What is SushiSwap?

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Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.

SushiSwap began life in August 2020 as a decentralized exchange on the Ethereum blockchain. Since its creation, it has built itself into a kind of financial super app for the wild world of decentralized finance, and a year later had hit over $110 billion in total volume over 1,893 trading pairs.

Decentralized finance refers to a collection of non-custodial financial products, namely peer-to-peer loans, decentralized exchanges, automatic market-making protocols, and liquidity providers. Niche uses include decentralized insurance protocols and tools to fractionalize non-fungible tokens or NFTs, the technology that powers crypto art.

SushiSwap is most of the above and more. Also referred to simply as Sushi, protocol has built out its core offering of a decentralized exchange into lending markets, yield farms, and staking pools. To do that, it’s partnered with other large decentralized finance protocols, including Yearn Finance, CREAM Finance, and Aave.

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Sushi was created as a fork of Uniswap, Ethereum’s most popular decentralized exchange, by a team of anonymous coders. That means that it shares some of Uniswap’s code.

It was created at the height of the DeFi boom last summer, when new protocols were springing up each day, each offering people the chance to own so-called “governance tokens,” which could be used to vote on how the protocols are run (and now play important roles in doing so) but also functioned as speculative assets.

Lots of DeFi protocols essentially operated as tools to vacuum up all these governance tokens, which could be earned from interacting with a DeFi protocol, like taking out or providing a loan on Aave or Compound.

You can also earn fees from staking spare tokens in protocols; decentralized exchange Uniswap pays people who provide liquidity to the platform. SushiSwap’s opening gambit was to pay people extra money, in the form of SUSHI tokens, to transport their liquidity to SushiSwap.

Sushi called this “Vampire Mining.” When you provide liquidity on Uniswap, you earn something called an LP token, or Liquidity Provider token. These LP tokens entitle you to redeem the equivalent amount of tokens from the liqudity pool at any time you like.

SushiSwap’s play was to encourage people to deposit their Uniswap LP tokens in SushiSwap’s smart contracts by offering them extra SUSHI governance tokens. Since LP lokens could always be redeemed in Uniswap, SushiSwap was effectively able to steal Uniswap’s business. People were happy to do this because SUSHI tokens became very valuable.

As of September 2021, SushiSwap is the ninth most popular Ethereum protocol, with about $4 billion worth of tokens locked up in the protocol. Uniswap is still ahead, holding $6.72 billion in tokens. Decentralized lending protocol Aave is number one, with $15 billion.

Sushi protocol shares something else in common with a lot of protocols from that hazy time: it’s named after food. Pickle Finance, CREAM, and PancakeSwap are other examples of DeFi projects that use victuals as a basis for nomenclature.

SushiSwap was created by the pseudonymous Chef Nomi. However, Nomi is no longer affiliated with the project. Shortly after it launched, he cashed out $14 million in tokens from the token’s development fund without warning. He later returned the money, but the interim period was tense and left the project in a lurch. Since then, 0xMaxi, his second in command, has spearheaded the development of the project.

How does SushiSwap work?

SushiSwap’s main product is its decentralized exchange. Like Uniswap, it functions as an automatic market maker, meaning that people submit pairs of tokens, such as ETH and SUSHI, to pools on the platform, and SushiSwap’s algorithms use those pools to facilitate trades.

For instance, if you wanted to swap ETH for USDC, a US dollar stablecoin, SushiSwap might reroute that trade via different tokens to make that trade happen. It might sell that ETH for SUSHI, and then use that SUSHI to buy the corresponding amount of USDC.

All of this happens without any centralized authority, like a bank or a government, and the protocol can’t be shut down. Most of the development team behind the project is anonymous. Using the liquidity pools replaces the traditional order books of regular cryptocurrency exchanges (and stock exchanges), which match trades with other users and rely on large market makers—rich active traders—to ensure liquidity.

On automatic market-makers like SushiSwap, traders pay fees to the liquidity providers for the convenience, and SushiSwap pays out SUSHI tokens as an additional incentive. Sushi also adds a layer of community to the project, since the token is used to vote on matters of governance.

More on the menu than just a decentralized exchange

Uniswap later added its own governance token, UNI, which functions much the same way. However, unlike Uniswap, which has recently doubled down on its core offering as a decentralized exchange, SushiSwap offers lots of different services.

Sushi offers a service called Kashi, which operates as an isolated lending market with elastic interest rates and leverage. The benefit to Kashi is to know precisely what collateral you could claim if your counterparty is insolvent. These offer high (and very variable) APRs.

