Understanding SushiSwap: a beginner’s guide and review

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TL;DR: You can get a summary of this article on its last section

SushiSwap is a decentralized exchange (DEX) that was created as an “evolution of Uniswap ” by introducing a governance token to provide additional rewards to liquidity providers (LPs). SushiSwap’s launch and the antics of its pseudonymous founder have grabbed most headlines in the Crypto-Verse for the past few weeks.

In this article, we will be taking an introductory look at SushiSwap in order to better understand its functioning and industry impact. In this analysis of SushiSwap, 5 different sections will be covered, as follows:

  1. legitimacy
  2. purpose
  3. tokenomics
  4. ecosystem
  5. summary.

Legitimacy

SushiSwap was conceived by Chef Nomi , a pseudonymous character who created a Twitter and a GitHub account in late August 2020, presumably to protect his identity, but evidently also to enhance the branding of his food-themed decentralized finance (DeFi) protocol.

Chef Nomi avatar

Chef Nomi presented himself as a full-stack blockchain developer, capable not only of forking the Uniswap automated market maker (AMM) codebase to power the SushiSwap DEX, but of modifying it to introduce a governance token called SUSHIcodecode and the rewards logic. Nomi also introduced a Yam -inspired UI, forked from the Yam codebase. Finally, Nomi also introduced the migration contracts.

SushiSwap landing page screenshot

The SushiSwap announcement on Medium provided the gist of how the platform was to launch and operate initially. SushiSwap would introduce rewards in $SUSHI , a devfund or ecosystem fund for development, and a launch via liquidity migration from Uniswap, a first in the industry that would later by others described as vampire mining as it incentivized existing Uniswap LPs to stake their LP tokens in SushiSwap contracts by giving them $SUSHI .

The SushiSwap code was then audited by Quantstamp , which found no critical or major issues. The project then received a massive boost, at some point an estimated 79% of total value locked (TVL) in Uniswap was attributed to one of the 13 pools whose LP tokens had been locked with SushiSwap to receive $SUSHI, especially in the SUSHI ETH pool that was paying 2x rewards, on top of the 10x rewards being paid for the first two weeks of the launch. In a wild day, Binance listed the token, causing early $SUSHI investors to go 3x.

Announcement from Binance listing SushiSwap

Cryptonauts thought they had already been getting quite the saga, with the community torn over the morals of vampire mining. On one side, Uniswap’s founder Hayden Adams publicly admonished Chef Nomi as an opportunist; on the other, well-respected FTX CEO Sam Bankman-Fried (SBF) made a personal bet on the platform and farmed a lot of $SUSHI. However, that had just been the preamble. On September 5, Chef Nomi reneged on his promises and withdrew 2.5M $SUSHI (18,000 ETH) and 20,000 ETH, or $14M in total, from the liquidity pool, admittedly to cash out. As the news hit the Crypto-Verse, the $SUSHI price collapsed, which had been falling with the rest of the market, took a dive and bottomed at -90% for the week. Nomi faced accusations of being a scammer, which he denied. As prominent Crypto-lawyer Preston Byrne advised victims to sue and recover their losses from Nomi, the Chef decided to hand over the admin keys of the protocol to Sam Bankman-Fried, to set up a multisig board of governance, and complete the migration. A week after these events, Chef Nomi returned the 38,000 ETH to the multisig governed treasury, for the community to decide what to do with it.

<p>To everyone. I fucked up. And I am sorry.</p> Chef Nomi #SushiSwap (@NomiChef) September 11, 2020

Purpose Functionality

Uniswap to SushiSwap diagram

The purpose of SushiSwap is to improve on the AMM model made popular by Uniswap by introducing a token with revenue-sharing and network effects, as well as community governance.

Exchanging works exactly like in Uniswap. Anyone can create a pool by adding any two ERC-20 tokens, the price will then be implied. Others may provide liquidity to an existing pool by adding tokens at the same rate as the in-pool proportion or implied exchange. Traders change the balance of assets in the pool, as they add and withdraw at prices according to its constant product market maker algorithm of x * y = kcodecode. LPs get LP tokens when adding liquidity, a sort of receipt, that they can redeem for the assets in the pool, at the prevailing rate. This may cause an impermanent loss, as the assets will not be in the proportion deposited, and may be worth less in aggregate than if they had just been held.

People can participate in SushiSwap by providing liquidity and earning market-making fees, which in SushiSwap’s case are currently 0.25% of each transaction. The other 0.05% of the fees are converted into $SUSHI and given to $SUSHI holders.

Tokenomics

$SUSHI is the governance token of SushiSwap. Like other governance tokens, it is meant to confer both economic and voting rights over the protocol, acting in many ways as a share of stock acts over the cash flow and control of a centralized firm.

