The Full Guide to SushiSwap – The Controversial Spin-Off to Uniswap
As 2020 is coming to its end, the DeFi market is catching its breath after a rollercoaster of a year that saw it attract more than $13 billion in locked value protocols. Among the top-level projects in this sector is Sushiswap, an AMM-running platform that plans to become the most popular decentralized exchange (DEX) industry.
At first, SushiSwap sounds and looks like an odd, yet original, Japanese restaurant. However, once you take a look in its kitchen, you may discover that it uses very few or no “homegrown” ingredients. In fact, most of its features come from Compound and Uniswap, its parent protocol from which it forked a few months ago.
Furthermore, SushiSwap has a controversial history of developers running away with the development funds and vampire attacks on other projects while later returning the funds.
With all of these problems, SushiSwap doesn’t seem like the best DeFi restaurant to spend your money on. So, why are we even covering it?
Well, because not everything that starts badly necessarily continues or ends the same way. In recent weeks, SushiSwap has been actively cleaning its act. At the moment, it is working under a new development team, its funds are more secure than ever, and a large community is getting behind it to drive the Sushi mobile to global success.
What is SushiSwap?
SushiSwap is a decentralized crypto exchange that uses an automated market maker (AMM) mechanism to help users swap tokens with access to liquidity pools. The platform spurred on Ethereum as a fork of Uniswap in September 2020, and despite its short history, it already went through major changes and scandals.
As a frontrunner of the emerging DeFi Market, SushiSwap uses smart contracts to create markets for any given pair of tokens. It “borrowed” several features from Compound, Yam Finance, as well as many of the UniSwap functions from which it also takes its good looks.
However, SushiSwap’s goal is to enhance the offer of decentralized finance features available on UniSwap and provide larger rewards in its native token, SUSHI.
On SushiSwap, any user can create a liquidity pool by providing Ether and another ERC-20 token of their choice. The platform is community-driven, and token holders, together with the liquidity providers, share governance duties.
If you have used Uniswap before, you will find it easy to get started on SushiSwap. While the two platforms would seem identical to the untrained eye, they each have unique features.
SushiSwap differs from Uniswap in the way it rewards liquidity providers (LP). For example, the LPs get a cut from the trading fees on both protocols. On Uniswap, the more liquidity they provide, the larger will be the rewards. However, on Sushiswap, the early users of the protocol receive ten times more tokens than those who join later regardless of how much liquidity they invest.
What is the SUSHI token?
SUSHI is the native token of the SushiSwap protocol. It is an ERC-20 token built on Ethereum that liquidity providers can earn as a reward, and which they can stake in exchange for Uniswap SLP tokens, which will be used to govern the protocol.
The SushiSwap developers did not host an Initial Coin Offering (ICO) for SUSHI. Instead, they released it on Ethereum at block number 10750000 at the end of August 2020. Users who would stake Uniswap SLP tokens on the initial SushiSwap protocol would have a cut of the 1000 SUSHI tokens released every Ethereum block, roughly every 12 seconds.
Once The Liquidity Migration™ took place, the rewards dropped to 100 SUSHI for every block. The SushiSwap community may reduce it through voting in the future.
At the time of this writing, SUSHI has a market capitalization of $92,022,144. The token does not have a capped supply, and over 147,820,800 units are in circulation. One SUSHI is trading for $0.622, which is quite far from its all-time high (ATH) of $11.93.
A Brief History of SushiSwap
SushiSwap has multiple advantages that users can easily and clearly access through the protocol. Unfortunately, its history and modus operandi are not that transparent.
More than two months since its launch, SushiSwap cannot account for its development team. Behind the initial project were two anonymous developers, known only as 0xMaki and Chef Nomi. Their origin is unknown, although some speculate that they may be operating from France and China, respectively.
SushiSwap reached the oversaturated DeFi menu of food-named protocols on August 26th, 2020, through a Medium post initially authored by Chef Nomi.
SushiSwap managed to build a locked value protocol of over $1 billion in less than a week after its release. It surpassed Aave as the largest DeFi protocol and announced that the locked funds’ interest rates would exceed 2500% per year.
