What's an AMM?
For those new to Defi, SushiSwap is an AMM, or Automated Market Maker, similar to Uniswap. And if you are new to the Defi space, this is a great video for you to start with. First off, an AMM is a protocol that allows crypto assets to be traded in a permissionless, automated fashion that utilizes liquidity pools. AMMs like SushiSwap differ from traditional financial trading institutions which commonly use buyers, sellers, and order books. AMMs like SushiSwap allow users to supply liquidity pools with cryptocurrency assets, whose prices are determined by a preprogrammed mathematical formula.
The best part of using an AMM is that we're able to take away all the inefficiencies, middlemen, and other baggage associated with traditional market makers. In return, the protocol is able to reward its liquidity providers handsomely. While most banks offer returns averaging less than .01%, AMMs like SushiSwap are able to offer multiple investment opportunities through various liquidity pools and some offer impressive returns.
What is SushiSwap?
Currently, as of writing this article, SushiSwap has upwards of $5,000,000,000 in liquidity locked in the protocol. That's pretty damn impressive, especially considering that SushiSwap was originally a simple fork off of the Uniswap protocol. In fact, it wasn't too long ago that SushiSwap was brushed off as just another food coin (Pickle, Yam, Pancake, etc.) and wasn't taken too seriously at first. In fact, the Sushi token was being dumped frequently and the protocol was derided on a regular basis due to the nature of its inception. However, since that time SushiSwap has emerged into a robust protocol with some unique features that differentiate it from its predecessor.
One of the biggest differences between UniSwap and SushiSwap is that Sushi is more of a community-led project. While Uniswap has gone more of a corporate route recently with large-scale investors, SushiSwap is here for the people, governed by the people, and rewards the people for their participation in the protocol.
What Can You Do on SushiSwap?
First off, you can use SushiSwap to swap between various tokens. Pretty obvious right? However, there are many tokens you can't find on Uniswap due to the "Onsen" feature offered on SushiSwap. This is where new tokens get listed with very high Sushi yields. These yields are put in place to attract users to the protocol, provide liquidity, and strengthen the project. As a reward for contributing, you can receive Sushi governance tokens - something Uniswap no longer offers as an incentive (at least as of writing this). In other words, liquidity contributions are incentivized with Sushi rewards. You can find whichever pair you want and deposit a pair of the tokens to begin investing.
Again, many of these pairs aren't offered anywhere else so it's a great opportunity to try out unique pairings to see what types of yields you can achieve on your investments. Paying attention to this constantly rotating section of SushiSwap will allow you to observe various yield opportunities, learn more about emerging projects, and give you an overall insight into the ecosystem.
In addition, a new feature is in the works known as the "Bento Box." This is SushiSwap's lending feature which will allow users to pull out some of the value in their tokens to leverage it in various ways. This feature is similar to what's occurring over on the Compound protocol.
As with all liquidity pools, there is always the chance of losing or shrinking your investments due to various factors. Additionally, it's best to understand that high yields often signify a higher chance of losing funds due to impermanent loss. As always, please do your own research before investing in any project.
Until Next Time
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