At the time of writing, lending USDT while staking WETH (an ERC-20 version of Ethereum) as collateral nets you 42% a year. However, this market is small—it’s worth just $188,000.

Kashi is a so-called BentoBox app, and Sushi plans to add more of these in the future. Each BentoBox will be “an innovative way to use dapps gas-efficiently and gain extra yield.”

You can also stake SUSHI for xSUSHI, a token you receive for exchanging SUSHI tokens in the SushiBar. The benefit of doing so is that you can earn money by locking up SUSHI tokens and still use that locked-up value in other protocols. In the project’s own words: “When your SUSHI is staked into the SushiBar, you receive xSUSHI in return for voting rights and a fully composable token that can interact with other protocols. Your xSUSHI is continuously compounding, when you unstake you will receive all the originally deposited SUSHI and any additional from fees.”

Then there’s the Onsen Program, which lets you stake tokens in “yield farms,” algorithms that reallocate your tokens across different protocols to earn governance tokens. Sushi’s yield farms pay out in SUSHI. Yields vary, but the TOKE/WETH yield farm offers variable returns of 18,962% a year as of this writing. (Remember, these yields are highly variable, as are the values of both TOKE and WETH).

Finally, there’s Miso, a fundraising marketplace for “token creators and communities to launch new project tokens.” Funds are raised in SUSHI.

How to buy SUSHI

SUSHI is an ERC-20 token, which means that it is based on the Ethereum blockchain and can be sent to ERC-20-supporting wallets.

SUSHI has a market cap of $1.3 billion, and 51% of the 127 million SUSHI tokens are in circulation. As of September 2021, the token is worth $10.58. As of September 2021, its all-time high is $23.38, which was set on March 13, 2021.

There are several different ways to get your hands on SUSHI. The easiest way is to buy the token from cryptocurrency exchanges.

Most major crypto exchanges support it. The most popular market is the USDT (Tether) market on Binance, the world’s largest cryptocurrency exchange. The SUSHI/USDT pairing on Binance makes up 16% of SUSHI’s daily trading volume; the SUSHI/USDT pairing on Huobi Global accounts for 11.5% of daily trading volume.

To buy SUSHI from an exchange, you’ll need to create an account with the exchange. This will likely require you to submit a form of identification. You can buy SUSHI for fiat currencies—Coinbase’s SUSHI/USD pairing is the third most popular market for SUSHI—or directly for cryptocurrencies, like USDT, BNB, or Bitcoin.

You can also earn SUSHI from SushiSwap, as well as any other liquidity farms that pay out in SUSHI.

The largest liquidity farm on SushiSwap is for WBTC and WETH, or Wrapped Bitcoin and Wrapped ETH. It has a TVL, or total value locked, of $626 million, and pays out 4,232 SUSHI per day to liquidity providers. To earn SUSHI from this pool, you have to stake both Wrapped Bitcoin and Wrapped ETH.

Wrapped Bitcoin is a version of Bitcoin that is compatible with Ethereum. You can buy Wrapped Bitcoin from crypto exchanges like Binance, or wrap it yourself by staking Bitcoin. Wrapped Ethereum is an ERC-20 version of the main Ethereum token. You can convert WETH to ETH on Uniswap.

To stake, you’ll have to transfer both tokens to an Ethereum-based browser wallet, like MetaMask. You can unstake your tokens at any time. Note that earning SUSHI like this is not regulated and although the smart contracts are audited, DeFi protocols are still new and hackers are finding novel ways to exploit them.

What’s next for SushiSwap?

Although Sushi’s fate will be determined by the community, the team behind it has ambitious plans for 2021 and beyond. It plans to integrate a decentralized exchange that allows users to trade across blockchains (a big problem right now), and fully decentralize governance over the protocol by the end of the year.

It also plans to bulk out its BentoBox offerings and add more DeFi tools for users. To do so, Sushi will continue integrating with other decentralized finance protocols and coins. Like other projects, the team hopes to make the whole thing faster, cheaper, and more capable.

But the team also wants the community to help shape its direction. In a roadmap update in January 2021, the team wrote, “We want to ask the community to join us on the forum and tell us what they want to see next for everything related to Sushi. No matter how creative, crazy, eccentric your idea is for the future of decentralized exchange, money market, IDO, or really something you think should be included here, we want you to share it with us.”

Last Updated September 20, 2021

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