Everything was going great for SushiSwap until a week later, on September 5th, when Chef Nomi unexpectedly liquidated more than $14 million worth of SUSHI tokens from the development funds.
The effects of this event rippled throughout the cryptocurrency industry. The crypto community expressed its outrage and dislike, which caused SUSHI’s value to plummet, and many other digital assets lost precious gains.
Almost immediately, Chef Nomi stepped away from the project. The SushiSwap community voted to elect nine trusted individuals from the DeFi ecosystem to be the keyholders of a multi-sig wallet holding all the protocol’s development funds.
On September 9th, 2020, Uniswap users migrated more than $1.14 billion of the protocol’s locked crypto assets to SushiSwap in what was deemed a vampire attack.
Two days later, Chef Nomi returned the stolen development funds to SushiSwap and apologized on Twitter in a short, self-deprecating statement. While he left the project for good, he still recommends himself as the “former head chef” at SushiSwap.
All of these events have drawn significant attention to the SushiSwap project. While Chef Nomi’s actions have hurt its value incommensurably, the protocol now benefits from a more trustworthy development team led by OxMaki, aiming to build it into the best DEX in the industry.
As of November 2020, SushiSwap has over $255 million in locked value protocols.
How Does SushiSwap Work?
SushiSwap works like many other DeFi protocols that use asset pools and automated market makers, such as Curve or yearn. Finance. Every pool on the platform has two crypto-assets and uses the ratio between them to determine their price.
In its early days, SushiSwap used mostly Uniswap LP tokens as liquidity due to its prevalence in the DeFi space. The users who staked LP tokens on the SushiSwap protocol would get SUSHI tokens in exchange. This practice led to the interest rate reaching as high as 2500% per year in many pools on the platform.
However, after two weeks, the Liquidity Migration™ took over $1.14 billion worth of tokens from Uniswap to SushiSwap in less than 24 hours. From then on, SushiSwap became the favorite DEX for former Uniswap users.
The current SushiSwap features include:
Users can access the SushiSwap decentralized exchange without providing KYC and swap between more than 100 different ERC-20 assets. The trading fees do not exceed 0.3%, and roughly 0.8% go to the liquidity providers. The rest goes to a special pool, called Sushi Bar.
SushiSwap Liquidity Pools
Users need to deposit equal amounts of two different crypto assets to become liquidity providers on SushiSwap. This way, they create their own pool and access the 0.25% cut from the trading fees.
SushiSwap Liquidity Mining
Liquidity providers receive SushiSwap Liquidity Pool (SLP) tokens, which are simply Uniswap’s LP tokens with different denominations, but similar features.
The SushiSwap Menu, also known as the SushiSwap Farm, holds the yield farming pools available on the platform before the Liquidity Migration™ took place. Users can stake SLP tokens here to earn annual interest.
SushiSwap Sushi Bar
On the Sushi Bar, users can stake SUSHI tokens to earn more of the same in return. Those who come here have access to 0.05% of the trading fees on SushiSwap.
Every 24 hours, the rewards contract can reach its established conditions and liquidate all the SLP tokens in the Sushi Bar. These tokens reach the stakers in the form of xSUSHI tokens, which they can later convert into SUSHI tokens.
The governance mechanism is not fully established yet on SushiSwap. The development team is working on a voting mechanism that they call Sushi Powah, enabling SLP token holders to table proposals and vote on them.
The Bottom Line – The Full Guide to SushiSwap
SushiSwap is well-aware of its stained reputation. At the moment, it is quite far from the goals it set for itself in the beginning. The restaurant-themed DeFi protocol has plenty of free tables, a modest menu, and not too many mouthwatering prospects.
However, the future is not entirely bleak for SushiSwap.
The departure of Chef Nomi and the adoption of a multi-signature wallet for its funds should attract new investors in the long run.
If this guide to SushiSwap has helped you build an appetite for investing in liquidity pools, the “Masterchef is waiting.” It is not the most popular decentralized exchange in the world yet. Still, SushiSwap has a reliable offer of crypto assets in its liquidity pools and a growing community around it.