This crypto year is full of ups and downs. The major cryptocurrency Bitcoin (BTC) has experienced considerable price changes from $5,000 up to the current $19,000 per coin. But the most exciting crypto trend of the year is a rapid evolution of the Decentralized Finance (DeFi) sector. Such vital components of DeFi as yield farming, advanced lending solutions, automated market making (AMM), and many more have attracted new users to the crypto industry and, therefore, bringing the day of mass adoption one step closer.
We are going to take a look at the AMM in general and its representative SushiSwap in particular and dive into SushiSwap’s pools. In order to get into all the details, it is highly recommended to read our recent articles about AMM and Uniswap.
What Is SushiSwap?
Despite all the funny names the crypto projects have, there is a complicated technology behind them that is capable of bringing considerable profit. At its core, SushiSwap is an automated market-making protocol that operates in the form of a decentralized exchange (DEX). If you are an experienced user of DeFi products, you probably know another hype platform, Uniswap, which is currently the leading decentralized exchange in the industry. Interestingly, SushiSwap is a fork of Uniswap with a more intuitive and user-friendly design.
Unlike regular cryptocurrency exchanges like Binance or HitBTC, SushiSwap does not have an order book that reflects buy and sell offers. Instead, it follows an AMM model, meaning that users who put funds into SushiSwap’s pools are liquidity providers. When adding liquidity to a certain pool, a user gets a reward in the form of SushiSwap tokens.
It is important to note that SushiSwap is a community-run project that means every SUSHI token holder is involved in the DEX’s governance and is able to influence major changes to the SushiSwap’s protocol.
SushiSwap DEX is built on the Ethereum blockchain. This way, it enables users to interact with any of the ERC-20 tokens available on the market. The mastermind behind the SushiSwap project is a user (or a group of people) named Chef Nomi. However, the SushiSwap team does not follow the unwritten rule of the Fintech projects of providing transparent information about the company and the team. Well, in this case, users have to choose whether they trust the platform with their funds or not.
Uniswap vs. SushiSwap
As mentioned before, SushiSwap is a fork of Uniswap. However, there are some significant differences between these two platforms. Basically, the difference can be easily seen from the SushiSwap description: a community-run platform. As users can influence the protocol’s future changes (no matter major or minor), it makes the platform more user-driven and secure. The changes to a Uniswap protocol are made by the development team.
The SushiSwap platform was introduced together with its SUSHI token. The utility token of SushiSwap provides each token holder with the right to submit a SushiSwap Improvement Proposal (SIP) and, as a result, improve the platform. Such a model reminds the way the delegated proof-of-stake (dPoS) blockchains work (EOS, TRON, Tezos) and show the libertarian spirit that often accompanies crypto enthusiasts.
Moreover, SUSHI token is an instrument of reward within the platform. For every executed trade, users are charged with a fixed 0.3% commission fee. It is later spread among liquidity providers so that they get profit. We are going to observe the way SushiSwap distributes rewards below.
Fun fact: on the day the SushiSwap was launched, Uniswap lost around 70% of its liquidity as many users preferred to move liquidity to the new platform.
SushiSwap Liquidity Pools
Anyone who wants to be an owner of their own crypto token (based on the ERC-20 standard) can use the Ethereum platform to create one. But what will be the next step once you have an Ethereum-based token? Platforms like SushiSwap offers you to create a liquidity pool of your token. SushiSwaps allows users to access over 300 tokens (and liquidity pools accordingly) listed on the platform.
Currently, the top-10 assets in terms of liquidity and volume of SushiSwap are as follows:
Once you place your cryptocurrency in a certain pool, you become a liquidity provider. For example, you deposit some SUSHI and ETH into a pool, and in return, you get the same amount of SUSHI-ETH SLP tokens (or SushiSwap Liquidity Provider tokens).
According to SushiSwap, these tokens represent a proportional share of the pooled assets.
Remember that you can turn your tokens back into ETH and SUSHI tokens at any time.
SUSHI Token Reward Distribution
SUSHI token is an instrument of reward within the SushiSwap ecosystem and an instrument for network governance.
According to SushiSwap’s tokenomics, users pay 0.3% of trading fees for every crypto swap, which are later distributed among liquidity pools. However, liquidity providers get 0.25%, whereas the remaining 0.05% are converted to SUSHI tokens and distributed among all SUSHI token holders. Such a SUSHI token reward distribution allows token holders to get additional profit even if they are not liquidity providers anymore.
In this case, the Uniswap platform seems to be less attractive. Once a user decides to withdraw his/her tokens from the pool and stops to provide liquidity, they also don’t profit from crypto swaps made on the Uniswap platform.
SushiSwap Advantages and Disadvantages
Obviously, SushiSwap is a decentralized platform that ensures trust and transparency. However, the mystery behind the team might scare off some users. The recent scandal around the SushiSwap platform that took place at the beginning of September massively tainted the project’s reputation.
One of the founders (Chef Nomi, to be precise) decided to cash out around $14 million worth of ether dropped SUSHI’s price by over 73%. Users claimed it to be the exit scam. SushiSwap co-founder, 0xMaki, decided to give his colleague some time ‘to wake up’ and explain himself. Otherwise, 0xMaki claimed to reveal everything and perform hara-hiri of his account.
Almost a week later, Chef Nomi returned all the funds and asked users to forgive him, saying: I f****d up. Such a happy end is a truly rare event in the crypto industry. The ownership of the SushiSwap project currently belongs to FTX CEO Sam Bankman-Fried.
Still, if you are looking for a crypto platform that will provide you with an opportunity to yield farming and get passive income (as a token holder), then SushiSwap is the perfect place. The platform takes the second place in the coinmarketcap.com list of top decentralized exchanges in terms of volume and market share. Among other advantages of SushiSwap is the absence of the KYC procedure. Any user can start to swap digital tokens regardless of nationality, gender, etc.
We kindly remind you of the crypto industry’s first rule is to do your own research or DYOR. Do not follow the crowd but decide to yourself whether the platform suits all your requirements. Also, pay attention to commission fees and security measures. All in all, you can always buy BTC and over 170 cryptocurrencies on Changelly using a credit card (Visa, Mastercard), bank transfer, and even Apple Pay.