Run by SundaeSwap Labs, SundaeSwap is a novel decentralized exchange (DEX) protocol soon to be launching on the Cardano blockchain. Hoping to catch the wave of adoption Cardano is anticipating with the Goguen launch, SundaeSwap Labs aims to offer a suite of peer-to-peer decentralized trading tools catering to everyday traders. Its primary project, SundaeSwap, brings a familiar automated market maker (AMM) trading experience. Under the hood of the project, SundaeSwap implements a novel eUTXO model, or “Extended unspent transaction output” model. Operating in conjunction with the accounting model is the multi-utility SUNDAE token. Additionally, SundaeSwap incorporates three other tokens within its tokenomic structure.
In this article, we are going to dive deep into the SundaeSwap decentralized exchange (DEX). We will explore its founding team, SundaeSwap Labs, Inc., and look at how the eUTXO model makes SundaeSwap a unique Cardano DEX. Additionally, we’ll discover the roles and utilities of the native SUNDAE token, plus the various other tokens in the ecosystem.
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What is SundaeSwap?
SundaeSwap is an ownerless decentralized exchange soon to be operating on the Cardano blockchain. With an intuitive user experience (UX) design, SundaeSwap creates a permissionless space for “efficient cryptocurrency transactions” using blockchain technology. Participants of the SundaeSwap protocol can create markets by providing liquidity, allowing others to exchange native tokens.
Striving to achieve “the Uniswap of Cardano” status, SundaeSwap operates the same traditional automated market maker (AMM) algorithm (x * y = k) in addition to some innovative Cardano-specific twists. From the user-end perspective, the experience will be somewhat similar to other popular AMMs such as Uniswap, PancakeSwap, and SushiSwap.
Under the hood of the project, the SundaeSwap decentralized exchange (DEX) will operate slightly differently from its DEX counterparts on other chains. As an innovative take on Ethereum’s accounting model and Bitcoin’s UTXO model, the SundaeSwap Cardano DEX is implementing the novel eUTXO model, or “Extended unspent transaction output” model. We will discuss this in further depth later in the article. With the potential to be the leading Cardano DEX, SundaeSwap is, at the time of writing, a project still under development led by SundaeSwap Labs.
SundaeSwap Labs, Inc., or simply ‘SundaeSwap Labs’, is responsible for the design and implementation of the Cardano decentralized exchange (DEX). Trading primarily as a software company, SundaeSwap Labs’ mission is to “enable economic empowerment for all”. To achieve this, SundaeSwap Labs is developing a suite of peer-to-peer tools facilitating the utilization of cryptocurrencies. As such, the first product to launch and the heart of the SundaeSwap Labs development scheme is the SundaeSwap Cardano DEX.
With headquarters operating from the San Francisco Bay Area, West Coast, Western US, SundaeSwap Labs has witnessed successful fundraising for the project since its inception on June 7th, 2021. SundaeSwap Labs currently has three core investors at the time of writing. These are cFund, Double Peak Group, and Alameda Research as the most recent investor. Together, these investors put in $1.3 million during the seed funding round on September 21st, 2021, to contribute towards the development of the new Cardano DEX, SundaeSwap.
SundaeSwap Labs brands itself as “a family of risk-takers and innovators looking to spearhead the future of finance”. However, although technically SundaeSwap Labs, Inc. is a centralized organization, the SundaeSwap Cardano DEX is a fully open-source, decentralized protocol. Moreover, the protocol operates governance management through the use of the native SUNDAE token and a decentralized autonomous organization (DAO).
The Cardano blockchain currently sits as the third-largest blockchain in existence by market cap, according to CoinGecko. Cardano Network presents a progressive, creative, and innovative approach to the development of blockchain technology. Furthermore, with a “slow and steady” mindset, the Cardano Network is launching its fully operational features in five stages. The first two phases, Byron and Shelley, are operational, providing solid foundations for decentralization. The third phase, Gogen, will introduce the function of smart contracts. This stage is set to attract large amounts of utility and economic activity to the network.
As such, with its original approach to development and focus on energy efficiency, SundaeSwap Labs believes that Cardano is the best blockchain to deploy the SundaeSwap DEX. Furthermore, with a large user base eagerly anticipating the launch of the Gogen phase, SundaeSwap Labs aims to capture this market and provide a seamless and efficient way to transact and exchange cryptocurrencies. Also, SundaeSwap offers some of its participants the opportunity to earn a passive income with decentralized finance (DeFi).
Although the project is still in development to become a fully operational smart contract-compatible blockchain, Cardano works with a different infrastructure to most blockchains. Both the virtual machine (VM) and accounting models on the Cardano blockchain operate quite differently from legacy blockchains.
With plans for long-term development, the SundaeSwap exchange will initially use an adaptation of the automated market maker model (AMM). Plus, Cardano uses a cutting-edge accounting and execution model that builds on a simpler version of the Bitcoin UTXO model. The “Extended unspent transaction outputs” model (or eUTXO model) facilitates the same deposit, withdrawal, and swap liquidity functions. However, eUTXOs largely disfavor “the use of global state”. Also, the eUTXO model chooses to “passively” implement smart contracts rather than using “an explicit function call”.
