Cetus Protocol (CETUS): Elevating DeFi With Concentrated Liquidity

Automated market makers (AMMs), with their revolutionary liquidity pool concept, have been instrumental in boosting the profile of the decentralized finance (DeFi) industry, which is actively exploring new trading models to further enhance the efficiency of token swaps and liquidity provision. In this quest, the concentrated liquidity market maker (CLMM) model has emerged as a major improvement to that of the AMM.

CLMMs allow liquidity providers to allocate their funds to a pool within specific price ranges in order to optimize the utilization of their liquidity. Most early CLMM platforms emerged on Ethereum (ETH)— the default choice for many DeFi operators. However, Ethereum’s network congestion, slow confirmation times and high transaction fees make its network a less-than-ideal environment for a CLMM application.

Cetus (CETUS), a DeFi project launched in 2022, has now brought the CLMM concept to newer and more technically suitable platforms — the Aptos (APT) and Sui (SUI) blockchains.

Key Takeaways:

• Cetus is a decentralized exchange (DEX) that employs the concentrated liquidity market maker (CLMM) trading model, which allows liquidity providers to allocate their funds to custom price ranges within a pool.

• The concentrated liquidity model used by Cetus leads to a much more efficient utilization of liquidity as compared to the automated market maker (AMM) mechanism used by the majority of DEXs.

• Cetus operates on two blockchains — Aptos and Sui — which feature superior transaction finality, confirmation times and throughput as compared to Ethereum.

What Is Cetus Protocol?

Cetus (CETUS) is a decentralized exchange (DEX) that uses the concentrated liquidity market maker (CLMM), a liquidity provision model that represents an improvement over the standard AMM setup used by many DEXs.

Liquidity providers (LPs) on a CLMM exchange can allocate their funds to specific price ranges within a pool. These are often the ranges within which the most active token swap activity occurs. The CLMM model allows LPs to optimize the use of their funds and maximize the revenue earned from transaction activity in a DEX pool. While Cetus runs on twoLayer 1 blockchains, Aptos (APT) and Sui (SUI), it can be bridged to over 20 other blockchains via the Wormhole SDK.

Cetus was initially launched as an AMM platform in late 2022 on Aptos and Sui. In early 2023, the DEX upgraded its functionality to CLMM on both chains. The launch of a CLMM beta version on Aptos in January was a pivotal moment for Cetus. Since then, the project has been active in promoting the benefits of CLMM over AMM, and has attracted considerable interest from the DeFi trader community.

Cetus isn’t the first DEX to adopt the CLMM model. In 2021, the concentrated liquidity concept was first introduced on the Ethereum-based Uniswap (UNI), and most CLMM DEXs are based on the world’s largest DeFi chain. However, Ethereum — with its network congestion, high fees and relatively slow transaction confirmation times — is no longer an optimal environment for high-precision DeFi models like CLMM. Newer and more suitable platforms, such as Aptos and Sui, have emerged as alternatives to Ethereum, and the Cetus team has taken note.

How Does Cetus Protocol Work?

Liquidity Provision Modes

LPs earn fees on Cetus from the trading activity that occurs within a specified price range for the pair of tokens in the pool. As an LP, you can add liquidity to swap pools using four modes — Conservative, Active, Full Range and Custom.

The Conservative mode, which allows you to choose a wider price range, is ideal for newer mainstream tokens like APT (Aptos) and SOL (Solana). The wider price interval ensures a lower risk of the swap rate moving outside of your specified range in the course of market activity. However, the more diluted range reduces your earnings potential, so you can expect relatively lower returns.

The Active mode suits time-tested blue-chip cryptos such as Bitcoin (BTC) and Ethereum. It lets you allocate liquidity to a more constrained price range, boosting your earnings when trading activity occurs within that range. However, it also increases the risk of the actual swap price moving outside of your chosen interval.

There’s also the Full mode, which basically replicates the standard AMM. Lastly, the Custom range is for true DeFi pros. It lets you specify your custom-chosen price range within whatever precision levels you need.

Liquidity Mining

When you provide liquidity to a Cetus pool, the platform issues you a Position NFT that confirms your price range position and entitles you to earn fees from liquidity mining within the range. Using NFTs as a liquidity pool confirmation asset is a peculiar feature of the protocol, as most other DEXs use fungible LP Tokens for this purpose.

Liquidity mining on Cetus is also far more rewarding for active LPs than on a standard DEX. In a typical AMM-based DEX, an LP’s earnings are based on the amount contributed to the pool. In contrast, Cetus distributes liquidity mining rewards based on an LP’s performance in the pool. The more skillfully you allocate your price ranges and help the protocol efficiently utilize your liquidity, the more rewards you can expect from your performance.

Range Orders

Cetus also supports price allocations for single-sided liquidity mining. You can specify range orders to execute if your target asset in a pool reaches certain values. This opens the door to the use of popular single-asset trading methods often found in centralized exchanges (CEXs) and order book markets, such as take profit and buy limit orders.

