Liquidity is the enemy of the pump.

As the bear market trundles on and various OpenSea competitors begin to take increasingly large hacks out of the monopolist’s market position – whether in terms of fees or royalties (or both) – and all the various marketplace providers compete to figure out the “big unlock” that will most successfully set for the next massive wave of new users in a couple months years, now is as good time as any to look at the potential impacts of one very particular, much-prophesised, much-balleyhooed “improvement” to NFT marketplaces, namely that of FTifying them!

“Pete, wtf are you smoking?” Well, Timmy, I’m not in University anymore but I hear what you’re saying, and all I’m observing is that Sudoswap (and soon other trading platforms?) are attempting to provide DeFi-esque pools of instantly accessible liquidity for “floors” items in large digital art collections, which is in fact rendering these formerly non-fungible tokens, well, fungible. So are we gonna call them FTs now? I mean, I think we should?ⁱ

But to see why FTifying is not only a big deal, but quite likely a bad deal, let’s quote from the chat:ⁱⁱ

Mister Todd: If your new NFT collection becomes an asset on Sudoswap, the price won’t go up easily. As soon as the sudo pools get bigger, the price goes down. But if you want your project to be “successful,” you really need ruptures UP in price.

113: Is this more true for Sudo than NFTX?

Todd: Well it’s true for a certain scale and size of project overall. If the pool is very small as % of a collection then it’s not an issue. But it’s still more true for Sudoswap because it has so many pools and these overlapping pools create complex liquidity so there is no ONE liquidity curve there, whereas on NFTX there is. The importance of listing prices is a big issue too. On OpenSea sellers tend to price up. You don’t see 50 items for sale ALL at .05 ETH. Or only very rarely would you see that. Sellers intuitively ladder up. This helps price rupture up when demand rushes in. The Sudoswap approach of making items fungible therefore suppresses prices.

113: I need to actually research Sudo I’ve had wrong mental model for it I think

Todd: Yeah me too. So I did lmao! My team of boy geniuses worked it pretty hard and it turns out that a lot of shitty things happened in Sudo’s overlapping pools. Arbitrage bots will have to be made to handle it all. There’s a lot of risks for normies playing with it. It really is bait for automated shit. But idk how much volume it will get. I think that ultimately we will get a whole different class of traders made for these pools, which is fine, but no human will want it because it becomes a race to the bottom real fast. On one hand it’s still useful, but again will dampen volatility and price A LOT.

Pete: Liquidity is the enemy of the pump. Which is why smaller genart collections are the future. Autoglyphs are the model! 512 is looottts.

Todd: FFS I knew there was a reason we had Pete around

Pete: This is also related to why BTC and ETH didn’t have their “usual” blow-off top in 2021. Also why we didn’t see a “capitulation” bottom in 2022 (so far). More liquidity, more derivatives, more hedging in 2021/2022 vs 2013/2017 means that it requires WAY more demand to overcome the supply and send prices vertical. So if demand is just “typical” for M2 cycle and market cap is much larger in crypto so it can absorb larger inflows, then we’re looking at future run-ups of just “normal” 3-5x, not 10-20x, and future draw-downs of 70-80%, not 90-95%.

Todd: Yes exactly. The Dec 2017 explosion was mass retail demand — they couldn’t even open the accounts… it built over 3 months and there were $1,000 Gemini vs Coinbase arbs at times! Market structure was totally broken. Liquidity fractured big time. Coinbase was gating liquidity too. I had [redacted] figs on it but could only move 250k cash or coin off per day then.

Relatedly, does anyone reading this seriously think it was an TOTAL ACCIDENT and COMPLETE COINCIDENCE that Larva Labs followed-up 10`000 Cryptopunks with just 512 Autoglyphs,<sup>iii</sup> Tyler Hobbs followed-up 1`000 Fidenzas with just 100 Incomplete Controls, Dmitri Cherniak followed-up 1`000 Ringers with just 50 Eternal Pumps, Snowfro followed-up 10`000 Chromie Squiggles with 50 Bookends (Study) for Proof Grails and 100 Bright Moments Mexico City, etc etc? Or that, very ironically, the art collection created by the same giga-brain who created Sudoswap only has 341 items in it? Probably just random chance, eh!

So giving credit where credit is due, we’d then do well to assume that these generation-defining artists are not only sufficiently artistically talented but also more than savvy to the “pumpatronic” dynamics that make the art market as fun and addictive as it clearly is.

While there are certainly those in the NFT space that would like the world of digital art and collectibles to behave like a subset of DeFi in particular and finance more broadly, I’d argue that NFTs are at their best, most fun, and most pumpy, when they can behave like a subset of the art and collectibles market. Because other than Dogecoin, emotional resonance with coins isn’t really a thing, and emotional resonance is what makes NFTs special! It’s also what makes for non-fungibility.

As a recovering Bitcoin Maxi, I can well attest that the resonance between an Orange Coin hodler and the Pet Rock itself was much moreso with the idea rather than the object. Conceptual art projects like Mitchell F. Chan’s EtherRock competitor notwithstanding, the same is true for the world of digital art and collectibles. At least that’s my take on it.

So sure, liquidity is cool, but wouldn’t you rather have a pump?

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1. Maybe we also can come up with a better term than “DAO” while we’re at it, since that one is pretty borked at this point in the cycle too. Might I suggest “DHF” for “Delocalised Hedge Fund”? ↩
2. Edited for clarity. ↩
3. And then that the over-sized collection of 20`000 Meebits have become the joke-stablecoin of the space? Because y’know what defines a stablecoin? FUNGIFUCKINGBILITY!!!!!1 ↩