Sui is a high-performance Layer 1 smart contract blockchain designed to enable globally scalable decentralized applications.
Summary
Sui, a Layer 1 blockchain that emerged from the remnants of Facebook’s now-defunct Diem project, is a component of the Smart Contract Platforms Crypto Sector (Exhibit 1). It provides one of the highest throughput and lowest transaction costs of any single-layer network as of July 31, 2024, without relying on additional scaling layers. First-generation blockchains like Bitcoin are basic and facilitate peer-to-peer transactions on a public ledger, while second-generation blockchains like Ethereum expand beyond simple transactions with smart contracts — although additional scaling layers and innovations are required. Sui, however, falls within the third generation of blockchains: advanced platforms aiming to overcome the issues of scalability, interoperability, and sustainability that can limit earlier blockchains. Through its design choices, it achieves a compelling developer and user experience by using its own object-oriented programming language, Sui Move, to enable parallel transaction executions. This helps to eliminate the bottlenecks from earlier blockchains and streamline operations. Although competition within the Smart Contract Platforms Crypto Sector is likely to remain intense, Grayscale Research believes that Sui is currently the best-positioned third-generation blockchain to capture share from the market leader Ethereum over time.
Exhibit 1: Sui represents 0.3% of the Smart Contract Platforms Crypto Sector by market capitalization
The Token
SUI is the native token of the Sui network and represents a piece of ownership in the ecosystem (Exhibit 2). The Sui token is used for (i) powering decentralized applications (dApps), (ii) paying transaction and storage fees, (iii) providing network security via staking, and (iv) facilitating future network governance.
Exhibit 2: Sui token basics
The Network and Technology
In contrast to Ethereum, which uses the Solidity programming language, the Sui network is built using Rust and Sui Move — the innovative language that simplifies the development and deployment of scalable smart contracts, empowering developers to create applications that seek to deliver a superior user experience. Sui Move’s focus on programmable objects sets it apart from traditional smart contract languages because the assets are stored directly on-chain, allowing everything on Sui to be confirmed and finalized nearly instantly. Unlike conventional blockchains that execute transactions sequentially, Sui excels in parallel transaction execution, processing multiple transactions simultaneously to reduce execution time.
This advanced capability — combined with the network's support for offline transactions and its integration of programmed randomness for added network security — creates a robust and efficient platform for a new wave of dApps. Additionally, Sui's data storage and fee system helps ensure optimal resource management and cost efficiency, further enhancing the network’s performance and appeal to developers and users alike.
Use Cases
In other words, Sui does things differently than conventional blockchains. Sui uses its object-centric approach to process transactions via parallel execution to help address critical issues in today’s blockchain technology, such as high latency, transaction costs, and network congestion. Traditionally, entire transactions and all irrelevant data must go through every computer in a network, but Sui only uses the relevant data to execute a transaction. This enables it to process an estimated 120,000 transactions per second, according to the SUI Foundation as of July 31, 2024. Not only does that transaction capacity make Sui the fastest and most scalable blockchain platform, it also helps it outperform Web 2.0 counterparts such as Visa, which has stated that it can execute an estimated 65,000 transactions per second as of July 31, 2024.
Sui’s speed, scalability, and ability to execute offline transactions make it applicable for micropayments, real-world transactions, and gaming. For example, Sui has released a dApp, Stashed, that makes it possible to use its innovative technology via a traditional Web 2.0 account, such as Google or Twitch. This integration allows users to engage with Sui’s blockchain capabilities without the need for a dedicated crypto wallet. Transferring assets with Stashed is as simple as sharing a link or using Venmo; users can send funds or digital assets effortlessly, and recipients can claim them without direct blockchain interaction, making the process intuitive and user-friendly. By using existing accounts and streamlining transactions, Stashed seeks to lower the barriers to entry, making it easier for newcomers to embrace blockchain technology. Sui's ability to process transactions offline, combined with Stashed’s versatility, has strong potential for real-world applications.
Sui has been able to rapidly grow its ecosystem with only 28 dApps and a wide range of functions including:
- Decentralized Finance (DeFi): Automated market makers, lending and borrowing platforms, asset management software, and payments
- Web 3.0: Decentralized physical infrastructure applications (e.g., Helium), data privacy web browsers, and open-architecture video games
- Non-Fungible Tokens: Minting platforms, marketplaces, and community engagement tools
Factors to Consider
Like most other Layer 1 smart contract blockchains, Sui is a general-purpose platform for dApps, and as of July 31, 2024, its network has rapidly ascended to prominence among Layer 1s. Within just about a year, Sui has amassed a substantial $830 million in Total Value Locked (TVL), according to CoinMarketCap. TVL is a measure of the dollar value of digital assets deposited in smart contracts. Sui has also maintained a modest market capitalization of about $1.8 billion, according to CoinMarketCap as of July 31, 2024. This achievement gives Sui a TVL/market cap ratio of 2.16, the second highest among its peers. For context, this ratio indicates how much value is actively used on the network relative to its market valuation. Sui’s low ratio may imply that it’s undervalued compared to its competitors. Comparatively, Ethereum, the leading platform in the smart contract space, maintains a TVL/market cap ratio of 3.16.
Exhibit 3: Sui stands out for its market cap/TVL ratio
The protocols within our Smart Contract Platforms Crypto Sector all offer infrastructure for decentralized applications, but they make different design choices and optimize for other variables. Despite Sui’s innovative technology and competitive potential, it is still a relatively new network with a lower market capitalization than the majority of its competitors.
Investment Risks
Sui faces several possible risks specific to the network, which include, but are not limited to:
- Competing Networks: Sui faces competition from other blockchains with smart contract functionality, like Ethereum, as well as other high-throughput chains, such as Solana, Near, Aptos, and Avalanche.
- Economics and Valuation: While it remains low cost for end users with an average gas fee of 0.0037 SUI or $0.0026, as of July 31, 2024, according to suiscan.xyz, Sui has thus far been unable to generate substantial network revenue from fees compared to other smart contract blockchains such as Ethereum, Tron, and Solana. Sui’s fully diluted valuation (FDV) — the total token supply multiplied by the current price — is about four times higher than its circulating supply. The substantial difference between the circulating supply and the maximum supply could indicate that the project has room to release tokens for future development, incentives, or rewards, suggesting strong potential for growth or leading to market dilution when the remaining tokens are issued.
- Level of Centralization & Token Unlocks: As of July 31, 2024, there is roughly 26% of Sui’s total token supply in circulation. The remaining tokens will be gradually unlocked through 2030. Sui Foundation is the largest holder of locked tokens, which will be unlocked following a public emissions schedule.
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