SundaeSwap - A Complete Guide on the Upcoming Cardano DEX
When I first read the name SundaeSwap, my mouth started watering!
For starters this new decentralized exchange (DEX) is becoming part of the up and coming Cardano ecosystem, adding a major functional utility. It also helps Cardano become an even bigger competitor to the Ethereum blockchain and its high transaction fees. If you're new to decentralization, get a head start with our Blockchain Decentralization - Explained guide.
Now to the main course! The number of tokens it'll host and its roll out show other software developers how to use Cardano's unique programming language.
For dessert, its sweet interface will put other dApps to shame and help you achieve productivity without a degree in software engineering. Don't know about you, but I"d sure benefit from that.
To help you get ready for the release, this comprehensive guide will walk you through topics including; what is a DEX, the team behind SundaeSwap, SundaeSwap's relationship with Cardano, its technology, milestones and future prospects. We also spoke to Pi Lanningham, SundaeSwap's Chief Information Officer, directly to get some exclusive information not available anywhere else!
Let's delve straight in and take a look at this up and coming exchange. I'll first explain all you need to know about DEXs.
Getting Started: What is a DEX?
CEX vs DEX
CEXs, as the name suggests, have a central authority which acts as an intermediary in holding the cryptocurrency or USD funds you deposit. Binance, for example, would know you well since you need to complete the Know Your Customer (KYC) requirements before using it.
For trades, Binance maintains an order book to match buyers with sellers to facilitate transactions. That gives Binance a certain amount of power since it acts as the custodian of your funds and determines the price you sell your assets at.
DEXs, alternatively, allow you to conduct peer to peer transactions without the need for a third party. That way, no central authority acts as a custodian for your funds. Instead, you're in charge of your money in your digital wallet when you trade. If you haven't already traded on a DEX yet, you should read this guide. That'll get you ready for your first DEX transaction!
Why Choose a DEX Over a Centralized Exchange?
Why would you resort to a DEX (which may appear too technical) when you can trade conveniently on a CEX? Well, for many reasons.
Back to crypto roots: The cryptoverse is about decentralized blockchain technologies. You remove intermediaries from the process and replace them with algorithms. That way you remove intermediary expenses in financial service and the bureaucracy that comes with using a third party.
Anonymity: As opposed to a CEX, DEXs also can maintain anonymity, because they don't require a KYC process. You don't open an account with a DEX or transfer your funds, which reduces hacking risk and hence the need for KYC. The trades happen between wallets as DEXs deploy an Automated Market Maker (AMM) and the trade takes place via an algorithm.
Although DEXs face a number of bottlenecks at the moment, DEXs could become a transformative force and challenge CEXs once they overcome their current limitations.
Before we get to the limitations, let's get to know the team behind SundaeSwap.
Meet the Team Behind SundaeSwap
Meet the team of DeFi enthusiasts. Pi Lanningham shared with us how the team came together;
“Mateen and Artem, the co-founders, saw that the interest in DeFi was growing at an astounding rate, and the Cardano ecosystem was still incubating. So they decided to put together a team.
They then found the next two members of the leadership team by coincidence: Mateen mass-emailed everyone who had forked the Plutus repository, and I"d only forked it by accident; and Matt stumbled on a video about us on TikTok!”
Mateen, the Chief Executive Officer (CEO) of SundaeSwap Labs Inc., is known for his innovative solutions and takes care of the UX, branding and business development. Artem, the Chief Operating Officer, is practical and responsible for business relationships. Matt, the Chief Technology Officer is the tech guy who filters the noise and focuses on important things. Pi, the Chief Information Officer (CIO) and the face of SundaeSwap in YouTube interviews, works on day to day development of the team. This team is supported by a group of smart contract engineers, headed by their lead engineer, Edmund Noble.
The team comes across as young and enthusiastic, with varying specializations in many fields, including UI/UX design, finance and financial services, mathematics, and engineering. They"re committed to building SundaeSwap in public as they continue to document their progress via blog posts. The team's transparent approach in acknowledging issues is refreshing to see, and has certainly given the team more credibility. That has helped garner support from a vibrant community, and backing from reputed investors and partners.
