What is Cetus Protocol? Key Information About the First AMM DEX on Sui

Cetus DEX is the first AMM liquidity protocol in the Sui ecosystem, providing DeFi users with a superior trading experience and higher capital efficiency.

With a new ecosystem like Sui, there is certainly much room for potential projects in various sectors. Cetus has emerged as a promising candidate in the AMM DEX segment. Built on Sui and Aptos, Cetus Protocol has been achieving initial success.

Overview of Cetus Protocol

According to official information released by Cetus Protocol:

• TVL reaches approximately 28.2 million USD
• Trading volume in the last 24 hours reached 6.7 million USD
• Total number of accounts: approximately 3,000
• Token not yet launched

These metrics demonstrate the growing adoption and trust in the Cetus ecosystem, particularly considering it operates in the emerging Sui blockchain environment.

What is Cetus Protocol?

Cetus Protocol is a pioneering liquidity protocol, automated market maker (AMM), and decentralized exchange (DEX) built on the Sui and Aptos blockchains. The protocol focuses on delivering the best trading experience and superior capital efficiency for DeFi users through the development of a concentrated liquidity protocol and a series of interconnected functional modules.

Similar to other AMM DEXs, Cetus possesses fundamental characteristics that define modern decentralized trading platforms:

• Permissionless Access: All major tools and functions on Cetus are fundamentally built to permissionless standards, allowing users or other applications to utilize its protocols for their own use cases at any time. This open architecture ensures that anyone can participate in the ecosystem without requiring approval from a central authority.

• Programmable Infrastructure: Cetus is building a highly customizable liquidity protocol based on Concentrated Liquidity Market Maker (CLMM) technology. This enables users to execute all types of complex trading strategies while liquidity providers can implement various market-making strategies to maximize liquidity efficiency. The programmable nature allows for sophisticated automation and strategy optimization.

• Composability: Developers and applications can easily access liquidity on Cetus to build their own products such as liquidity vaults, derivatives instruments, and leveraged farming protocols. This composability is essential for fostering a vibrant DeFi ecosystem where different protocols can interact seamlessly.

• Sustainability Model: Cetus adopts a dual-token model powered by CETUS and xCETUS, which helps retain participants in the protocol through aligned incentives and governance mechanisms. This sustainable tokenomics design ensures long-term protocol viability and community engagement.

How Does Cetus Protocol Work?

Like typical AMM DEX protocols, Cetus features liquidity pools containing token pairs that enable users to swap from cryptocurrency A to cryptocurrency B. Liquidity providers (LPs) supply liquidity by adding these two cryptocurrencies to the pool at a specific ratio, and in return, they receive a portion of the swap fees paid by users.

In traditional AMM protocols, liquidity is distributed evenly along the entire price curve from zero to infinity. However, a significant portion of this liquidity is never used for actual trades, resulting in capital inefficiency and wasted resources. Cetus Protocol addresses this fundamental limitation through its innovative approach.

Concentrated Liquidity Mechanism

Cetus Protocol implements concentrated liquidity, where liquidity is allocated within a specified price range rather than across the entire price spectrum. LPs can concentrate their liquidity within designated price ranges according to the most active trading intervals of a specific trading pair. This revolutionary approach transforms how liquidity provision works in decentralized exchanges.

The concentrated liquidity model changes the liquidity price range from infinite to finite. Consequently, LPs can maximize liquidity efficiency and earn more fees with the same capital commitment. An LP can create multiple positions in the same pool by setting different price ranges, allowing for sophisticated liquidity management strategies.

The mechanism operates as follows:

• When asset prices increase or decrease beyond the set price range for a position, the liquidity becomes inactive and stops earning fees until the price returns to the range. This dynamic activation ensures capital is only deployed when it can generate returns.

• When the price returns to the range, the liquidity in the position becomes active and begins earning fees again. This automatic reactivation ensures seamless operation without manual intervention.

• If the price of a trading pair increases or decreases in one direction, the LP receives more of one asset as users swap for the other asset, until their entire liquidity consists of only one asset. This represents the natural rebalancing that occurs in concentrated liquidity positions.

Price Tick System

Price ticks function as boundaries for each liquidity position, providing granular control over position placement. When a position is created, LPs must select lower and upper ticks that will represent the boundaries of their position. Ticks are spaced such that moving up or down by 1 tick represents a 0.01% increase or decrease in price at any point on the price curve.

