Introduction

Cetus is a pioneer DEX and concentrated liquidity protocol built on the Sui and Aptos blockchain. The mission of Cetus is building a powerful and flexible underlying liquidity network to make trading easier for any users and assets. It focuses on delivering the best trading experience and superior liquidity efficiency to DeFi users through the process of building its concentrated liquidity protocol and a series of affiliate interoperable functional modules.

All the major tools and functions on Cetus are basically built with a permissionless standard. It allows users or other applications to utilize its protocols for their own use cases at any time. No matter it’s to set up a new trading pool, or to allocate incentives to rent liquidity from the public.

Why Choose Cetus?

Cetus is building a highly-customizable liquidity protocol based on CLMM. Through flexible composition of swap, range order and limit order, users can almost conduct all kinds of complex trading strategies that could be achieved on a CEX. Besides, liquidity providers are also able to execute various Maker strategies using CLMM to maximize their liquidity efficiency.

Cetus embraces the concept of “Liquidity As A Service”, so it puts emphasis on the ease of integration when building its products. Developers and applications can easily access the liquidity on Cetus to build their own products such as liquidity vault, derivatives, leveraged farming, etc. A new project team can also easily set up a swap interface on its own front end by integrating Cetus SDK, which will help them access the liquidity of Cetus and even the whole market real quick.

Cetus adopts a double-token model fueled by CETUS and xCETUS. Long term and dynamic incentivization sustained by protocol earnings is implemented to reward those active participants of the protocol. It wants to make sure the real contributors of the protocol can be effectively incentivized by the scientific token economy.

Concentrated Liquidity

The core innovation of Cetus is allowing concentrated liquidity, whereby users may add their liquidity within custom price ranges. In AMM protocols, which are adopted by most of common decentralized exchanges nowadays, liquidity is distributed uniformly along the entire price curve (0, ∞).

The previous AMM liquidity distribution makes trading available across the full price interval between 0 and infinite upon simple deployment. However, in AMM pools, a significant portion of the liquidity was never utilized by actual transactions, which is a waste of provided liquidity to some extent.

For example, the trading price is usually constant in a stablecoin pair. The liquidity outside its regular price range is rarely touched. In most of mainstream stablecoin trading pools (AMM-based), only less than 1% of their total liquidity are actually being used. The rest of the available liquidity stays idle in the pools all the time.

It’s reasonable for an LP to expect that their liquidity provided can be utilized as much as possible so that they can earn more fees from it. This can be realized with the help of concentrated liquidity. Liquidity providers are able to concentrate their liquidity to their specified price ranges according to the most active price intervals of a particular trading pair. For instance, an LP can choose to add all of their liquidity into the price range (0.995, 1.005) of a stablecoin trading pool. As transactions are happening most actively around the mid-price, these LPs can maximize their liquidity efficiency in this way and earn greater fees from participation.

The liquidity concentration changes the price interval of a user’s liquidity from infinite to finite. For the liquidity that is concentrated to a finite price interval, we can it a position, or a liquidity position. An LP can create multiple positions in a same pool. By setting different price ranges, LPs can simulate different price curves to achieve their custom strategies.

Active Liquidity

Given that a user may set a finite price range for a position, when the asset price goes up and down in a fluctuating market period, the price may exit the price range that is set for the position. In that case, the liquidity in that particular position will not be active and will stop earning fees until the price re-enters the position price range.

If the price of a trading pair increases or decreases in one direction, liquidity providers will gain more of the one token in their positions because it shows more demand for the other token from the swappers. When the price reaches the upper or lower bound of their positions, their entire liquidity will consist of only one asset.

When the price re-enters the range, the liquidity within the position will be active and start earning fees again. The liquidity composition for an active position will be two tokens instead of only one asset type.

LPs have a very high flexibility in concentrated liquidity. They can open as many liquidity positions with their custom price bands as they want and need. The underlying algorithm of concentrated liquidity sets out the mechanism that gives the decision right of the liquidity distribution to the actual market, because most liquidity providers will naturally concentrate their liquidity within the most active price ranges according to the market trends in order to earn more transaction fees.

Price Ticks

In an AMM model, the price is continuous, while it is sort of different in a concentrated liquidity protocol. The prices in concentrated liquidity positions are discrete. The price curve of concentrated liquidity is partitioned by a number of ticks. A discrete space can be found between each tick and the tick next to it. When they move up and down by one tick, it will show a 0.01% increase or decrease (1 basis point) in price at any point in price space.

They use ticks as borders for every liquidity position. When a liquidity position is opened, it comes with an upper and a lower price tick that are set by liquidity providers.

As the price keeps changing as new swaps are executed, the smart contract tends to consume all the liquidity available in the current tick interval until the next price tick is reached, continually exchanging the outbound asset for the inbound. When a new price tick is reached, the pool contract will immediately switch to the new tick and any dormant liquidity within the newly active tick intervals will be activated.

