DeFi Deep Dive – What is SushiSwap?

Written by Ivan on Tech

June 27, 2021

SushiSwap saw a lot of attention last year. Now that the dust has settled, however, it’s as good a time as any to take a closer look at SushiSwap and the Sushi ecosystem. SushiSwap began as a fork of Uniswap V2, launching what’s known as a “vampire attack.” SushiSwap lured Uniswap liquidity providers away to their protocol by offering rewards in SUSHI tokens. After that, a battle quickly ensued for users’ liquidity and ultimately ended with Uniswap launching and airdropping its own token, “UNI.” 

Soon after SushiSwap entered the market, Chef Nomi, the anonymous founder, rug-pulled the developer fund to the tune of roughly $10 million. Thankfully for all involved, his conscience got the better of him, and he returned the money. But with the damaged reputation still intact, he has all but disappeared from the crypto scene. We previously covered some of this in our “weird DeFi” article.

With all the negative attention, it appeared the only future awaiting the SUSHI token was the dustbin of irrelevance – the final resting place of many other meme coins of the day. However, SushiSwap developer 0xMaki took the reins and restored confidence in the project.
SushiSwap and Uniswap are on the Ethereum blockchain. So, if you want to understand these decentralized exchanges (DEXs), make sure to learn all you can about Ethereum first. The best place to do that is the Ethereum 101 course at Ivan on Tech Academy. 

Saving SushiSwap

SushiSwap has only gained traction since and moved on to become one of crypto’s most popular DEXs. More importantly, after such a rocky start, SushiSwap has managed to evolve into a DeFi success story and is now one of the top DEXs that rakes in billions of dollars in liquidity volume. 

0xMaki and the team didn’t stop with SushiSwap, however. They have continued building and adding to their Automated Market Maker (AMM), transforming it into the “Sushi” that it is today a veritable suite of DeFi products of which SushiSwap is now only one part.

Sushi has successfully developed an impressive product suite that not only includes their well-known SushiSwap DEX but yield instruments, lending and margin trading, cross-chain implementations, NFT exchanges, and derivative staking opportunities as well. 

The Sushi Ecosystem

Sushi’s developers have continued their work, and the SushiSwap platform is no longer just a single solution. This article will look into some of Sushi’s multi-faceted ecosystem, including: 

1. SushiSwap

A DEX and multichain AMM. Sushi’s first product offers competitive rates where users can click to other chains.

2. BentoBox

An ecosystem that uses dApps in a gas-efficient manner to earn extra yield.

3. Kashi Lending and Leverage Platform

Traders can leverage going long or short, or they can create their own market. Kashi lending markets also offer elastic interest rates. 

4. Minimal Initial Sushi Offering (MISO)

Among other things, the MISO factory offers escrow capabilities and yield farms.

5. SushiBar and xSUSHI Staking

Users can earn governance rights and 0.05% of all swaps in one place.

6. Yield Farming

Sushi offers a unique way to stack yield.

7. Shoyu NFT Suite

One of the team’s developers came up with this idea for an NFT platform.

8. Onsen

With Onsen, users can locate the best yields that DeFi has to offer.

Exploring SushiSwap

SushiSwap launched near the end of last year’s “DeFi summer”, in August 2020 and is known as a decentralized protocol for exchanging tokens on-chain, creating markets, and managing liquidity pools. Moreover, the SushiSwap DEX simplifies the often complicated process of trading crypto assets. By navigating SushiSwap’s interface, users can find tokens via the search feature or copy and paste the token’s contract address into the search tab. 

AMMs use liquidity pools instead of the order books from traditional finance and Sushi’s mainstay is still its AMM. With it, users can provide liquidity or swap for token pairs. To do so, visit SushiSwap’s page and choose the “Liquidity” or “Swap” interface. 

Users looking to create a liquidity pool for their token will need to provide ETH and an ERC20 of their choice. 

