SushiSwap Explained

By RelyOnCrypto | The.Crypto.blog | 28 Jun 2021


Sushi debuted in August 2020, during DeFi Summer, the company's first time of significant growth. Because of the nature of its introduction, the project rapidly drawn a lot of attention. Sushi, then known as SushiSwap, forked Uniswap and encouraged liquidity providers to switch their liquidity to the new platform in a technique known as a vampire attack. Sushi's bumpy debut feels like a distant memory over a year later, and the Sushi team has been hard at work developing new, interesting features and expanding the Sushi ecosystem. Sushi provides a growing range of additional services, including a liquidity bootstrapping tool for other projects (Onsen), a lending platform (Kashi), and a Launchpad for new protocols (Miso), in addition to its core role as a decentralized exchange for trading assets.

When it comes to deploying the protocol to other chains and scaling solutions, the Sushi team is quite open. Rather of attempting to forecast which environment will be the most dominating and capture the most value, they deploy the protocol to all current and future settings and let the market decide. Sushi has already been deployed on Polygon, xDai, BSC, Fantom, and Moonbeam, in addition to the Ethereum mainnet, with a planned debut on Arbitrum, a layer 2 Ethereum scaling solution. Another notable action was the purchase of the sushi.com domain, which should increase the project's visibility. 

Sushi's major feature is the Automated Market Maker, or AMM, which allows users to trade assets in a decentralized and permissionless manner. Sushi's AMM is a fork of Uniswap V2, therefore the two functions are identical. Sushi is now the second-largest AMM on Ethereum, accounting for about 16% of the market. Uniswap continues to be the uncontested industry leader, accounting for around 54 percent of the overall AMM market. Sushi's daily trading volume, which is one of the most important AMM indicators, has gradually increased from about $250 million at the end of 2020 to over $500 million in 2021, with some days exceeding $1 billion. Another indicator, total value locked in the protocol, has risen from about $1 billion at the end of 2020 to as high as $5.5 billion, with the current market collapse putting it at around $3.5 billion. Sushi has established a profit-sharing system that benefits SUSHI token holders, which is one of the key differences between Uniswap V2 and Sushi. Sushi implemented the fee switch, which reduces the trading cost for LPs to 0.25 percent while giving the remaining 0.05 percent to SUSHI token holders, rather than the 0.3 percent paid to liquidity providers as in the case of Uniswap. 

SUSHI token holders must invest their SUSHI tokens in the SushiBar smart contract in order to earn xSUSHI, which may be redeemed for their original SUSHI plus extra SUSHI tokens resulting from exchange costs. 0.05 percent of the swap costs are allocated as SUSHI proportionately to the user's stake of the SushiBar for every exchange on every chain that goes through Sushi. The xSUSHI tokens are completely composable and have voting rights in the Sushi governance system. Users may also contribute xSUSHI tokens to the xSUSHI/ETH liquidity pool, where they will get a stacking yield from xSUSHI as well as additional incentives from the pool. SushiBar's yield is determined by the trade volume that passes through the Sushi AMM and has lately been about 10% APR, with days reaching 40% APR. The SUSHI token is fundamentally one of the most productive assets in the DeFi because of its profit-sharing structure. In contrast to many other currencies that are mostly driven by speculation, SUSHI coins should better reflect the Sushi protocol's true worth. 

Onsen is a liquidity incentive scheme that helps new companies get off the ground by rewarding them with SUSHI tokens. To encourage liquidity provisioning for their own token, projects chosen to be on Onsen are granted a fixed amount of SUSHI tokens. This implies that projects may still profit from incentivized liquidity without having to release their own token through liquidity mining. This is very beneficial for new companies who are having a hard time bootstrapping liquidity, especially if they don't want to release significant quantities of their own tokens at first. The exchange fees from Onsen's enabled liquidity pools are given to the xSUSHI holders, benefiting the whole Sushi ecosystem. Onsen features projects that are chosen for their excellence and demand for their products. Some projects are only featured for a limited period, while others can stay on the Onsen menu permanently if the project's quality and demand for its token remain strong. Sushi, in addition to Onsen, provides permanent yield farming options for well-known and established tokens. These opportunities exist on other levels as well; for example, Sushi just launched a liquidity mining scheme on Polygon that pays out large rates to liquidity suppliers. 

