Sui (whitepaper here) is a layer 1 blockchain infrastructure built developed by Mysten Labs, which consists of former Meta (Facebook) executives aiming to solve the pain point known as the blockchain trilemma: security, scalability, and decentralization. Sui utilizes the Move programming a language, a code developed specifically for blockchain.

The project has received 2 rounds of significant funding. Sui’s Series A round raised $36 million on December 6, 2021, and the Series B round raised $300 million on September 2, 2022. The Series B round put Mysten Labs at a valuation of over $2.0 billion.

Sui will be run by the SUI token. The three main investment points for the token are:

1. Team consists of former Meta executives who are highly technical and were deeply involved in blockchain development at Meta
2. The project has already been vetted by major VCs and received over $330 million of funding, putting its valuation over $2.0 billion
3. Utilizes a programming language specifically developed by blockchain and an architecture designed to address the blockchain trilemma

There is currently no information on when the SUI token will be public. As of October 23, 2022, Sui Netowrk is in the devnet stage.

Devnet is when the project is in testing for developers, and tokens and assets hold no value and cannot be transferred. Afterwards, a testnet is used for validators and may be extended to a wider audience. Finally, the mainnet is the official launch of the protocol and token.

 There will be a total of 10 billion SUI tokens, which a portion will be liquid during the mainnet. The rest will be vested over years as subsidy rewards. There is no deflationary mechanism for the token. Tokenomics will be released closer to the launch and will likely be similar to other layer 1 protocols.

Competition is fierce in this space. Layer 1 protocols like Aptos, Ethereum, Binance, Solana, Avalanche, and Algorand all are platforms that directly compete with Sui. Out of all the listed competitors, Aptos is the most like Sui. Aptos raised a $150 million Series A round on July 2022 put its valuation over $2.0 billion. It’s mainnet was launched on October 17, 2022. The fully diluted market cap of Aptos is approximately $9.6 billion as of October 23, 2022. In fact, it is interesting to note that both Sui and Aptos have been dubbed “Solana” killer by the online community. In terms of social media momentum, it’s worth noting that as of October 23, 2022 Sui has 135,000 Twitter followers, significantly more than Aptos’ 35,300 followers.

For valuation purposes, Aptos, Solana, Avalanche, and Algorand were selected as comparables. Larger projects such as Ethereum and Binance were excluded as they are more established than Sui.  Taking a median of competitors market caps provides an illustrative fully diluted market capitalization of approximately $10.7 billion, or $1.07 per token.

Two major risk factors we’ve identified for Sui are the following:

 Competition is fierce as there are many layer 1 protocols – Ethereum is still the largest network in terms of market cap. Blockchain is in its early stages it is not clear which one will emerge as the winner.

1. Additionally, it is unclear whether blockchain can grow to the point where there will be enough protocols to run of all these layer 1s. A macro shift away from blockchain can at the extreme make many of these layer 1s completely obsolete.

Overview of Sui

With the explosion of new projects in blockchain technology over the past few years, there has been much discussion on creating new infrastructures that are more scalable, secure, and decentralized (known as the blockchain trilemma) as adoption increases. Projects are typically built on the base layer of a blockchain, known as a layer 1. The layer 1 blockchain, or the ledger, is a smart contract platform executes transactions for projects built on it. Existing layer 1s have scalability and security issues. For example, a well-known layer 1 that is currently used is Ethereum (the second biggest cryptocurrency in terms of market cap right after Bitcoin). However, Ethereum faces problems with scaling. Gas fees become prohibitively expensive as it scales due to the nature of proof-of-work consensus. Even after the well-publicized Ethereum merge, what it will ultimately mean for Ether is still yet to be seen.

Developers have been looking to create a more scalable, secure, and decentralized layer 1. This is where Sui comes in. Sui is being developed under the company Mysten Labs, which was founded by a team of former Meta employees. The founders’ vision is creating a layer 1 blockchain that is highly scalable, secure, and decentralized. The founders have very technical and impressive backgrounds:

• Chief Executive Officer – Evan Cheng – former R&D director at Novi (crypto wallet developed by Facebook) and Engineering Director at Meta
• Chief Product Officer – Adeniyi Abiodun – former Product Lead at Novi
• Chief Technology Officer – Sam Blackshear – former Principal Engineer at Novi
• Chief Scientist – George Danezis – former research scientist at Facebook/Novi and professor of Security and Privacy Engineering at University College London

Sui uses a programming language called Move – an open source and platform agnostic programming language specifically developed for writing secure smart contracts that addresses the blockchain trilemma. The consensus protocol utilized by Sui is the Narwhal and Tusk, which allows Sui to execute transactions in parallel. An initial test of hardware shows great efficiency, as an 8-core M1 Macbook Pro can execute over 120k transactions per second.