CFund is one of the venture capitalists (VC) that support SundaeSwap. This is one of their biggest strengths since the fund is connected to Cardano's founder, Charles Hoskinson. This non-explicit endorsement from the Cardano founder has certainly created more anticipation for the project.
SundaeSwap also managed to secure funds from a popular VC, Alameda Research, which FTX CEO, Sam Bankman-Fried, founded. The VC has made 116 investments in cryptocurrencies to date.
Now to the meaty part. Does SundaeSwap have what it takes to overcome DEX limitations?
What is SundaeSwap?
Lanningham explained that SundaeSwap is built with an ethos at its heart. What's that? The same way gold used to back US Dollars, crypto's foundations are its trust and security, which provides crypto its value. He also sees SundaeSwap as representing the team's shared vision and opportunity: to decentralize access to and profits from financial services.
Can SundaeSwap Address the Limitations of a DEX?
It's true a DEX would do away with the expenses of an intermediary, but you would incur fees for your transaction. That's one limitation not helping in the DEXs" growth since your DEX transaction fees end up exceeding the CEXs" intermediary expenses.
That's not the only limitation though, check out the 3 main limitations of a DEX and how Sundae Swap overcomes them.
1. High Transaction Fees
A transaction fee is the fee paid to miners to incentivize them to process transactions. Ethereum, being the trailblazer blockchain it is, is still notorious for charging unpredictably high fees to its users during transactions.
That's why you face large transaction fees if you're using Ethereum-based DEXs, often disproportionate to trading volume. As a result, traders who deal with small numbers won't use DEXs if they can't achieve revenues to cover the transaction fees.
SundaeSwap is built on Cardano, not on Ethereum. It aspires to solve this problem by facilitating faster peer-to-peer transactions with inexpensive transaction fees.
2. Not Enough Liquidity
An asset has an optimal price in a DEX only when it presents sufficient liquidity for the asset pair (e.g. ADA/USDT). Without liquidity, the prices for assets with large volumes will dramatically vary within seconds, making them too volatile and unpredictable.
Liquidity improves when more users trade on the platform and deposit their assets in the asset pool. To overcome this, DEXs introduced incentives to maintain more liquidity in the asset pool.
3. Slow Transaction Processing Time
DEXs" processing speed can vary, as miners have to confirm transactions before processing. A SundaeSwap blog article mentions Uniswap, as of now, carries out around 70 transactions per minute, according to their current statistics. SundaeSwap intends to have the capacity to facilitate around 120 transactions per minute. Yet, intended capacity can significantly vary from actual number of transactions taking place per minute.
Considering how new DEXs are to the world, it's only fair we give the SundaeSwap team sufficient time and space to come up with transformative upgrades. The day when DEXs would be on par with CEXs on transaction speed is not too far, though. Decentralized applications are rapidly implementing advanced technology in their platform which will help them compete with CEXs.
At present, SundaeSwap may not have released its minimum viable product (MVP) just yet, but they"re doing a great job at marketing it. Making people curious about their platform with their signature branding of sundaes and scoopers. Branding alone is certainly not sufficient to achieve mainstream adoption; but it's definitely a start. We hope that this continues to make DEXs more user-friendly through introducing more tutorials, more themed upgrades and continuing to educate the masses.
Let's check out how SundaeSwap is using Cardano to develop its DEX.
SundaeSwap's Foundation: Building a DEX in Cardano
Lannigham described SundaeSwap as benefiting from Cardano's well-built infrastructure. That's why you can't ignore Cardano's role as a decentralized platform when trying to explain what SundaeSwap is. Some Cardano features include:
Proof of Stake (PoS) blockchain platform: Its competitors, like Ethereum, still haven't fully switched to PoS from Proof of Work (PoW). That means Cardano uses validators to verify transactions, requiring less energy and processing time. That way the DEX can process more transactions in less time.
Smart contracts: Cardano launched their smart contracts in September 2021, leading proponents to call Cardano a more resilient platform. Cardano underwent academic research to substantiate the smart contract development, making it one of the most peer-reviewed blockchain platforms in the space.
