What is Sushiswap (SUSHI), and can it overtake Uniswap?
Sushiswap is a decentralized exchange, similar to Uniswap, that runs on top of the Ethereum network. Although Sushi has $3 billion worth of assets locked in its protocol as of May 2021, the average value locked is closer to $4.5 billion.
These numbers make Sushiswap one of the largest DeFi platforms on Ethereum. This article will look at what’s driving growth on the Sushi exchange, how the SUSHI token works, and why Sushiswap is more popular than other decentralized exchanges.
What is Sushiswap?
In the summer of 2020 Sushiswap began life as a clone of Uniswap. Some people in the Ethereum community refer to Sushiswap’s founding as a “vampire attack,” since Sushiswap forked Uniswap’s code and took many of Uni’s liquidity providers (LPs) as well.
A liquidity provider (LP) is someone who deposits their coins in a decentralized exchange to provide exchange liquidity. As a reward for this service, a LP earns a portion of the exchange’s trading fees (LPs can earn 0.05% of all trading fees on the Sushi exchange). Sushiswap caused LPs to leave Uniswap and join Sushi by incentivizing them with the SUSHI token, a topic we’ll cover in the next section.
One of the most interesting aspects of Sushiswap history is that the creator, the pseudonymous developer Chef Nomi, dropped out of the project shortly after its founding. Chef Nomi had control of $14 million worth of SUSHI in the dev fund and he decided to sell all of these tokens and give up control of the exchange.
Chef Nomi’s betrayal was one of the biggest public exits in DeFi history and the price of SUSHI collapsed by more than 70% after the sale. What makes the story so interesting is that it didn’t take long for Chef Nomi to realize his mistake. After just one week he rebought all of the tokens that he’d sold, made a series of public apologies and tried to rejoin the community.
Apologies or not, the Sushi community had already made up its mind that it no longer wanted anything to do with Chef Nomi. Control of the Sushi exchange was temporarily turned over to Sam Bankman-Fried, CEO of the crypto exchange FTX.
To this day Chef Nomi remains a sidelined figure in the Sushiswap community and the developer 0xMaki is now leading the project. Although the total value locked in Sushi is volatile in the short term, Sushi is showing steady growth in the long term and seems relatively undervalued compared to the Uniswap UNI token, with which it shares a similar trading volume.
The Sushiswap Token
The SUSHI token is used to vote on governance decisions for the Sushiswap protocol. SUSHI holders can vote on changes such as how the Sushiswap treasury is spent and what the trading fees on the platform should be.
The Sushi token is also used to reward liquidity providers. Every time an Ethereum block is minted the Sushi exchange creates 100 SUSHI which it distributes to LPs. This is in addition to the 0.05% of all trading fees that LPs receive. These two financial incentives are a major reason why Sushiswap was able to get billions of dollars in value locked so quickly.
SUSHI can now also be staked at the platform’s Sushi Bar, where stakers are given the xSUSHI token in return, meaning that they can accrue staking rewards but still also retain liquid tokens for use on Sushiswap and other DeFi partner protocols, such as the Aave or C.R.E.A.M lending platforms. This shows that the Sushiswap developers are continuing to work towards providing extra value for their investors.
Is Sushiswap Safe?
We can never say with 100% certainty that a protocol is completely safe, however Sushiswap is based on Uniswap’s codebase and Uniswap is one the largest DeFi platforms that has never been seriously compromised.
Although there’s been at least one small exploit on Uniswap, in general the platform is very secure. By extension that suggests that Sushiswap is also quite secure.
Sushiswap’s success inspired the launch of all sorts of other food-related projects:
Pancakeswap is a decentralized exchange based on Binance’s BSC chain and is one of the largest protocols on BSC as measured by trading volume. Similar to the SUSHI token on Sushiswap, Pancakeswap uses the CAKE token.
Pickleswap was designed to use arbitrage strategies to generate a yield for investors.
It wasn't necessarily a bad idea, however, with just $30 million of value locked Pickleswap is a minnow compared to whales like Uniswap and Sushiswap, which have billions of dollars in value locked. More information about Pickle finance is available on the Exodus blog.
Sakeswap (or Sakeperp) is an automated market maker (AMM) project which has a similar cute ‘kawaii’ style to Sushiswap. The project is also working on Binance Smart Chain, where it seeks to provide the first perpetual contracts trading platform from which users can buy and sell diverse tokenized assets such as gold, oil, stocks or fiat currencies.
Why Sushiswap is Better
Sushiswap is one of the most popular dapps on Ethereum for two good reasons:
- Security - The Sushi exchange is based on Uniswap which has been operating for years without any major hacks or exploits. Security is something that most people don’t think about, until it really matters.
For example, everyone who is/was invested in the BUNNY token is thinking about security now, whereas SUSHI token holders can rest easy knowing that the security architecture for Sushiswap is excellent.
- Liquidity - Sushiswap has billions of dollars of value locked. All of the crypto locked up in Sushi gives the exchange a deep order book and plenty of liquidity. This can cause a positive feedback loop where ample liquidity incentivizes traders to use the platform. More traders mean more fees getting distributed to LPs. Higher returns incentivize more LPs to lock their coins in the Sushi exchange.
That means more liquidity, which attracts more traders and the cycle continues forward. It would be difficult for a new DEX to overtake Sushi at this point because of how much liquidity the exchange has.
- Multichain future - The scalability of Sushiswap continues to increase, as the platform is built out onto diverse blockchains such as Binance Smart Chain, Polygon and Fantom. This may be what gives Sushi the edge going forwards, as Uniswap is based solely on the Ethereum blockchain, and will probably continue to suffer from scalability issues in the short term.
- Active Developers - The Sushi team are not resting on their laurels. New developments for 2021 include a partnership with Anyswap, a cross-chain DEX, and Bento Box, a dApp and token vault which encourages development with increased gas efficiency and percentage yields. The first dApp to launch on Bento Box is the Kashi lending dApp, which introduces a novel architecture for lending pools that increases the amount of available pairs without compromising on security.
Between security, liquidity and a steadily appreciating token price, Sushiswap has a lot of advantages over other decentralized finance (DeFi) protocols.
Keep Your Sushiswap Safe
SUSHI is an ERC20 token which means that it’s fully interoperable within the Ethereum ecosystem. If you’ve bought the Sushi token and need a place to keep it safe, the best option is Exodus.
Exodus is a non-custodial cryptocurrency wallet which means that users have complete control over their crypto, nobody at Exodus can access your coins. Exodus users can also swap crypto from within the wallet without sending their coins to an exchange.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.