SUSHI: A Bentobox of DeFi Applications with a Controversial Launch
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SUSHI: A Bentobox of DeFi Applications with a Controversial Launch

By 2sats | 2sats | 14 Jan 2022


*obligatory not financial advice*

 

What is Sushiswap?

Sushiswap started as a fork of the Uniswap DEX. The only difference was that it had its own token before Uniswap did and this governance token let its holders earn a part of the trading fees. The protocol charges a fee of 0.30% for each trade and distributes 0.25% to liquidity providers and 0.05% to SUSHI holders.

The launch of the dApp was very controversial because it performed a "vampire attack" on Uniswap to gain liquidity. Basically, liquidity providers on Uniswap could stake their LP tokens on the Sushiswap protocol to earn the new SUSHI token after 2 weeks the protocol would withdraw the underlying liquidity from Uniswap and move it into its own pools. For this 2 weeks the users would earn 1,000 new SUSHI per block, which was a lot of the supply because the rewards were then lowered to 100 SUSHI per block. Uniswap didn't have its own token back then and its liquidity providers earned a lot of tokens that also rewarded them with fees on the new DEX, so plenty of them left for the new exchange.

This has obviously hurt the liquidity of Uniswap in the short term, some pools even lost over 90% of their tokens and this is the main reason why they launched their own governance token shortly after to incentivize providers to bring their liquidity back. This is how Sushiswap grew from a simple fork to a protocol with more than 1 billion dollars’ worth of liquidity within just 2 weeks.

 

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The controversy doesn't end there. The smart contracts weren't even audited before people started to move their liquidity into the new DEX to earn the SUSHI token. The developers only contacted auditing firms after the protocol handled multiple millions of trading volume in the first few hours after its launch. The audits did well and confirmed that Sushiswap was safe to use though. Also most successful dApps are built by famous developers or at least by people that are known to the public. The Sushiswap founders are anonymous and the only thing anyone knows about them are their Twitter profiles, 0xMaki and Chef Nomi.

Because the founders had no funds for further development, they also set up a development fund that received 10% of every SUSHI distribution. This fund had no locks or any kind of vesting schedule. This turned out to be a fatal mistake because Chef Nomi ended up stealing all the funds that there supposed to be used for development and sold them for multiple million dollars’ worth of ETH. This has caused quite an uproar since the users and also the co-founder 0xMaki were completely blindsided by this. However, eventually the Chef returned all the ETH and it was put in a multi-sign wallet so that this couldn't happen again.

There was controversy after controversy when the protocol first launched but since then it has matured a lot. It was the first DEX that offered liquidity mining for its native token to further reward liquidity providers, this is now a common feature and even Uniswap adopted it. One feature that makes Sushiswap unique is called xSUSHI which allows the SUSHI holders to stake their tokens to receive a 0.05% trading fee for each trade. The collected fees are used to buy SUSHI and are added to the xSUSHI pool. When you return the xSUSHI tokens you receive when you stake SUSHI, you will get your stake + your share of the rewards back.

Sushi has also expanded its services. There is now also a lending application called Kashi. Most other lending protocols allow their users to use all supported assets as collateral to take a loan. This can be a problem because if one asset falls in value faster than liquidators could react it will affect all supplied assets and all lenders. Kashi allows users to create lending pairs there anyone can create the type of collateral they would accept for a loan in a certain token. This would make some lending pairs very risky and others safer and the providers could choose which pair they want to lend their tokens in. 10% of the earned interest there will also go to the xSUSHI pool. There is also a "Bentobox" that is a vault that holds token to generate a yield from flash loans and strategies that can be used by any application that Sushi will built on top of it.

There was a lot of controversy and Uniswap became more popular again after it launched its own governance token, but Sushi still managed to grow to a DeFi giant and it is constantly improving further and adding more applications. The dApp is native to Ethereum but it has also migrated to 14 different blockchains and second layers like Harmony, Fantom, Avalanche, Celo, Polygon, Moonriver, Binance Smart Chain, etc.

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The SUSHI Token

SUSHI is the governance token of Sushi. The holders can vote on possible changes to the protocol and the holders can stake it to receive xSUSHI that rewards them with fees from the Sushiswap DEX and the lending protocol Kashi.

SUSHI originally had no cap for its supply but the governance eventually set the max supply to 250,000,000. 90% of the supply is going to liquidity providers and 10% goes to the development fund. The distribution is constantly lowered until all tokens are released. During the first 2 weeks there were 1,000 SUSHI minted at each new Ethereum block, after the first 2 weeks it was lowered to 100 tokens and currently it’s at about 50 new SUSHI tokens per block. In 2024 the entire supply will be circulating and its is going almost entirely to the users.

 

 

The token and its value were hurt a lot by some of the controversial news especially by the fact that the development fund was almost stolen. However, this is now in the past and the project and its funds are much more secure now. The UNI token has performed much better after its launch but Sushi is not only a DEX but also a unique lending protocol and will launch more applications. The dApp is also running on multiple other popular blockchains like Harmony, Fantom and Avalanche. Also the token isn't only used for governance but also for earning fees so there will be much more demand for the token if more people use it. The token also has a lot of room to grow due to its relatively low market cap. Still many people lost their trust in the project after its initial hype.

You can buy SUSHI on Binance and Coinbase. Sushiswap also offers its token of course and other DEXes like Uniswap have it too. You can use a MetaMask wallet to store SUSHI and to use the Sushi dApp.

 

 

 

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