Sophisticated, full functionality: Cardano is a fully functional platform and may be considered more sophisticated than its competitor Ethereum and attract mainstream users for these reasons.
SundaeSwap's DEX Technology
SundaeSwap wants to build a trustless application, with a solid security architecture to facilitate financial services. That way you'll have a reliable platform for your financial transactions.
Trustless but that contradicts everything we"ve been talking about, you'll tell me!
In this context, it means not having to trust an intermediary in the process, and replacing the intermediary with an algorithm. The underlying technology distinguishing a trustless DEX from a CEX is called an Automated Market Maker (AMM). SundaeSwap intends to use a modified version of the Uniswap AMM.
What is an Automated Market Maker?
An AMM is the automated trading mechanism deployed in a DEX. It replaces a CEX's traditional approach of matching buyers with sellers via an orderbook. AMMs use a formula to arrive at an efficient price for any given asset.
To determine pricing, AMMs access liquidity from a pool, called the liquidity pool (LP). Where does this pool come from? You and other cryptocurrency holders deposit equal amounts of an asset pair in return for incentives.
An asset's price then follows a formula which depends on the available resources in this LP. It's in the DEX's best interests to have more assets in the pool, to arrive at the most efficient asset pricing.
For instance, a user deposits $500.00 worth Cardano tokens and $500.00 USDT in the pool containing the asset pair, ADA/USDT. Now, the pool has $500.00 worth of ADA tokens as well as USDT. You come in and purchase ADA tokens worth $100 from the exchange. This affects the pool as it reduces ADA token value to $400 and USDT increases to $600.00. The pool continues to shift balance in this manner and determine price accordingly, for each buy and sell order.
Be Careful Not to Slip!
No, not literally! If the LP has insufficient assets, this could result in a considerable price difference due to the time lag between placing your order and execution. This is called slippage.
It can dramatically increase price volatility, which may discourage the mainstream use of DEX due to their unpredictability. To avoid slippage and attract more liquidity, you go back to DEXs encouraging you to deposit your funds in the pool. In turn, you receive handsome rewards, as determined by the DEX.
Come to think of it, you're not the only one in this pool. How do you ensure your assets in a LP don't get diluted with other asset pairs? SundaeSwap will have a tracking token called the global SundaeSwap Pool Factory Unique Token, unique for each LP pair. SundaeSwap will burn your tracking tokens when you withdraw your funds from the liquidity pool.
SundaeSwap's 'Unspent Outputs" to Implement the AMM
You may ask how SundaeSwap and Uniswap are any different from each other, if they use the same underlying technology. Though the difference isn't evident from the outside, but, scratch the surface, the wheels turning inside both DEXs are quite different.
As SundaeSwap is implementing the AMM on Cardano blockchain, it doesn't work the same way Uniswap does on Ethereum. Let's get to know the difference on a basic level.
Accounting Model vs Unspent Outputs
Ethereum uses an accounting model, similar to a bank account with debits and credits for each transaction. This model represents assets as balances within the account.
Cardano's accounting and execution model, called Extended Unspent Transaction Outputs (eUTXOs), is based on individual transactions and blocks. Unspent outputs that remain after a transaction completes, similar to the change you receive in a store after a purchase, are then deposited safely as inputs to be used on a later date for new transactions. The wallet tracks unspent outputs to derive information on the assets you hold.
Unspent Outputs are a great mechanism to implement transactions in parallel to one another, but a recent incident revealed a major flaw of this model. Let's check what happened and how SundaeSwap plans to solve the flaw.
SundaeSwap's Solution to the Concurrency Challenge
In September 2021, Cardano came across a problem when Minswap's testnet went live. Minswap is an application running on Cardano, and during the test, many users couldn't submit their transactions. Though transactions could run in parallel, they were, in fact, interfering with one another.
That was the first concurrency issue and many blamed Cardano's eUXTO model for this failure. Cardano was deemed unsuitable for DeFi since it couldn't process more than a few transactions at once.
The problem posed a major threat to the upcoming projects on the Cardano blockchain. A DEX can't afford to have painfully slow transaction times, so SundaeSwap came up with their own solution to make the project scalable.