Sui has very significant venture capital backing – their latest Series B round during September 2022 has put them at a valuation that’s over $2.0 billion. In addition, Sui has secured the following partnerships as of October 23, 2023:

There will be a total of 10 billion SUI tokens. SUI token will serve as a utility token for the ecosystem. There are 5 main components to SUI tokens:

1. Native token – serve as Sui platform’s native asset
2. Serves as gas fees (transaction fees)
3. Storage funds – compensate future validators for storage costs
4. Proof-of-Stake mechanisms to ensure security and reward honest behavior by validators and delegators
5. Governance rights – on-chain voting for governance issues and protocol upgrades

Competitors and Illustrative Valuation

With high anticipation of growth in Web3 and blockchain, Mysten Labs is not the only player looking to create a new layer 1.

Sui’s biggest competitor is Aptos Labs, which has just had its Mainnet on October 17, 2022, and has a fully diluted market cap of $9.6 billion as of October 23, 2022. Similar to Sui, Aptos Labs is run by former Meta employees and also utilizes the Move programming language. Aptos raised a $150 million Series A round during July 2022 that put its valuation over $2.0 billion. Another undisclosed round from Binance Labs during September 2022put Aptos’ valuation over $4.0 billion.  Though the founders for both Sui and Aptos originated from Meta, and both are similar in several ways, there is no official relationship between Mysten Labs and Aptos. Sui’s programming language also has a different object model than Aptos. In terms of social media momentum, it’s worth noting that Sui has 135,000 Twitter followers compared to Aptos’ 35,300 Twitter followers.

Other prominent competitors for Sui include Ethereum, Binance, Solana, Avalanche, and Algorand. Most of these layer 1s are more established than Sui. The ultimate question investors will want to know is which one of these will emerge as the winner of all the layer 1s. At this stage, it’s too early to tell, but newer layer 1s do in theory have a technological advantage over older ones.

In terms of an illustrative valuation for Sui, the latest Series B round of $300 million put Mysten Labs at over a $2 billion valuation. Equity value doesn’t necessary equate to token value, especially in a case of a utility token. A utility token is similar to the gas that runs a car. Value of the utility token and the project itself are highly correlated, but in theory not quite the same. However, if we use equity value to back out token value we can assume SUI tokens to be approximately $0.20 a token (10 billion tokens at a $2 billion valuation). This can be seen as an illustrative “floor” price for SUI token.

Within the universe of layer 1 competitors for Mysten, we will have to narrow competitors down for comps. For valuation purposes, we picked Aptos, Solana, Avalanche, and Algorand. We excluded the largest ones such as Ethereum and Binance as these established layer 1s are what Sui is trying to replace.

Taking a median market cap of our selected competitors results in an illustrative valuation of $10.66 billion for SUI tokens, or $1.07 per token. For potential upside, it is possible for Sui to grow as large as competitors like Solana, or even Ethereum which would be more than 10x our illustrative valuation.

Risks

The following are the two major risk factors for Sui that we’ve identified:

1. Competition is fierce as there are many layer 1 protocols – Ethereum is still the largest network in terms of market cap. Blockchain is in its early stages it is not clear which one will emerge as the winner.
2. Additionally, it is unclear whether blockchain can grow to the point where there will be enough protocols to run of all these layer 1s. A macro shift away from blockchain can at the extreme make many of these layer 1s completely obsolete.

Additionally, like many early-stage private companies, there is limited public data available besides the whitepaper. Investors should be aware that even though Sui is still in development, it already has a $2.0 billion valuation. Significant upside is already built into the project.

Wrapping It Up

The Sui is a strong contender to be a prominent layer 1 player – Sui’s competitor Aptos has a fully diluted market cap of $9.6 billion only a week after launching its mainnet. Sui is built on technology specifically developed for blockchain, and the founders have extremely strong backgrounds. Additionally, Sui has secured significant funding, and is building strong momentum. However, investors must be cautious with early-stage investments as risk is still extremely high. Competition is fierce and blockchain is still in its early stages. Also, though venture capital investment is a huge plus, it is no guarantee of success. Investors planning to invest in the token will need to have the proper risk tolerance.

Disclaimer: The content presented is for informational purposes only and does not constitute financial, investment, tax, legal, or professional advice. The content is provided ‘as is’ without any representations or warranties, express or implied.