Why NFT AMMs Must Evolve Beyond Simple Bonding Curves

Bonding curves are capital sinks. They lock liquidity into single assets, creating isolated pools that fragment market depth and inflate slippage for traders. This model is a direct import from fungible DeFi that ignores the fundamental illiquidity of non-fungible assets.

The market demands composable liquidity. Protocols like Sudoswap and Blur demonstrated that concentrated liquidity and batch auctions improve execution, but they remain isolated systems. The next evolution requires liquidity that is portable and reusable across applications, similar to how Uniswap v3 positions function.

The evidence is in the data. Despite high-profile launches, NFT-specific AMMs capture a fraction of the volume seen on orderbook-based marketplaces. This gap proves that simple automated market making is insufficient; the solution requires intent-based architectures that aggregate disparate liquidity sources, akin to CowSwap or UniswapX for NFTs.

Bonding curves are broken. They create permanent price slippage and concentrate liquidity at a single price point, which misprices assets and creates toxic order flow for LPs.

AMMs must price collections, not items. The market values a Bored Ape as part of the BAYC collection, not as an isolated asset. Curve's stableswap invariant for fungible assets demonstrates the power of concentrated liquidity around a known peg; NFT AMMs need a similar paradigm for collection-wide value.

Evidence: The dominant NFT marketplace, Blur, uses a peer-to-pool model for bids, but its underlying liquidity is fragmented across individual trait bids, not a unified pool. This fragmentation is why platforms like Sudoswap and NFTX see low TVL-to-volume ratios.

Blur's mercenary liquidity collapsed when its token incentives tapered, proving that subsidized order books are not sustainable capital. This created a liquidity desert where bid-ask spreads widened by 300-500% for mid-tier collections, making large trades impossible without massive slippage.

Simple bonding curves like those in Sudoswap fail because they treat all NFTs in a collection as fungible. This homogeneous liquidity is antithetical to the core value proposition of NFTs, which is provable rarity and trait-based pricing, leading to constant adverse selection.

The market demands a new primitive that provides deep, persistent liquidity without subsidies. This requires a capital-efficient model that respects NFT heterogeneity, moving beyond the fungible pool paradigm of Uniswap V3 and into dynamic, intent-aware systems.

Bonding curves are insufficient. They model liquidity for fungible assets, ignoring the unique attributes, rarity, and collection context that determine an NFT's value.

Next-gen AMMs require three pillars: Dynamic pricing models, composable liquidity, and on-chain curation. This moves from a commodity exchange to a structured market.

Dynamic pricing replaces static curves. Protocols like Reservoir use real-time oracle feeds and on-chain activity to adjust prices, preventing predictable arbitrage and toxic flow.

Composable liquidity unlocks capital efficiency. Inspired by Uniswap v3's concentrated liquidity, AMMs must allow LPs to target specific price ranges for individual NFTs or traits.

On-chain curation is the moat. AMMs must integrate curation standards like ERC-7496 to let creators and communities signal value, separating blue-chips from derivative spam.

Evidence: The total value locked in NFT AMMs peaked at ~$50M in 2022 but collapsed as liquidity proved inefficient and vulnerable to simple arbitrage strategies.

Orderbooks require symmetric liquidity. They need a counterparty for every trade, which fails for long-tail assets. AMMs provide asymmetric liquidity via a bonding curve, enabling instant exit for any asset.

Bonding curves are capital-inefficient. Simple curves like Uniswap V2's x*y=k misprice assets, creating toxic flow. Dynamic pricing models like Sudoswap's piecewise-linear curve are a necessary evolution.

The evolution is towards hybrid systems. Protocols like Blur merge orderbook depth with AMM-like pools. The endgame is a unified liquidity layer that abstracts the mechanism from the user.

Isolated bonding curves fail. They create capital-inefficient silos, locking liquidity away from the broader DeFi ecosystem where it earns higher yields on Uniswap V3 or Aave.

The future is composable liquidity. An NFT AMM becomes a liquidity router, fragmenting NFT pools into fungible ERC-20 shards for integration with Curve or Balancer pools.

This enables cross-asset swaps. A user swaps ETH for a Bored Ape by routing through a Curve stETH/ETH pool and the Ape's fractionalized pool, aggregating liquidity across asset classes.

Evidence: Projects like NFTFi and Sudoswap V2 are already exploring fractionalization and external LP integrations, proving demand for capital efficiency beyond simple bonding curves.