Although each trading pool has the same number of price ticks in a concentrated liquidity protocol, there are only a part of them serving as active ticks in actual scenarios. There is certain correlation between tick spacing and swap fee tier in a concentrated liquidity smart contract. The lower the fee tier is set, the closer the two nearby active ticks can be. In other words, a higher fee tier can give the pool a wider tick space of potential active price ticks.

For trading pairs that require higher price granularity, like stablecoin pairs, a relatively narrower tick space will be helpful. The price impact during swapping will be more moderate, with the tighter tick spacing, which is exactly what is needed by a stablecoin pool.

Fees

In their concentrated liquidity protocol, swap fees will be distributed proportionally to all in-range liquidity at the time of the swap transaction. Only the liquidity positions with price ranges that the current spot price lies in have provided liquidity, and therefore become entitled to earn fees. If the price exits a position’s range, the position will be switched to inactive status and no fees can be earned.

Unlike the common AMM contract which will automatically accrue new swap fees into the liquidity pool, in a concentrated liquidity protocol, swap fees are accumulated separately and liquidity providers can claim their fee earnings without withdrawing their liquidity.

It is important to reiterate that the Cetus protocol simply comprises a set of autonomous smart contracts deployed on Aptos and Sui, operated directly by users calling functions on it (which allows them to interact with other users and/or pool their own selected assets in a multi-party peer-to-peer manner). There is no further control by or interaction with the original entity which had deployed the smart contract, which entity solely functions as a provider of technical tools for users, and is not offering any sort of securities product or regulated service nor does it hold any user assets in custody.

Fee Tiers

In their concentrated liquidity protocol, they can set up multiple pools for the same token pair with different fee tiers. Initially, there will be 4 tiers that are allowed by the protocol: 0.01%, 0.05%, 0.25%, 1%.

The setting of multiple fee tiers can better satisfy the needs of different kinds of trading pairs. It also encourages the market to naturally find the most ideal liquidity distribution plan by itself. This gives much more flexibility to both liquidity providers and swappers.

It is reasonable to anticipate that different types of token pairs tend to progress towards particular fee levels according to their asset characteristics and the game between supply and demand from liquidity providers and traders. Assets with low volatility like stablecoins will be more likely to congregate in a pool with the lowest fee tier because it is less risky for LPs to hold these assets and most traders expect their transactions to be executed as close to 1:1 as possible. On the other hand, assets that are rarely traded may gravitate towards a higher fee as liquidity providers are bearing higher risks of holding such high-volatility assets.

Protocol Fees

To maintain a healthy economic model that is beneficial to the project's sustainable project treasury for its long term development, a certain percentage (20% by default) will be taken from swap fees of every transaction on Cetus as the protocol fee.

Swap

Swaps are one of the most common interactions with a DEX. The mechanism of token swap is easy to understand, which is to sell the tokens that are currently owned by the swapper for the proportional amount of the destination tokens. In this process, a small percentage of swap fee will be deducted, which is the incentives to those liquidity providers.

The execution of swaps in Cetus protocol (or in most DEX platforms actually) is different from order book markets. An order book market usually follows a first-in-first-out policy and the time of your order matters, while their swaps execute against a passive liquidity pool and liquidity providers on Cetus will earn transaction fees proportional to their active liquidity that they contribute.

Price Impact

In an order book market or a CEX, the price impact of an order depends on the size and array of the opening limit buy or sell orders. The final execution price of an order is usually the weighted average price of multiple limit orders.

The price impact in an AMM or in a concentrated liquidity protocol is sort of different. During the swap, the relative value of one token to the other changes dynamically and continuously so the final execution price of a swap lies somewhere between the start price and end price. The price impact for a swap order will be affected by the real-time available liquidity in corresponding price space. The price impact will be much smaller for a given swap size if the liquidity depth at the particular price is higher.

Slippage

A swap user should have seen the term ‘slippage’ or ‘price slippage’ on a DEX before. That is the term that we use to describe the possible price change that may occur during a transaction is pending.

To respond to the possible price change, they adopt the concept of slippage tolerance. Slippage tolerance can be set by a user, which is to determine the largest price impact that the user is willing to accept. If the final execution price is outside of the acceptable slippage range, the transaction will get failed to protect the user’s interests.

A trade that uses assets and tokens that are purchased before paying for them. A trade that uses the tokens purchased before paying for them.

Liquidity Mining

Position NFT

As mentioned earlier, in a concentrated liquidity protocol, the liquidity that is added by a user within a custom price range can be called a position or a liquidity position. The user will get an NFT generated by the smart contract as an ownership proof of the position.