The team announced their vision to scale SundaeSwap by building trust through incentives and self governance. SundaeSwap will use a third party aggregator, called a Scooper, to maintain something similar to an orderbook.
The Scooper builds and submits a transaction for each order and executes a number of swaps as a workaround for the concurrency problem. That allows you to submit as many transactions as you want. For each swap, the Scooper receives a reward equivalent to a transaction fee you pay.
All this brings another problem; what if aggregators abuse the trust?
A DEX should have proper mechanisms to stop power misuse. That's what the SundaeSwap team aims to achieve with a mix of decentralized and centralized solutions. SundaeSwap recently chose a pool of 30 Scoopers from a trusted list of stake pool operators (SPOs) through a community vote. They'll have a centrally-controlled license which they need to renew regularly. Honest scoopers will receive regular rewards and a bad actor will suffer a license revokal via a community vote.
How Safe and Secure is SundaeSwap?
Building SundaeSwap on Cardano has given the team a considerable edge in security over any other blockchain platforms. Cardano is one of the first and most peer-reviewed, resilient, and academically-developed blockchain. Cardano's validator nodes run a consensus mechanism that ensures platform security.
SundaeSwap has been able to make use of this sophisticated security architecture from Cardano. Prior to its testnet launch, the team partnered with Runtime Verification to conduct a comprehensive audit to evaluate the system's safety and reliability. The audit team conducted an initial design audit and a code review to check the application against security flaws and exploit risks.
SundaeSwap also seeks to ensure the user funds" security. According to the team, you don't face the risk of losing their funds in case transactions fail. The transactions taking place on Cardano will be more predictable compared to that of the Ethereum blockchain. That's because the transaction elements outside your control are validated before the transaction is executed in Cardano. You're able to run the contract locally to determine if it'll succeed, prior to executing the contract.
The SundaeSwap team is commendable for learning fast from the experience of their competitors. Realizing what Uniswap is going through with their upgrades, the team conveyed their intentions to build SundaeSwap in an easily upgradable manner. They won't have to prompt users to move to upgraded DEX versions.
SundaeSwap has been around for less than a year, but in this short timeframe, the team has made excellent progress in growing their project. As an application built on Cardano, SundaeSwap took a surprisingly short time to develop. In fact, the idea was conceived in April 2021 and now the team has already launched its testnet offering.
The project has benefited from the solid backing from Charles Hoskinson via CFund and his tweets. So far, the team has been working hard behind the scenes to live up to the hype. We have to wait for the final verdict to come in, though. Some key milestones include:
Securing Investment from Reputed Firms
SundaeSwap secured a $1.3 million seed fund from CFund. By winning this investment, SundaeSwap became financially stronger, and got a moral boost. CFund is connected to Cardano's non profit organization, IOG and its founder Charles Hoskinson. That naturally attracted people's attention.
SundaeSwap also managed to secure investment from Alameda Research and Double Peak Group. The team prides itself as the first Cardano-based project to win Alameda Research funds.
Introducing Scoopers to Overcome Concurrency
The team promptly came up with their Scooper model to address the concurrency problem. SundaeSwap published a detailed article discussing the pros and cons of different solutions put forward and substantiating the reason for choosing the scooper model. Within the next two weeks, the team also held the community vote to select 30 scoopers from the list of stake pool operators. Check out Atomic Wallet's blogs for the latest information on these and other essential articles on cryptosphere.
Launching the Testnet
SundaeSwap's testnet went live on 5th December 2021. What is a testnet? Think of it like the beta version of a software. It's an experiment to test the application and find any bugs when users try the different features. You won't use any real funds in this experiment. It provides you with an opportunity to get involved with your favorite projects and give feedback on the user experience.
In SundaeSwap's case, the community was already highly anticipating the testnet. You may remember what happened during Minswap's testnet launch. The community will get a chance to test the scooper model solution as you get the chance to submit a number of transactions at the same time without any interference from one another.
The SundaeSwap testnet appears promising with a simple interface that complements their sweet theme, giving a real taste of what's coming.
How's the User-Experience So Far?
