An Evolving Sweetest DEX on Cardano

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What is Cardano?

Cardano is a third-generation blockchain network that operates on the Proof-of-Stake algorithm, which is designed to be a compatible alternative to the Proof Of-Work model. ADA is the native token of the Cardano ecosystem, which provides the holders with the right to vote on the proposed changes and participate in the operations. Developers can utilize the Cardano blockchain platform for varied services like Digital Applications, Smart Contracts, Decentralised Finance (DeFi), currency transactions, etc. Over the years, Cardano has emerged to be an alternative to the Ethereum Network. 

Cardano was developed by technologists Charles Hoskinson and Jeremy Wood. Hoskinson, who also happens to be the co-founder of Ethereum(working on the PoW), realized the challenges of the Proof-of-Work and began to develop Cardano and its cryptocurrency ADA in 2015, and finally launched it in 2017.

What is Cardano DEX?

Often referred to as the Sweetest Exchange, Sundaeswap is the very first Decentralised Exchange (DEX) built on the Cardano network. Cardano’s DEX went live in January this year. It provides services that are usually offered by central entities but without the need for a third party. SundaeSwap facilitates the users and participants of the Cardano blockchain to provide liquidity and create a market for others to exchange the native token and Cardano (ADA). Via the SundaeSwap, a user can lend, stake, borrow and swap in a decentralized way. SUNDAE is the native token of SundaeSwap. Sundaeswap has received funding from some of the most notable entities like cFund, Alameda Research, and Double Peak.

A backstory of Sundaeswap:

SundaeSwap was founded by Mateen Motavaf and Artem Wright, the CEO and COO, respectively. The whitepaper was published in June 2021, but the DEX went live in January this year. 

One of the distinct ideas of this project is its Initial Stake Pool Offerings (ISO), which determines how the native token SUNDAE would be allocated to the participants. 

2 Billion tokens were minted at the initiation of the DEX and are decided to be made available slowly as the protocol grows. The allocation of the tokens is:

55% would go to the public, 25% would go to the team, 13% to the investors, 5% to the future hires, and the remaining 2% to the advisors. 

How does it work?

UniSwap somewhat inspires Sundaeswap, it is an Automated Market Maker (AMM) which has liquidity pools, and the liquidity providers receive LP tokens as a reward for their contribution. 

Automated Market Maker facilitates the trade of digital assets without any permission and automatically by utilizing Liquidity Pools (LPs) rather than traditional buyers and sellers systems. AMM is a decentralized technology and is always up for trading without relying on a third party. Here, anyone entity does not control the system, and anyone can develop new solutions and take part. Liquidity basically refers to how one asset could be converted into another easily without affecting the market price. And AMMs create liquidity pools and offer incentives to the liquidity providers to provide these pools with assets. More the assets, more the liquidity that in turn facilitates smooth trading on Decentralised Exchanges (DEX). 

However, the implementation of this Decentralised Exchange is a bit different. Unlike Ethereum, Cardano uses a different accounting model called eUTXO, an extended implementation of the unspent transaction output model from the Bitcoin network. The custody of assets on the blockchain are tracked as unspent outputs of transactions, which are then consumed as inputs for new transactions that provide more unspent outputs. 

SundaeSwap differentiates itself by using a Constant Product Pool model that increases the trading efficiency. Because of Cardano’s accounting model, this model’s implementation utilizes more modifications than Uniswap. 

Sundaeswap uses four varied tokens:

  • $SUNDAE token: Sundae is the governance token for the protocol. 
  • Global Pool Factory token: It uses a Sundaeswap Pool Factory token that facilitates swaps by ensuring the asset pairs are unique, reducing the dilution of liquidity and poor slippage. 
  • Asset Pair LP tokens: These are the tokens that are locked in a script with the liquidity for the pool. 
  • Tracking tokens: Tracking tokens, as the name suggests, are provided to the liquidity providers to track the portion of the LP they are entitled to. 

How can the SUNDAE token be utilized?

A Governance Token: Users who contribute to building the protocol via governance earn rewards. 

Profit-Sharing: The aim is not only to decentralize finance but also the profits generated from them. 

Reduce fee: The Sundaeswap token aims to be a medium to reduce the overhead for large-volume traders. Arbitrage assistants, institutional investors, and managed portfolios would be able to pay the trading fee at a reduced rate via the native token. 

Four types of transactions can be carried out within the protocol:

  • Creating Liquidity
  • Swapping tokens
  • Depositing liquidity
  • Withdrawing liquidity

What does the protocol further plan on?

Apart from this, the protocol is still emerging and is planning a lot of things in the future, like the further whitepapers in which they intend to discuss:

  • The role of the SUNDAE token.
  • For more efficient market leverage, a mechanism to provide concentrated liquidity.
  • A mechanism to increase the throughput
  • And a mechanism to decentralize the role of the liquidity pool further.
  • Mechanism to the secondary derivatives market. 

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