SushiSwap banner from Binance

An undercurrent in the launch of SushiSwap is the opposition to “unfair” distributions. Albeit admirers of Uniswap’s core design, Chef Nomi and his followers were upset at the involvement of VCs and the dilution of rewards for early adopters of the protocol. These “anons” see the introduction of $SUSHI as a way for early adopters to be rewarded for providing the critical liquidity in the early phase of the protocol, as well as for participating in the governance and leading the community. The success of $SUSHI is thus tied to the success of SushiSwap as a grassroots effort, instead of its drawing in of “elites”. This idea has a lot of emotional pull in the Crypto-Verse: you don’t need to know VCs or whales, you don’t need to know Vitalik or anyone at the Ethereum Foundation, you don’t even need to show your face. Just #buidlcodecode, release, and let your code and memes become so irresistible that the community cannot help but participate.

Now that SushiSwap has migrated, $SUSHI can be staked to earn its portion of the 0.05% of all trading fees. When staked, the counterparty token xSUSHI is given in return, which represents the staked $SUSHI plus their share of the trading fees. You can provide liquidity to any SushiSwap pool and receive an SLP counterparty token. To earn $SUSHI as block rewards, you can stake your SLPcodecode tokens on the SushiSwap “farms”.

$SUSHI is traded in secondary markets. According to $SUSHI data from CoinMarketCap , the token is found with the most volume and liquidity on the following exchanges:

ExchangeTrading Pairs
Binance SUSHI /USDT , SUSHI /BTC , SUSHI /BUSD , SUSHI /BNB
Huobi SUSHI /USDT , SUSHI /ETH , SUSHI /BTC
OKEx SUSHI /USDT , SUSHI /ETH
Uniswap SUSHI /wETH
FTX SUSHI /USD, SUSHI /USDT

$SUSHI is an ERC-20 token, so it can be stored in any Ethereum wallet that accepts custom contracts like MetaMask , Trust Wallet , Ledger , Pillar , or Portis .

Ecosystem

SushiSwap governance is integral to its value proposition. $SUSHI holders participate in governance with an on-chain treasury and a multisig board of directors, this will eventually evolve into a decentralized autonomous organization (DAO), codenamed OmakaseDAO.

DevFund | Sustainability Fund

Supposedly done after a suggestion by Larry Cermak , director of research for The Block, a tenth of every $SUSHI distribution is going to a development fund from where a core dev team and grants can be allocated. This fund was called a devshare by Chef Nomi, which vigorously defended his right to control such funds, which at some point had $27M. Indeed, it was Nomi’s withdrawal of these funds that almost collapsed trust in the project.

Currently, this address is controlled by the multisig “board of directors” consisting of 9 signers, which was set up by SBF after Nomi handed him the admin keys to save the project.

Developer Power user support | Roadmap

There are no “official” tools besides the UI of the SushiSwap exchange which after the migration moved to sushiswapclassic.org . There is a community-curated documentation at help.sushidocs.com . For analytics, sushiswap.vision is a fork of uniswap.info which shows TVL, volume, pools, etc. — made by Zippo, who also made the SushiBoard which contains info on ROI (daily, weekly, yearly) and other reward metrics, per pool. Sushibar to easily farm $SUSHIcodespan and sushiswap.js , a library to interact with SushiSwap were both made by user BoringCrypto .

SushiBoard screenshot

The product roadmap is not clear at the moment as highly-focused on delivering a robust DAO proposal.

Partnerships Community | Governance

SushiSwap migration has recently completed, and the official dev team consists only of 0xMaki , one of the original three devs building and promoting on the project. Maki is managing the project on behalf of the multisig signers, who were voted by the community.

Proposals and voting is taking place on Sushiswap’s board in snapshot.page . For the moment, 1 $SUSHI entitles a member to 1 SushiPowahcodecode, a voting metric. A more robust DAO has been proposed, and will soon be under development. The specs for this OmakaseDAO can be found on a Medium article about the grand opening of SushiSwap . Most likely, a proper implementation of a DAO will require redeployment of most of SushiSwap’s contracts.

In Summary

Animated sushi rolls

SushiSwap has made it through the fog of war of a Crypto-Verse launch, and come out as an interesting project, as it introduces incentivized governance to the popular AMM model of Uniswap. Although not without controversy, it is likely that the arrival of SushiSwap will foster competition in DeFi, not just from an up-and-coming Uniswap v3, but for other projects which have been slow or indifferent to introducing community governance and incentives. Whether the projects are by anon developers or not, as long as they are not scams, the Crypto-Verse as a whole can only benefit from more innovation.

Excited about SushiSwap? Anything this article missed? Reply below to let me know!

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