This tick system provides several advantages:

• Precise control over liquidity placement
• Standardized position boundaries across the protocol
• Efficient computation of active liquidity
• Clear visualization of liquidity distribution

Trading Fees on Cetus DEX

The fee structure on Cetus is designed to balance the interests of traders and liquidity providers:

• Swap Fees: Fees collected on each swap transaction are allocated to LPs proportionally based on all liquidity within the price range at the time of the transaction. This ensures fair distribution based on actual liquidity contribution.

• Fee Tiers: The protocol allows four fee tiers: 0.01%, 0.05%, 0.2%, and 0.6%. This provides much greater flexibility for both LPs and users, allowing them to choose pools that match their risk-return preferences and trading characteristics.

• Protocol Fees: By default, 20% of swap fees from all transactions on Cetus DEX are allocated as protocol fees. These fees support protocol development, security, and ecosystem growth.

Liquidity Mining Program

In a concentrated liquidity protocol, liquidity added by users within custom price ranges can be referred to as positions or liquidity positions. Users receive an NFT generated by the smart contract as proof of position ownership. This NFT-based system provides several benefits:

• Unique identification of each position
• Easy transfer and management of positions
• Integration with other DeFi protocols
• Clear representation of position parameters

LPs need to own the Position NFT to have the right to collect fees generated by the position and earn corresponding liquidity mining rewards. This creates a transparent and secure system for tracking liquidity provision.

Cetus Oracle Service

Cetus's concentrated liquidity pools can also be used as an oracle form, providing external developers or platforms with access to historical liquidity and price data from the pools. This oracle functionality adds significant value beyond simple trading:

• Real-time and historical price feeds
• Liquidity depth information
• Trading volume metrics
• Time-weighted average prices (TWAP)

These oracle services enable other protocols to build on top of Cetus's liquidity infrastructure, creating a more interconnected DeFi ecosystem.

Range Orders Feature

This form is similar to limit orders in traditional finance but leverages the concentrated liquidity mechanism. Assets from one side are provided as liquidity and continuously swapped into the desired asset when the spot price crosses the entire price range of the position.

Range orders offer several advantages:

• No need for active order book management
• Automatic execution when price conditions are met
• Earning fees while waiting for order execution
• More capital efficient than traditional limit orders

Swap Functionality

Swap transactions on Cetus Protocol are executed against passive liquidity pools. Liquidity providers on Cetus earn trading fees proportional to the active liquidity they contribute. The swap mechanism is optimized for:

• Minimal slippage through concentrated liquidity
• Gas-efficient execution on Sui blockchain
• Multi-hop routing for best prices
• Protection against front-running attacks

Cross-Chain Bridge Integration

Cetus does not develop its own cross-chain bridge. Instead, the protocol has integrated Wormhole SDK to establish a cross-chain bridge interface within the user interface. This strategic decision allows Cetus to:

• Leverage proven bridge technology
• Focus resources on core protocol development
• Provide users with secure cross-chain transfers
• Access liquidity from multiple blockchain ecosystems

The Wormhole integration enables seamless asset transfers between Sui, Aptos, and other supported chains, expanding the potential user base and liquidity sources for Cetus.

Partners and Investors

Cetus Protocol collaborates with major partners in the Aptos and Sui ecosystems, including Fewcha Wallet, Celery, Tortuga, Shoulders, LayerZero, OmniBTC, Port3, HippoLabs, and Wormhole. These partnerships strengthen the protocol's position and provide users with enhanced functionality and integration options.

Cetus completed a Seed round led by OKX Ventures and KuCoin Ventures. The round also included participation from a list of prominent industry organizations, such as Comma3 Ventures, NGC Ventures, Animoca Ventures, IDG Capital, Leland Ventures, AC Capital, Adaverse, and Coin98 Ventures. This strong backing from reputable investors demonstrates confidence in the project's vision and execution capability.

Overview of Cetus Cryptocurrency

Cetus Protocol features a dual-token model with CETUS and xCETUS, each serving distinct purposes within the ecosystem.

CETUS Token

CETUS is the native coin of Cetus Protocol with an initial total supply of 1 billion tokens. This is a multi-utility token that will be used as a medium of exchange among participants on Cetus. Users can earn CETUS tokens through liquidity mining on the platform.

In early May 2023, Cetus Protocol announced a community token sale through an IDO program. The sale allocated 20 million CETUS tokens with a hard cap of 1 million USD in SUI tokens. The proceeds were strategically allocated:

• 70% of raised SUI tokens used as initial liquidity
• 30% used as xCETUS staking rewards

This allocation structure ensures strong initial liquidity while incentivizing long-term token holding through staking rewards.

