In-depth exploration of the Sui ecosystem: Finding suitable niche markets

Written by: THOR AND MODERN EREMITE

Compiled by: Deep Tide TechFlow

In today's report, we will delve into the Sui ecosystem. Created by MystenLabs, Sui is hailed as the next-generation blockchain designed to meet the growing demand for blockchain adoption. You might ask, who is adopting blockchain? The Web2 world is gradually finding its way and transitioning into the Web3 space, as it offers new territories to conquer through marketing, user acquisition, and network effects.

Fields related to mainstream usage, such as the metaverse, gaming, social layers, and even commerce, require specific types of blockchains to meet their needs. We all remember how costly Ethereum can become whenever interest surges. Does anyone recall the over $150 million in ETH gas fees burned during the Otherside NFT minting? Indeed, this is why we have seen a demand for a fast and cheap Layer 1 blockchain network in the past few months, even during the last bull market, to cater to the impending mainstream adoption.

But what about Layer 2 ecosystems like Arbitrum or Optimism? Aren't they the solutions to Ethereum's high gas fees?

Yes, but there is still much work to be done regarding L2 adoption, which is another topic for in-depth exploration. If we are to encounter significant demand from the traditional financial world, we must provide something here and now, which is precisely where monolithic blockchains can dominate.

Key Points of the Article

What is Sui, and why is it compared to Aptos?

Recent developments in the Sui ecosystem

Things to watch out for

Conclusion

Understanding Sui: The World of Parallel Chains

Sui is often compared to Aptos because both projects were launched around a similar time during the last bear market and are related to Facebook's long-forgotten project, Diem. The Diem project was primarily developed to handle lightweight payment traffic between a limited number of wallets, but it was paused due to the premature public acceptance of blockchain and the U.S. government's refusal to allow giants like Facebook to introduce payment processing infrastructure. This is why both Sui and Aptos are Layer 1 blockchains based on Proof of Stake (PoS) consensus, utilizing parallel execution to meet the demands of impending mainstream adoption. Although there are many technical differences, such as variations in consensus mechanisms or data architectures, we will not delve into these differences as they are not relevant to our discussion today.

However, it is relevant that both Aptos and Sui are seen as projects heavily influenced by venture capital, leading to a less welcoming atmosphere in the broader crypto world, which is evident in their early price actions post-listing.

Another similarity is that both blockchains use the Move programming language; however, there are slight differences in how the language is utilized. On one hand, Aptos adopted the usage of Move from Diem, while Sui decided to alter some concepts and adopt an object-oriented approach, making it more suitable for mass adoption, which is why it belongs to the growing trend of parallel L1 blockchains.

In the coming months, we will witness another round of L1 chain wars, which was the dominant narrative during the 2020/21 cycle. However, this time, we will see new competitors entering the arena, namely Aptos, Sui, Sei, Solana, and the yet-to-arrive Monad. All of these are monolithic chains that support parallel execution and aim to capture market share in the same niche.

Reverse Consensus: Recent Growth

As mentioned earlier, the price action following Sui's launch was not surprising, as the main trade taken by crypto Twitter was to open short positions and hold them for months, which proved quite profitable. However, in October 2023, when Bitcoin began its ascent and finally broke through the $30,000 mark, SUI's bottom had formed and started its upward journey.

However, price is not the only thing that has begun to rise; the TVL on Sui has also increased. From around $80 million in October 2023 to $567 million today, the Sui ecosystem has attracted more capital, but there lies a question: how and with what?

A recent reason could be the speculation surrounding the upcoming Wormhole airdrop, which has driven the use of bridging and boosted TVL across various chains. It goes without saying that once the airdrop snapshot is taken, this liquidity will not remain, but how much the recent TVL surge is related to Wormhole speculation remains a mystery.

So, what about the DeFi ecosystem on Sui? Currently, we see some major DeFi protocols offering liquidity re-staking (NAVI), lending (Scallop), DEX, and Perps (Cetus and BlueFin), building the core infrastructure of a growing ecosystem. To further elaborate on this idea, we could say that incentivizing DeFi protocols can be a way to attract users and liquidity; however, this must be synchronized with attracting developers who will build various dApps and protocols. It is also worth mentioning that BlueFin recently partnered with Elixir, a protocol aimed at enhancing DEX order book liquidity. This led to a roughly 50% surge in BlueFin's TVL, from nearly $9 million to $13.1 million today. It is hard to say whether this is the beginning of cross-chain integration or a one-off event influenced by Elixir, so it is worth closely monitoring further integrations that may arise in the Sui ecosystem in the near future.

