The SushiSwap DEX is an automated market-maker (AMM), which has retained a similar user experience to Uniswap. Today, SushiSwap has evolved to also provide a wider suite of services under the “Sushi” branding, including a lending platform.
The original SushiSwap fork was sparked by the idea of a community-owned DEX, at a time when Uniswap’s ownership appeared to be relatively centralized. This community ownership was facilitated through the SUSHI token, which granted holders governance rights and a share of the platform’s revenue.
It is more than likely that the rise of SushiSwap and its SUSHI token was the reason for Uniswap’s release of their UNI governance token soon after.
SushiSwap was created in August 2020, by its pseudonymous founders known as Chef Nomi and 0xMaki. The idea was sound – a fork of Uniswap that was completely community-owned and governed by holders of the SUSHI token. This was a stark contrast to Uniswap’s model at the time, which was owned and run almost exclusively by venture capitalists and the founding team – something that didn’t mesh well with the idea of decentralized finance.
To further incentivize users to move over from Uniswap, the SushiSwap team implemented large rewards for liquidity providers coming to the platform, paid in SUSHI. This incentivized migration was later dubbed a “vampire attack”, where liquidity is drained from one protocol and into another.
Liquidity held within the protocol soared to more than $1 billion within just a week of its creation, along with SUSHI being listed on the world’s largest centralized exchange, Binance.
The euphoria was not long-lived, however, as co-founder Chef Nomi himself dumped his entire SUSHI stake of the project’s development fund on the open market, for around $14 million worth of Ether. This prompted the community to lose much confidence in Chef Nomi and SushiSwap, eventuating in the project’s administrative keys being handed over to a multisig address controlled by prominent community members.
Chef Nomi eventually returned all of his proceeds from the sale of his SUSHI stake to the project and apologized to the community.
Since the initial drama, SushiSwap has come a long way, competing closely with Uniswap in terms of total value locked, as well as attracting notable investors such as Mark Cuban.
How To Use SushiSwap
Like Uniswap, SushiSwap doesn’t have any order books, instead opting for an automated market maker (AMM) model. This essentially only allows traders to make market orders.
Traders simply select an input and output token, while SushiSwap provides the best possible market rate at that moment.
To use SushiSwap, users need to connect to the DApp via a web 3.0 wallet such as Metamask. Once connected, they select the asset they wish to trade away (in this case, ETH) and the asset they wish to purchase (in this case, DAI). They then simply click the button at the bottom of the window to execute the trade, confirm the transaction, and voila! They’ve swapped their tokens on-chain.
SushiSwap uses its global liquidity pools to allow users to trade between any two assets, sometimes across multiple pools at a time. For any trade, the user will be shown the trade route, expected price and fees, and a minimum number of tokens to be received.
This information should all be double-checked before executing a trade, to ensure that the trade will be executed as expected.
The exchange shares many similar characteristics with Uniswap, including using a Constant Product Market Maker Model (which maintains continuous liquidity), a maximum slippage option and more.
Liquidity providers on SushiSwap must supply liquidity to both sides of any pool, in equal amounts. For example, if a user wants to supply capital to the ETH/DAI market, they must supply an equal value of ETH and DAI to the pool. This maintains the Constant Product AMM system.
Once a user has supplied their liquidity, SushiSwap provides the user with “liquidity tokens” – a claim on their share of capital within the pool. Liquidity providers can redeem their liquidity tokens for the underlying collateral whenever they wish.
SushiSwap charges traders 0.3% in fees on each transaction made on the exchange, not including gas costs. Liquidity providers receive most of this fee (0.25%), in the form of liquidity added back into the pool. The remaining 0.05% is allocated to SUSHI token holders.
SushiSwap provides extra incentives to selected liquidity pools, in a program known as Onsen.
These incentives secure more liquidity on new or popular markets, with incentivized pools found in the “Yield” tab on Sushi.com. The list is updated every 60 days, with a maximum of 58 token pairs.
This feature replaced the old “Menu of the Week” section, which had similar dynamics.
As mentioned above, SUSHI token holders are entitled to share a 0.05% fee from each trade made on SushiSwap.
In order to receive their share of this fee revenue, SUSHI token holders must stake their tokens in the “SushiBar”. Once staked, users will receive xSUSHI tokens, representing their stake in the SushiBar pool. These xSUSHI tokens grow in value over time, in proportion to a user’s share of the fees gathered.
Upon redeeming their xSUSHI, users will receive their original stake of SUSHI plus any additional SUSHI from fees.
Lending & Leverage
One DApp in the new suite of Sushi tools is “Kashi”, a lending and leverage platform. Kashi is a lending market which allows users to earn interest for lending their tokens, while borrowers can take out loans to fund margin trade positions.
Each market on Kashi is kept separate, to keep risk isolated to single markets rather than the whole protocol. Due to this, users can create a leveraged position in a single transaction.
Although this is not directly linked to SushiSwap itself, it is a DApp offered alongside the exchange.
SushiSwap presents a major alternative to Uniswap that has its roots more deeply embedded in decentralization and community ownership. The project is open-source on GitHub and permissionless, allowing anyone to create a market on the exchange for compatible tokens.
At the time of writing, SushiSwap is the second-largest decentralized exchange in the world in terms of transaction volume, second only to its predecessor, Uniswap.
The platform has also managed to deploy contracts on more than 13 different chains to date, with its Layer-2 Polygon implementation recently beginning to gain momentum.
Even though SushiSwap began as a fork of Uniswap, it has been innovative in its own way by embracing community ownership and cooperating with new parts of the crypto ecosystem.
By partnering with rising DeFi projects, expanding to other chains and creating new DApps, SushiSwap continues to improve its presence and give Uniswap significant competition for market share.
With the release of Uniswap’s revolutionary v3 exchange, it will be interesting to see how SushiSwap responds to maintain their position in the DEX space.