According to DeFi Pulse, SushiSwap has over $2 billion in total value locked. Furthermore, that number increases when including multichain implementations such as Binance Smart Chain (BSC) and Polygon (formerly MATIC). DeFi Pulse has SushiSwap in the top 10 of all dApps and ranks #3 in terms of DEXs.

The DeFi ecosystem is one of the most exciting and innovative spaces in crypto. To get a solid foundation in it, make sure to take the DeFi 101 class at Ivan on Tech Academy.

SushiSwap’s Multichain Deployments

These days, developers aren’t limited to deploying on Ethereum alone. They are more likely to expand the surface area of their products to include multiple blockchains while keeping Ethereum as the central hub. This hold’s true for Sushi’s developers as well when it comes to implementing multichain deployments. 

They have already deployed their AMM to chains like BSC, xDAI, Fantom, etc. That’s because Sushi seeks to be a liquidity hub for any chain. For those interested, you can add networks to your MetaMask wallet and test out these cross-chain implementations. 

Also, for users familiar with Ethereum, a cross-chain Sushi option is Polygon. That’s because its developers created this sidechain for the Ethereum user. To save on gas fees, traders can go to SushiSwap and switch to the Polygon chain for quick, inexpensive trades and then switch back to Ethereum to transfer assets as needed.

What is BentoBox?

BentoBox is Sushi’s vault system named after a traditional Japanese lunch that comes in a container. BentoBox pools funds throughout the Sushi ecosystem and puts them to work in DeFi, where it can maximize returns. It does all this in a gas-efficient manner making liquidity pools in BentoBox available to other Sushi dApps. 

What is Kashi?

In Japanese, “Kashi” translates to “lending,” and Kashi is the first dApp built on top of BentoBox. Kashi allows users to add any token and create their customized lending and borrowing markets separate from each other. This separation can help isolate risks to individual markets. 

Demand for leverage drives increased borrowing. Hence, Kashi’s interest rate for lenders changes with increased demand.

Minimal Initial Sushi Offering (MISO)

MISO revolves around token genesis events throughout the platform via batch sales, crowd sales, and Dutch-style auctions.

Staking xSUSHI with SushiBar

SushiBar is Sushi’s profit-sharing system. Users who stake the native “SUSHI” token with SushiBar will get xSUSHI in exchange. xSUSHI tokens represent staked positions plus any accrued revenues earned by fees. So, xSUSHI holders get a cut of the swap fees accrued throughout the Sushi ecosystem. For example, a cut of the BentoBox and Kashi systems earnings go to xSUSHI holders.

The fees accrued also include those gathered from other blockchain implementations, like Polygon, BSC, etc. Further, xSUSHI holders get Sushi governance rights. Unlike some other DeFi protocols, users don’t have to “unstake” SUSHI to participate in governance. Sushi is community-run through a voting process on governance issues. 

The community can vote on structural changes while 0xMaki and the core developers mind the business strategy, rebalancing pools, and day-to-day operations. 

Yield Farming on Sushi

Sushi offers three types of yield and claims to be the only place where users can stack these three types. This kind of farming can get complex, but here is the short version of how it works:

Three Factors to Farming Yield on Sushi

1. Protocol Use: 

Token holders and liquidity providers share collected fees from protocol use. SushiSwap allocates 0.25% swap fees to liquidity providers whenever a user trades on the protocol. Also, 0.05% of swaps across all the chains go to xSUSHI holders. 

2. Network Tokens: 

KMP and SLP tokens serve to optimize users’ yield through volume and volatility.

3. Leverage Demand: 

As mentioned, leverage demand affects Kashi’s lending interest rate.

Stacking Yield on Sushi

So, now that you know the prerequisites, here’s how to stack yield:

1. Get KMP tokens in return for lending assets to Kashi.

2. Stake KMP to earn SUSHI.

3. Lastly, stake SUSHI for additional xSUSHI yield. 

Since this can get tricky, check out the platform’s docs on yield farming for the full explanation.

Shoyu NFT Suite

Sushi’s NFT exchange and launchpad platform is called Shoyu. The name translates to “soy sauce” in Japanese, which goes well with Sushi. Likewise, Shoyu goes well with the growing Sushi ecosystem. It’s not available at the time of this writing, but the core developers have their mental muscle behind it. 

