralized Liquidity Protocol Cetus in the Sui and Aptos Ecosystems

Cetus is a decentralized exchange and liquidity protocol based on the Move ecosystem, built with a centralized liquidity protocol and related features using an algorithm similar to Uniswap V3, aimed at providing users with a high-quality trading experience and greater capital efficiency. At the same time, Cetus also utilizes the unique ecological characteristics of Sui to develop some composable features that are different from Uniswap.

Target Audience of Decentralized Exchanges

The on-chain cryptocurrency trading market is relatively small but growing rapidly. The main characteristics of this market are that most assets belong to low liquidity, low market cap categories, and a large number of new assets continue to emerge daily, with strong demand for price discovery. In this market environment, how to better conduct price discovery to attract liquidity is key to promoting the prosperity of on-chain trading. Therefore, decentralized exchanges should primarily serve liquidity providers (LP).

In different trading scenarios, the demand for LP varies. On-chain assets can be divided into two categories: mainstream assets (the top ten assets by trading volume on major public chains) and long-tail assets, each having different LP demands.

• Mainstream LPs: Pursuing higher fee income and lower impermanent loss (Uniswap V3 has more advantages)
• Long-tail asset LP: Seeking a more economical, controllable, and flexible market capitalization strategy (Uniswap V2 is more convenient, with lower Liquidity management costs)

In the long run, V3, which has higher capital efficiency, is the trend, but due to differences in demand, Uniswap V2 and V3 can still coexist in data. However, the market will inevitably give rise to new players that can balance both demands. In an emerging ecosystem like Sui, Cetus is undoubtedly a strong competitor.

Cetus: The First Centralized Liquidity Protocol Decentralized Exchange in the Move Ecosystem

Cetus has currently developed a complete product line including Swap, permissionless Liquidity pools, and cross-chain bridges.

Concentrated Liquidity

Cetus 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 implement custom strategies. When the price changes due to trading, the smart contract consumes the available liquidity within the current quoted range until it reaches the next price tick, then immediately switches to the new tick, activating the dormant liquidity within the new range. The tick interval is associated with the trading fee level; the higher the fee, the smaller the tick spacing.

By concentrating liquidity, LPs can earn more transaction fees and improve capital efficiency.

Permissionless Pool Creation

Cetus allows users to create liquidity pools without permission, and project teams can also launch new tokens directly on the platform. This helps attract more early-stage projects and quickly establish pricing power over long-tail assets.

Flexible Trading Fees

Cetus provides users with the option to customize trading fee tiers, allowing multiple pools with different fee levels for the same token. Currently, there are four levels: 0.01%, 0.05%, 0.25%, and 1%. This design encourages the market to autonomously seek the best liquidity allocation scheme, offering greater flexibility for LPs and trading users.

Position Auto Management

Users can implement take-profit orders and limit orders based on range orders. When the price exceeds the set range, users can exit their positions in a timely manner to avoid losses. In addition, users can also use third-party position managers integrated with Cetus for management, reducing the difficulty of liquidity management and facilitating long-tail asset LP operations.

Composability

Cetus has high composability, allowing other project teams to easily establish exchange interfaces on their own front end by integrating the Cetus SDK, quickly accessing Cetus's Liquidity. For example, the options project Typus within the ecosystem has achieved one-click hedging for long-tail assets by connecting to Cetus, while also enhancing the Liquidity and coverage of its own options.

Secure Cross-Chain Bridge

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

Strongly correlated token economic model

Cetus adopts the xToken economic model. Users can earn protocol revenue sharing by holding CETUS tokens and xCETUS, ensuring the alignment of community and protocol interests.

Cetus Team: Experienced Centralized Liquidity Market Making Algorithm Developers

Uniswap v3 represents a revolution in the Defi architecture, with its core being the Concentrated Liquidity Market Making algorithm (CLMM), which maximizes the capital efficiency for LPs. Although Uniswap previously implemented a commercial source code license to prevent forks, this license expired in April 2021. On EVM chains, several competitors have launched V3 alternatives, but there are fewer competitors in the CLMM track on non-EVM high-speed chains. In the future, competition among CLMM-type DEXs will focus more on operational aspects, and the lightly operated Uniswap may gradually lose its advantage.

Behind Cetus is a Dex team with rich experience in development and operation, and its Aptos version has been deployed and is running stably. With reliable products, strong business development capabilities within the ecosystem, and continuous operational narrative capabilities, the Cetus team is expected to achieve a leading position in CLMM infrastructure within the SUI ecosystem.

The Innovation Opportunities in DeFi Brought by Centralized Liquidity Protocols

LP Automated Liquidity Management Protocol

Under the concentrated liquidity protocol, LPs usually 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 fees. Automated liquidity management protocols have emerged to help LPs automatically execute market-making strategies.

This type of protocol can also achieve:

1. Unilateral asset LP mining: LP can deploy initial liquidity with a bias, and the protocol helps absorb the underlying assets to achieve liquidity balance.
2. Issue ERC20 LP tokens for LP providers: These tokens are not only tradable but can also be re-collateralized, further enhancing the capital efficiency of LP assets.

new machine gun pool and leveraged mining

Under the CLMM algorithm, the capital advantages are amplified, allowing professional institutions to implement more customized strategies. The gun pool can obtain funds from users or lending protocols and adopt an active stable strategy to generate returns, which holds immense value for large-scale users.

New Derivatives System

Under the CLMM system, while LP returns increase, they also face higher impermanent risks. How to construct derivatives that can hedge LP market-making risks to alleviate the damage to LP interests caused by malicious project dumping is a direction worth paying attention to.

The composability advantages based on the CLMM algorithm present many potential DeFi protocols yet to be developed. Especially following a series of risk events involving centralized financial institutions recently, the importance of DeFi has become increasingly prominent. The three mentioned DeFi products are just the tip of the iceberg.

Summary

The Cetus team demonstrates mature product delivery capabilities, strong ecosystem BD capabilities, and operational capabilities. They have a profound and unique understanding of the decentralized exchange product and sector. In a unique ecological track like SUI, Cetus is expected to become an industry leader.