The eUTXO model is a design building on the original UTXO model introduced in 2009, with the Bitcoin blockchain. In short, the UTXO model tracks transactions by “pointing at a specific (unspent) output from a previous transaction, which then gets consumed as the input to a new transaction”. The Cardano eUTXO model advances the legacy model by equipping the UTXO transactions with an arbitrary datum. Moreover, the script that locks funds can access input data called the “redeemer”, along with the full transaction data.
Using the Cardano Network’s novel accounting model, the decentralized exchange (DEX) protocol operates with several tokens. Below we cover the four SundaeSwap tokens enabling SundaeSwap’s sweet and unique implementation of the Uniswap constant product pool model.
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Global Pool Factory Token
With the first implementation of the project launch, participants will receive unique “SundaeSwap Pool Factory” tokens when providing two assets to the platform. In turn, this facilitates the creation of unique token-specific “Asset Pair Liquidity Pool” tokens. Moreover, these global tokens also hold responsibilities for minting policies with tracking tokens. We discuss the utilities of tracking tokens further on.
Asset Pair LP Tokens
Asset Pair LP tokens are tokens that participants receive in return for providing two different assets to create a liquidity pool. Each set of Asset Pair LP tokens are unique to a specific pool. Moreover, Asset Pair LP tokens are cryptographically secured in a script alongside the pool’s liquidity.
Liquidity providers (LPs) receive tracking tokens that enable them to track their share of a liquidity pool. This aids in the reduction of slippage and loss of funds. When enough liquidity is deposited into a pool, the minting policy facilitates the creation of tracking tokens. Also, the minting policy makes it possible to burn tracking tokens.
The native SUNDAE token holds three key responsibilities. The first utility of the SUNDAE token is a reduction in trading fees. The SundaeSwap platform hopes the SUNDAE token will attract large-volume traders, such as institutional investors, portfolio managers, and arbitrage assistants. Holders will be able to reduce their trading fees, thus reducing overheads with large and frequent transactions.
The second responsibility of the SUNDAE token is facilitating holders with governance rights of the platform. SUNDAE token holders will be able to partake in on-chain voting mechanisms surrounding protocol updates. Further, SUNDAE token holders who participate in governance updates will receive SUNDAE token rewards. Upon an upgrade being chosen, SundaeSwap Labs will take an “independent” approach. This will enable SUNDAE token holders to influence the development and implementation of the upgrade.
Finally, the third role of the SUNDAE token has yet to be fully disclosed. However, we do know that SundaeSwap Labs plan to use the SUNDAE token to distribute part of the protocol’s profit revenue among token holders. Be that as it may, SundaeSwap Labs has yet to share any exact mechanisms for doing so.
With a maximum supply of two billion tokens, the distribution of the SUNDAE token is largely through an Initial Stake Pool Offering (ISPO) model. Also, more than half (55%) of SUNDAE tokens are to be given to the public. Plus, SundaeSwap will reward early participants of the SUNDAE token ISPO with future SUNDAE token rewards.
SundaeSwap Future Plans
While theoretically, SundaeSwap holds the potential to become the “Uniswap on Cardano”, the project has some major obstacles to overcome first. For example, the current implementation of the eUTXO accounting model appears as though one block can facilitate only one swap transaction. At the time of writing, the Cardano blockchain operates with a block time of 20 seconds. One transaction confirmation every 20 seconds is fundamentally unachievable for a protocol hoping to attract mass adoption.
SundaeSwap Labs acknowledges this flaw as an “abysmal throughput for a decentralized exchange”. As such, the project promises to focus research and development resources towards scaling solutions that will drastically increase its throughput. Additionally, SundaeSwap Labs recognizes the necessity for flexibility and adaptation, admitting that the first implementation would never be the best. In turn, SundaeSwap Labs is planning early on a clear and definitive upgrade path. SundaeSwap Labs promises that both the upgrade path and scaling solutions will be outlined in a future project whitepaper.
Additionally, the future whitepaper is said to discuss various implementations, developments, and novel mechanisms for future platform use. This includes mechanisms to offer a secondary derivatives market, increase decentralization surrounding liquidity pools, plus offer more concentrated liquidity. Also, the role of the SUNDAE token is expected to receive new functionality and added utility.
Exploring SundaeSwap & SUNDAE Token Summary
SundaeSwap uses the automated market maker (AMM) and decentralized exchange (DEX) model with a twist, taking many influences from Uniswap. With plans to launch on the Cardano blockchain upon the Goguen phase implementation, SundaeSwap aims to capture the trades of the emerging market as the leading Cardano DEX. Moreover, as the core product of SundaeSwap Labs, the DEX protocol operates with four tokens within its tokenomics structure. This, of course, includes the native multi-utility SUNDAE token.
Introducing a cutting-edge accounting mechanism, the SundaeSwap protocol makes use of the eUTXO model (“Extended unspent transaction output”). The eUTXO model expands on Bitcoin’s original UTXO model. However, SundaeSwap Labs, as of yet, is unable to optimize this for exchange transactions. SundaeSwap has the support and backing of multiple investors. Plus, the project has an engaging social community following and “Weekly Technical Progress Updates” blog posts. Nevertheless, SundaeSwap has yet to publish further details surrounding scaling solutions, roadmap updates, or information regarding a future whitepaper.
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