Work began last spring when LevX, a Sushi core developer, proposed a platform that offered NFT collectors and artists a personal gallery. The Sushi community liked the idea but changed the name to Shoyu upon a community member’s suggestion. 

Shoyu is a “gas-optimized NFT trading platform.” However, it will also offer customized royalty payouts, social token support, and others. Shoyu will also join BentoBox and Kasha as another revenue source for the Sushi ecosystem, with 2.5% of each transaction going to xSUSHI holders. 

Why Shoyu is Popular

The collaboration between Sushi’s NFT platform and artists supposedly presents a win-win situation in that NFT artists and collectors get access to a new set of tools while xSUSHI holders get a portion of the proceeds regularly. Also, those who believe in Shoyu’s NFT potential will likely gravitate to holding more xSUSHI since Shoyu will generate revenues for the holders. 

The NFT ecosystem is immature and still needs better infrastructure, so we’ll see how well Shoyu does. Shoyu is just the beginning, and the team looks to have more innovative products on the way – which leads us to “Onsen.”

Onsen Program

Becoming the “go-to” DEX for trading hard-to-find assets was among Sushi’s initial strategies. To accomplish this goal, Sushi incentivizes minor trading pairs with their Onsen program. 

Onsen helps bootstrap new DeFi projects with a liquidity injection. It offers these projects the opportunity to snatch up liquidity via SUSHI rewards early on. 

By doing so, new projects don’t have to create and distribute their native tokens to entice users to try their protocol. Sushi does it for them. So, instead, new projects can enlist Onsen to attract new participants with SUSHI tokens.

The win-win here is that new projects get life-sustaining liquidity, and the Sushi ecosystem gets additional liquidity. This liquidity injection helps decreases the likelihood of impermanent loss and slippage for more minor trading pairs. 

So, think of the Onsen Program as a liquidity reward system for new tokens, with these new tokens providing another source of yield. 

Onsen’s Acceptance Criteria

Onsen provides other benefits to the Sushi ecosystem. First off, since new tokens can be more exciting than more established ones, trading volume can be higher. Also, with a percentage of SushiSwap’s total volume going to xSUSHI holders, this offsets the cost of providing SUSHI tokens to newer projects.

As you can imagine, new projects need to meet specific criteria. The Onsen Menu selects tokens based on two factors:

1. The quality of their products; 

2. Demand for their products. 

As long as both of these factors remain positive, the tokens get to stay on the Onsen menu indefinitely. They can even earn a permanent spot on the Sushi menu.

To claim SUSHI rewards, participants will need to deposit the SLP token (that they receive for providing liquidity) into the Onsen menu. This deposit claims to have the following positive domino effects:

  • Rewards bring new tokens to market. 
  • New tokens increase SushiSwap’s trading volume.
  • xSUSHI increases in value 

Sushi’s Future

Sushi continues to bring its AMM to new blockchains and recently announced its deepening relationship with Harmony One with a $4 million incentive program. It looks like Sushi is taking its suite of products to Harmony, which includes Onsen and access to BentoBox assets.

In May, yearn.finance launched their yvBOOST-ETH pool on Sushi. Yearn incentivized liquidity providers with SUSHI rewards to create liquidity for yvBOOST. YFI holders can also earn yield by depositing to the yYFI vault, providing liquidity to SushiSwap pools, and opening up collateralized debt positions on MakerDAO.

The point of all this is to say that SushiSwap may have launched with a vampire attack on Uniswap’s liquidity pools, but it has evolved rapidly in a short time. It’s gone from a straightforward DEX into a suite of new products that are breaking new ground in the DeFi and NFT space. Nevertheless, you should always make sure to do your own research,
Above all, this means if you learned how to become a blockchain developer, you too could create something unique without starting from scratch. Visit Ivan on Tech Academy and find out the amazing opportunities that a world-class blockchain education can afford you.

Author: MindFrac

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