In terms of attracting users and stirring excitement, there is another selling point that could be a trump card for Sui: the lack of tokens for ecosystem projects. If there is one marketing trick that crypto projects can employ, it is to use the upcoming airdrop as a reward for using the project to tantalize users, and it would be even better if the airdrop activity spans the entire ecosystem, which is entirely possible on Sui.

Most importantly, we have also seen the launch of Stardust, which brings wallet-as-a-service infrastructure aimed at attracting GameFi builders who will leverage all the features Sui offers. On this basis, we have seen an interesting collaboration between MystenLabs (the creators of Sui) and Team Liquid (one of the most renowned esports teams in Europe). In other words, Sui is trying to enter the GameFi world, but why are we seeing this shift?

It must be said that in the fiercely competitive parallel L1 space, each ecosystem must find its niche to attract users and TVL, rather than competing for the same overly broad audience. Solana seems to have found its selling point in crypto culture through its NFTs and memecoins, while Sui appears not to replicate others' success stories but rather to move forward, attempting to attract GameFi users, thanks to its object-oriented Move language and user experience, which far surpasses what we see on StarkNet.

Facing the Future: Potential Issues

While all of this may sound overly positive and promising, we should not forget to consider all the associated risks and the upcoming unlocks that may affect the price of the SUI token.

As mentioned earlier, since the bottom of $0.36 in October 2023, SUI's price has been steadily rising, and it has nearly doubled since the beginning of 2024, almost successfully reaching the $2 mark, but the narrative speed of the parallel ecosystem has slowed down. This indicates that there are indeed opportunities to make money for those willing to explore the ecosystem and bet on its projects and memecoins; if prices rise, that is always a good incentive. However, the situation for Sui is not the same.

The most notable DeFi projects we mentioned earlier, such as BlueFin, Aftermath, or Scallop, do not have their own tokens, except for Cetus, which may lead to speculation about airdrops in the future. However, for now, this severely limits the ecosystem's appeal, as there are no tokens worth speculating or investing in.

The most obvious example could be the meme coin season on Solana, which generated multiple small cycles with brief cooling periods in between. During these cooling periods, the broader market has time to shift to other trends, often related to meme coins on different chains, and Sui has a similar trend. The most anticipated meme coin on Sui, coded as $FUD, followed the hottest trend at the time, which was dog-themed coins. However, the price action has little to offer, as interest waned quickly after the initial surge, and liquidity rapidly left.

What seemed to be a promising avenue for attracting liquidity to the ecosystem turned out to be extremely short-lived, as liquidity vanished just hours after launch. Additionally, we can add that the number of people buying and selling tokens is negligible, with about 150 participants for the top four meme coins. It goes without saying that this interest is almost nonexistent, as we see thousands of market participants daily, even on the struggling Solana chain.

Another pressing matter in the ecosystem is the unlocking schedule. The monthly unlock is set at 0.65% of the maximum supply, equivalent to about 5.5% or $110 million of the current market cap. These are rough estimates, as the price of $SUI is fluctuating, and the market cap percentage and dollar value are also changing. While the monthly supply seems to have been absorbed by the market, the supply set to be released in May could severely impact the price.

On May 3, Sui's supply will increase by 8.27%, amounting to approximately $1.4 billion, which represents about 71% of the current market cap. It is difficult to predict how the market will react to such a large-scale unlock. However, we may see what is known as a "liquidity cushion" gradually established, which will somewhat offset the released supply, as is typically seen with $DYDX unlocks. On the other hand, considering the currently low interest in the Sui ecosystem, it may be challenging to attract enough liquidity to build such a safety buffer, and the market will begin pricing in the unlock weeks before it occurs.

While predicting the future is impossible, observing the market and the SUI trading volume to market cap ratio can tell the story of how the market attempts to cope with the impending unlock.

Conclusion

In the coming months and years, we may witness explosive growth in blockchain adoption not only among mainstream users but also within Web2 brands, as we have already seen this trend form during the 2021 metaverse frenzy. Given all of this, there is an urgent need for fast and cheap blockchains capable of accommodating millions of users exploring emerging frontiers and the multitude of dApps that follow.

Sui is not the only competitor in this niche; there are also strong contenders like Solana, Aptos, Sei, and the upcoming Monad, all vying for market share. Additionally, we will see the rapid development of L2 ecosystems, which will offer similar functionalities, combining Ethereum's overall strength and network effects, potentially becoming solid competitors for market share in the same niche as Sui.

The theme of the last cycle was the war between alternative L1s. This time, we will see a similar scenario unfold. However, what we will witness is not a battle between L1 ecosystems, but rather a showdown between L1 subprojects and monolithic chains, all competing to become the preferred destination for "mainstream-facing" dApps.