Cetus Oracle

Cetus offers valuable services not only to liquidity miners and traders, but also to DeFi developers and platform operators. The Cetus-based oracle records and communicates information on the liquidity and pricing data in the pools. It can be integrated by other DeFi protocols in order to feed the information into their own platforms and markets.

Concentrated Liquidity Market Maker (CLMM) vs. Automated Market Maker (AMM)

Concentrated liquidity — in which LPs allocate their funds only to specific, usually most actively traded, price ranges — has been a significant concept in the evolution of DeFi. AMMs spread liquidity uniformly across the entire price curve, which results in the underutilization of the total liquidity. In contrast, CLMM platforms like Cetus put much more of the total liquidity to active use, thanks to their range-based models. This helps CLMM platforms achieve superior liquidity efficiency as compared to AMMs.

CLMM offers advantages to all the parties involved — LPs, token swappers and the platform itself. LPs can earn more rewards than on an AMM DEX by actively allocating their liquidity to the “hot spots” of the trading activity. The CLMM platform benefits from the increase in active liquidity utilization as well. Finally, token swappers get the benefits of more choice in well-funded pool pairs, and lower slippage losses as compared to AMM pools.

Cetus Protocol Tokens

CETUS

CETUS is the Cetus protocol’s main cryptocurrency. Its function is to act as a medium of exchange and payment on the platform. CETUS can also be staked to issue xCETUS tokens (covered below), which let you participate in on-platform governance.

The CETUS token has been issued on Sui. It’s a supply-capped crypto with a maximum supply of one billion.

CETUS’s tokenomics section states that the token can initially be earned only via participation in on-platform activities, specifically through liquidity mining. That might explain its current circulating supply of just 80 million (8% of the total supply). As the platform matures, the circulating supply is likely to increase rapidly. However, this feature of CETUS doesn’t mean that the token has any limitations on being traded on the market.

xCETUS

xCETUS, another crypto token used within the protocol, is envisioned mainly as a governance token, although it has some additional functions. When users lock a certain amount of CETUS, they’re issued non-transferable xCETUS in equal proportion, giving them the right to participate in on-platform governance voting. The more xCETUS you hold, the greater your voting power.

Additionally, xCETUS may be used to boost your rewards from certain liquidity pools. The token is also used to calculate eligibility for participation and buying quotas of users interested in the Cetus launchpad projects.

Cetus Protocol (CETUS) Price Prediction

As of Dec 14, 2023, the CETUS token is trading at $0.059, or 59.23% lower than its all-time high of $0.147 recorded on May 10, 2023 and over 120% higher than its ATL of $0.027 on Jun 12, 2023.

Long-term price predictions for CETUS are bullish, with PricePrediction forecasting it will reach $0.16 in 2025 and $1.18 in 2030. Meanwhile, DigitalCoinPrice expects the token to trade at $0.22 in 2025 and $0.63 in 2030.

Is Cetus Protocol a Good Investment?

You may consider investing in the CETUS token for the following reasons, both of which might act as substantial growth drivers for it:

1. The Cetus protocol offers a highly efficient CLMM-based liquidity mining and token-trading model. The advantages of CLMM over AMM for both LPs and token traders are likely to gradually lead to the growth of CLMM DEXs at the expense of AMM-based platforms. Having been first introduced in 2021, the concentrated liquidity concept is still relatively young and hasn’t yet attained its full growth potential. Over the coming years, CLMMs, including Cetus, might experience rapid growth.

2. Cetus utilizes two technically efficient blockchain platforms, Aptos and Sui. Both chains offer greater scalability, throughput, finality and transaction confirmation times as compared to Ethereum, which hosts the majority of CLMM and AMM DEXs. In the world of decentralized token swaps, faster transaction confirmation times are of particular relevance as they influence slippage rates, an important consideration factor for traders.

Ethereum features confirmation times of around 15 seconds, although some transactions may linger in an unconfirmed state for minutes. The confirmation times on Aptos and Sui are approximately five seconds and one second, respectively. This nuance could contribute to a significant inflow of users, both LPs and token traders, to Cetus— and away from Ethereum-based platforms.

Closing Thoughts

Concentrated liquidity mining was pioneered by Uniswap back in 2021. Now, Cetus is taking this innovative DeFi model to new heights by leveraging technically efficient blockchains. If the Cetus protocol manages to gather enough support and appreciation for its service among DeFi enthusiasts, we’re likely to see CLMM move from the category of niche concepts to the industry mainstream.

A few years ago, the AMM was also considered an advanced niche, perhaps even a gimmicky concept. Fast forward to today, and AMM has established itself as the default for powering a DEX. The time has arrived for AMM to pass the stage to CLMM. Over the next few years, expect CLMM to become the default method for trading tokens and providing liquidity — and one of the key platforms that will drive this monumental industry-wide change is going to be Cetus.

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