The NFT will record the following information of a position:

• A unique id

• Pool address

• Position index in pool

• Position name

• Description

• NFT url

• Position’s lower tick index

• Position’s upper tick index

• Liquidity

A liquidity provider needs to own the Position NFT to have the authority to collect the fees generated by the position and earn corresponding liquidity mining rewards. For certain pools, a Position NFT can also be staked to certain smart contracts to earn additional incentives.

Fee-based Liquidity Mining

In a concentrated liquidity protocol, only the liquidity in those positions with active price ranges could be used by transactions, thereby being able to generate transaction fees. The transaction fee performance of a liquidity position reflects its effectiveness and contribution to the protocol. Therefore, one of the most special characteristics of the liquidity mining of Cetus is that it will distribute its mining rewards to users according to their actual fee performance, instead of based on their liquidity amounts. This requires more active participation if a liquidity provider wants to earn more fees and mining rewards.

As the mining rewards are linearly released, every time there is a new transaction to be executed, the contract will be called to calculate the proportion of fees generated by every single position to the total generated fees of the pool since the last call. The released rewards will be distributed accordingly proportional to each position's generated fees.

This fee-based mining mechanism ensures that the mining rewards will not be diluted by those inactive LPs or users who deliberately allocate liquidity in an invalid price range just for sharing mining incentives. It greatly saves the cost for both the protocol and third party project owners on incentivizing liquidity, which makes the TVL of Cetus more efficient than other DEXes.

Tokenomics

CETUS

• Name: Cetus Token

• Ticker: CETUS

• Chain: Sui

• Total Supply (Max): 1,000,000,000 CETUS

The native cryptographically-secure fungible protocol token of Cetus. (ticker symbol CETUS) is a transferable representation of attributed governance and utility functions specified in the protocol/code of Cetus, and which is designed to be used solely as an interoperable utility token thereon. Users can earn it through liquidity mining on Cetus.

CETUS is a functional multi-utility token which will be used as the medium of exchange between participants on Cetus in a decentralized manner. The goal of introducing CETUS is to provide a convenient and secure mode of payment and settlement between participants who interact within the ecosystem on Cetus without any intermediaries such as centralized third party entity/institution/credit. It is not, and not intended to be, a medium of exchange accepted by the public (or a section of the public) as payment for goods or services or for the discharge of a debt; nor is it designed or intended to be used by any person as payment for any goods or services whatsoever that are not exclusively provided by the issuer. CETUS does not in any way represent any shareholding, ownership, participation, right, title, or interest in the Company, the Distributor, their respective affiliates, or any other company, enterprise or undertaking, nor will CETUS entitle token holders to any promise of fees, dividends, revenue, profits or investment returns, and are not intended to constitute securities in the British Virgin Islands, Singapore or any relevant jurisdiction. CETUS may only be utilized on Cetus, and ownership of the same carries no rights, express or implied, other than the right to use CETUS as a means to enable usage of and interaction within Cetus. The secondary market pricing of CETUS is not dependent on the effort of the Cetus Project Contributors, and there is no token functionality or scheme designed to control or manipulate such secondary pricing.

Further, CETUS provides the economic incentives which will be distributed to encourage users to exert efforts towards contribution and participation in the ecosystem on Cetus, thereby creating a mutually beneficial system where every participant is fairly compensated for its efforts. CETUS is an integral and indispensable part of Cetus, because without CETUS, there would be no incentive for users to expend resources to participate in activities or provide services for the benefit of the entire ecosystem on Cetus. Given that additional CETUS will be awarded to a user based only on its actual usage, activity and efforts made on Cetus and/or proportionate to the frequency and volume of transactions, users of Cetus and/or holders of CETUS which did not actively participate will not receive any CETUS incentives.

How to Swap

1.Enter https://app.cetus.zone/ and Connect your Wallet. They support many wallets, such as Sui Wallet, Martian, Suiet, Fewcha, Ethos,etc. However, they will use Martian as an example to show.

2.Choose your target asset and Enter the amount

3. Set your Slippage tolerance for this trade. In this example, they will use a 1% slippage tolerance.

4.After everything is set up, confirm the swap to proceed with this transaction and you will receive your target asset in a few seconds.

How to Add Liquidity

1.Check out all the listed trading pools on Cetus and choose the ce-assets pools that you want to provide liquidity. There are more pools to be shown on their dapp.

2.Enter the amount of assets on any side of the target liquidity pool.

3.After you successfully added the liquidity to the target pool, the notification box will show up with 'Open position successfully'.

How to Remove Liquidity

1.Click ‘Pool’ Page to check your position so you will see ‘Remove’ option at the left.

2.Enter the amount that you want to remove liquidity. They provide several boundaries including 25%, 50%, 75%, 100% for users to quickly select or users can always drag the bar to adjust the right amount.