CETUS token utilities include:

• Governance participation through staking
• Liquidity mining rewards
• Fee discounts for active traders
• Access to protocol features and benefits

xCETUS Token

Cetus Protocol allows token holders to propose and vote on governance proposals to determine future features, upgrades, or parameters, with voting weight calculated proportionally to staked CETUS tokens. xCETUS token represents the amount of staked CETUS and is non-transferable, ensuring that governance power remains with committed community members.

CETUS can be instantly converted to xCETUS at any time at a 1:1 ratio, providing immediate access to governance rights. However, converting from xCETUS back to CETUS involves a vesting period. The conversion ratio increases proportionally with the vesting duration chosen by the user, incentivizing longer commitment periods.

Some utilities of holding xCETUS include:

• Loyalty Level Upgrades: Higher loyalty tiers allow users greater access to ecosystem features and more preferential terms. This gamification element encourages long-term engagement and rewards dedicated community members.

• Governance Rights: xCETUS is used as a governance token to make proposals and vote in Cetus DAO. This ensures that those most committed to the protocol have the greatest say in its direction.

• Farming Boost: Users can use xCETUS to boost farming yields in selected pools. This mechanism rewards stakers with enhanced returns on their liquidity provision.

• Launchpad Participation: Users can use xCETUS to participate in programs within the Cetus launchpad. This provides early access to new projects launching on the platform, creating additional value for xCETUS holders.

The dual-token model creates a sustainable ecosystem where short-term traders use CETUS while long-term believers stake for xCETUS, aligning incentives across different participant types.

Conclusion

Cetus Protocol remains a relatively young project within the Sui and Aptos ecosystems. Although the project is still in its early stages and does not yet have a significant community, the product that Cetus provides to consumers is quite thorough and well-organized, with a friendly user interface and experience.

The protocol's concentrated liquidity mechanism addresses a fundamental inefficiency in traditional AMMs, potentially offering superior capital efficiency for liquidity providers. The dual-token model with CETUS and xCETUS creates aligned incentives for both short-term users and long-term community members.

Looking ahead, Cetus Protocol has the potential to become a significant project for providing liquidity in the Aptos and Sui ecosystems through its concentrated liquidity protocol. As these blockchain networks continue to grow and attract more developers and users, protocols like Cetus that offer superior capital efficiency and user experience are well-positioned to capture significant market share.

The strong backing from reputable investors and strategic partnerships with key ecosystem players provide a solid foundation for future growth. As the DeFi landscape continues to evolve, Cetus's focus on innovation, user experience, and sustainable tokenomics positions it as a protocol worth watching in the concentrated liquidity DEX space.

FAQ

What is Cetus Protocol? What is its role on the Sui blockchain?

Cetus Protocol is an optimized AMM DEX framework built on Sui, leveraging Move programming language and microservices architecture. It enhances transaction speed, efficiency, and settlement, streamlining computational and verification processes for superior DeFi trading performance on Sui.

How to trade tokens and provide liquidity on Cetus Protocol?

Select a trading pool on Cetus Protocol, input your desired trade or liquidity amount, then confirm and execute the transaction. You can earn fees by providing liquidity to the protocol.

What is the use of CETUS token in Cetus Protocol? How to obtain it?

CETUS token is used for cross-chain trading and serves as a circulation medium within the network. Users can obtain CETUS through liquidity mining rewards on the protocol.

What are the risks of providing liquidity on Cetus Protocol? How to calculate returns?

Liquidity provision on Cetus Protocol carries impermanent loss risk from price volatility and concentration risk. Returns are calculated from trading fees earned within your price range, distributed proportionally to your liquidity share in the pool.

What advantages does Cetus Protocol have compared to other DEXs like Raydium and Uniswap?

Cetus Protocol leverages Sui's unique ecosystem and Move language efficiency. It features concentrated liquidity mechanisms similar to Uniswap V3, optimized gas fees, faster transaction speeds, and seamless integration with Sui's native infrastructure for superior capital efficiency and trading experience.

What trading pairs does Cetus Protocol support? What is the fee structure?

Cetus Protocol primarily supports CETUS/USDT trading pair. The protocol operates as an AMM DEX on Sui network with dynamic fee structures. Specific fee details vary by pool type and liquidity provision levels.

How to assess the security and audit status of Cetus Protocol?

Cetus Protocol has undergone professional security audits from reputable firms. The protocol maintains transparent audit reports and documentation. However, like all DeFi protocols, users should review audit summaries, monitor ongoing security updates, and understand that audits provide important but not absolute guarantees of safety.