Many users were able to successfully swap tokens on the testnet, but some reported longer delays. The team promised to address the reported bugs and release their mainnet in the weeks to come. SundaeSwap's mainnet will be a significant milestone for the team and a big day for the Cardano team since SundaeSwap is the blockchain's premier DEX.
SundaeSwap will distribute 5% of their total token supply, ticker symbolSUNDAE, via an Initial Stake Pool Offering (ISO). Delegates who staked their Cardano (ADA) tokens to various shortlisted pools will be able to obtain SUNDAE tokens. The exact date of the ISO hasn't been disclosed yet.
To take part in the ISO, you should do the following:
Buy Cardano / ADA tokens
Move your ADA tokens to Daedalus, Yoroi, or the Nami wallet
Begin staking your ADA tokens in an available pool, making sure you can unlock your tokens promptly
Wait for the official list of pools to be announced to switch
Caim SUNDAE tokens during the ISO
SUNDAE is a utility and governance token, offering holders the ability to vote on features and decide the future of the protocol. You'll also receive a portion of platform revenues proportionate to the number of tokens you own.
SundaeSwap has its hands full before it launches the mainnet. That brings us to what the future looks like in its agenda.
The Future of SundaeSwap
SundaeSwap hasn't released a 2022 roadmap yet, but it had communicated on different occasions about upcoming plans. The team intends to launch the first version of the SundaeSwap protocol as the next obvious step after the testnet. Lanningham also told us that after the mainnet launch, the team plans to explore additional improvements to the protocol.
Ultimately, SundaeSwap needs to figure out how it can support more transactions within a minute while maintaining global consensus. The only way to make the application more scalable is to address this striking issue.
For DeFi to flourish, the players in this field should be able to build a bridge to attract traditional finance users at the other end, in big numbers. SundaeSwap believes it will eventually need to make some concessions, like fulfilling KYC requirements to users who don't want anonymity. DeFi players and regulators might find a middle ground solution to benefit everyone.
As a DEX with sophisticated features, users anticipate SundaeSwap will be a Uniswap equivalent–running on Cardano. Reputable players in the field, including Alameda Research and the Cardano founder, Charles Hoskinson, are backing the project. The team has performed well so far, keeping up with the expectations. It also has ambitious plans for DeFi integration in the future.
SundaeSwap's mainnet release will undoubtedly be an event to watch out for. The protocol's performance will ultimately speak for Cardano's DeFi potential and boost its real world use case. It'll form another step forward in helping DeFi's mainstream adoption.
To summarize what we discussed so far, we have compiled the following FAQ.
What is SundaeSwap?
SundaeSwap is a decentralized exchange (DEX) built on Cardano. SundaeSwap's goal is to decentralize access to financial services and middleman profits.
When will the DEX launch?
The team hasn't revealed the exact date. Their testnet went live in December 2021, so it shouldn't be too long before they roll it out to the mainnet.
What is unique about SundaeSwap?
SundaeSwap will be the premier DEX on Cardano with faster transaction processing times. The transaction fee is going to be relatively less expensive compared to UniSwap's ETH gas fees. SundaeSwap also benefits from Cardano's advanced security architecture for their application.
SundaeSwap managed to secure the investment from CFund, a VC connected to Cardano's founder, Charles Hoskinson. It's also the first Cardano based project to win over Alameda Research's investment.
Where can I buy the SUNDAE token?
Please keep an eye out on SundaeSwaps" Twitter platform for updates on their ISO. Have your ADA tokens ready to stake from your Cardano wallets. We hope to make SUNDAE available in Atomic Wallet as soon as possible.
What Does the Future Hold?
The project has many expectations attached to it, as the premier DEX in Cardano. While we await the mainnet's launch, the team plans to add features and financial products in 2022. As a dedicated team continues to work behind the scenes, we'll wait and see if SundaeSwap becomes a DEX game changer.
For the ultimate source of information, visit SundaeSwap's official website.
Be part of their community by joining their Discord.
Follow SundaeSwap on Twitter to keep up with the latest updates.
Read their blog on Medium.
Join Reddit to discuss the project with the community.