BentoBox is a unique smart contract that serves as a safe haven for certain tokens. This vault is essentially a money pool that Bento-enabled applications in the Sushi ecosystem may access. Users that put money into one of the BentoBox vaults get a higher rate of return on their tokens. Vaults can create yield in a variety of ways, including allowing other participants to take out flash loans in exchange for a modest fee that goes back to the vaults' users who provide liquidity, or by lending out assets in the vaults. Because various programs working on the same vault don't have to go through as many stages as they would without the BentoBox design, this structure is also highly gas efficient. The lending platform Kashi is the first and only BentoBox-enabled application available right now, but the team is working on adding more applications in the future.  

Sushi's first lending and margin trading product, powered by BentoBox, is called Kashi, which means "lending" in Japanese. Anyone may use Kashi to develop personalized and gas-efficient lending and borrowing marketplaces. Kashi separates each of the marketplaces, unlike other prominent DeFi money markets like Aave or Compound. This implies that users can develop riskier asset markets without affecting other markets. The capacity to borrow an asset also opens up the option of selling it short. This is beneficial for speculators who believe the asset will depreciate in value, but it also provides for hedging, which may be quite valuable when yield farming hazardous assets, for example. 

Take, for example, the introduction of a new token. On Kashi, someone may build a money market for the new token, allowing anybody to borrow the new token in exchange for collateral in a selected coin, such as ETH. The new coin may now be borrowed by the short seller and sold for ETH right away. If the new token's price falls in comparison to ETH, the short seller can purchase the new token back at a lower price in the future and return their loan in new tokens. The key restriction is that a credible price oracle must be accessible in order to build a money market for a new coin. When building a new market, Kashi allows the user to select a pricing oracle. At the moment, only Chainlink price feeds may be utilized, which limits the number of additional markets that can be formed. The Sushi team, on the other hand, is working on creating their own TWAP pricing oracle, which would extend the number of price feeds accessible. Adding a new hazardous asset to one of the current money markets would jeopardize the protocol's overall solvency. This is because if a coin was used as collateral and its price dropped dramatically, it might put many accounts under collateralized, allowing for a cascade of liquidations. However, if such a coin is borrowed and rapidly increases in value, this presents an issue because borrowed assets are worth more than collateral, putting the account under collateralized once again.

Miso is the last but not least element of Sushi. Miso is a platform for launching tokens. It makes it easier to launch new tokens on Sushi. Miso aims to provide a positive experience for both project developers releasing new tokens and individuals looking to locate and support these projects. Miso provides a collection of smart contracts for project developers to make the process of generating a new token easier. Furthermore, it enables the initiatives to reach a bigger initial audience than they could have reached on their own. When it comes to project supporters, they may be certain that the token and the infrastructure that surrounds it were built using audited and battle-tested contracts. They may also quickly find new initiatives and take part in trustworthy token launches. Miso is unquestionably a key component of the entire Sushi ecology.

Sushi appears to be one of the strongest DeFi initiatives, with a constantly expanding trade volume on its decentralized exchange, a profit-sharing mechanism for SUSHI holders, an increasing variety of chains and scaling solutions to launch on, and new features being introduced to the ecosystem. This is why many in the DeFi community feel Sushi is underappreciated, especially in comparison to other decentralized exchanges. It's difficult to tell why this is the case, however it might be due to the fact that Sushi began as a fork of Uniswap and had a rough start. Sushi is clearly one of the top DeFi protocols to watch, and it will be fascinating to see what new elements are added to BentoBox and the rest of the Sushi ecosystem, as the team pursues new chains and scaling solutions.

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RelyOnCrypto
RelyOnCrypto

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