DeFi, the only place where unicorns and cartoon sushi face
off in a battle for liquidity. Uniswap has been one of the
most successful DeFi protocols for swapping tokens on
Ethereum. It was created by a small team of passionate
builders who have made the code open-source and available
for anyone to fork. And that’s exactly what SushiSwap did!
SushiSwap
is a fork of Uniswap that adds the appetizing SUSHI token.
It grants control over the protocol to holders and pays a
portion of fees to them. Let’s see how you can get it on
your plate!
Introduction
As the Decentralized Finance (or
DeFi) space evolves, an increasing number of novel
financial platforms continue to emerge. We’ve seen how
things like flash loans and yield farming (or liquidity
mining) can be leveraged by investors to make money.
Uniswap has solidified its position as one of the
core DeFi protocols with one of the largest trading
volumes. In spite of its decentralized ethos and heavy
reliance on smart contracts, however, users don’t have
much of a say when it comes to its development direction.
SushiSwap, a new entrant to the field, promised to
change that. And over $1 billion worth of value locked
into the protocol – only a few days after launch –
suggests that many would be interested in this change. In
this article, we’ll discuss the Uniswap fork that’s taking
the crypto space by storm.
What is SushiSwap?
SushiSwap was launched in
September 2020 by two anonymous developers called Chef
Nomi and 0xMaki. It is one of the most popular
Decentralized Applications (DApp) on the Ethereum
blockchain. SushiSwap adopts the automated market-making
(AMM) model for its decentralized exchange (DEX) protocol.
Simply put, there is no order book on SushiSwap. Instead,
the buying and selling of crypto are facilitated by smart
contracts and the price is determined by an algorithm.
SushiSwap
began as a fork of Uniswap. It used the code of Uniswap to
build its foundation while also introducing some key
differences – most notably, rewards are distributed in
SUSHI tokens. Liquidity providers on SushiSwap are
rewarded with the protocol’s native token SUSHI, which is
also a governance token. Unlike Uniswap (UNI), SUSHI
holders can continue to earn rewards even after they stop
providing liquidity.
When it was first launched, SushiSwap incentivized
liquidity providers to stake their liquidity pool (LP)
tokens on Uniswap by paying out extra SUSHI rewards with a
high annual interest rate. Within a week’s time, SushiSwap
successfully attracted over $1 billion USD liquidity and
the total value locked reached over $150 million dollars.
The staked LP tokens were then migrated from Uniswap to
SushiSwap after two weeks. This means that all Uniswap LP
tokens staked on SushiSwap were redeemed on Uniswap for
the tokens they represent. New liquidity pools were also
created with them on SushiSwap, marking the launch of the
SushiSwap exchange.
In Q2 2021, the SushiSwap ecosystem unveiled its
latest addition, a non-fungible token (NFT) platform
called Shoyu. The idea of Shoyu actually came from a SUSHI
governance member, who proposed to make Shoyu an
easy-to-use NFT platform. It aims to tackle the current
shortcomings of NFT marketplaces, such as limited file
format options, limited image sizes, and the high
transaction fees on Ethereum.
What is SUSHI?
SUSHI is the native token of
SushiSwap. It is an ERC-20 token distributed to liquidity
providers on SushiSwap via liquidity mining. SUSHI has a
maximum supply of 250 million tokens. The supply of SUSHI
is dependent on the block rate. As of November 2021, it is
created at a rate of 100 tokens per block, and its
circulating supply has already reached approximately 50%
of the total supply at 127 million tokens.
SUSHI entitles holders to the governance rights and
a portion of the fees paid to the protocol. In a
simplified way, we can say that the SUSHI community owns
the protocol. Why has this spurred so much interest? Well,
community governance is heavily intertwined with the DeFi
ethos. The growth of liquidity mining (yield farming) as a
valid method for token distribution has given rise to an
abundance of new token launches.
Those fair token launch models aim to level the
playing field for everyone involved, and they often
include no premines, little or no founder allocation, and
equal distribution based on the amount of funds supplied
by each user. In most cases, the tokens distributed also
grant governance rights to token holders.
OK, but what can token holders do with these
governance rights? On SushiSwap, anyone can submit a
SushiSwap Improvement Proposal (SIP), which SUSHI holders
can vote on. These can be minor or even major changes to
the SushiSwap protocol. Instead of a more traditional team
like Uniswap, the development of SushiSwap is in the hands
of SUSHI token holders.
A strong community can be a powerful asset for any
token project, but this is especially true for a DeFi
protocol. MISO, or Minimal Initial SushiSwap Offering, for
example, is a product that arose from a governance
proposal. It is a token launchpad platform in the
SushiSwap ecosystem tailored to meet the expectations of
the SUSHI community. MISO allows individuals and
communities to launch their new project tokens through the
SushiSwap platform.
How does SushiSwap work?
As mentioned,
SushiSwap is an automated market maker (AMM) protocol that
works as a decentralized exchange. There is no order book
or centralized authority. Cryptocurrency trading on
SushiSwap is processed by the smart contracts in liquidity
pools. A liquidity pool is where SushiSwap users become
liquidity providers (LP) by locking their crypto assets.
Anyone can be a liquidity provider on SushiSwap and earn
rewards in proportion to their share of the pool. This is
done by depositing an equivalent value of two tokens in
the pool. Each pool works like a market, where other users
can come to buy and sell tokens. For a more comprehensive
explanation on how AMM works in DEX protocols, check out
our Uniswap article.
On SushiSwap, you can swap ERC-20 tokens as you
would on other DEX protocols. For example, you can
exchange stablecoins like USDT and BUSD into
cryptocurrencies like bitcoin (BTC) and ether (ETH). Also,
there are different sushi-themed functions for you to earn
passive income. For example, you can stake SUSHI into the
SushiBar and receive xSUSHI. xSUSHI staked allows holders
to earn a 0.05% reward fee of all trades from all
liquidity pools. Following the launch of Shoyu, SUSHI
holders who stake their tokens for xSUSHI will also be
eligible to receive 2.5% of every NFT trade on the NFT
marketplace.
BentoBox is another feature for earning rewards on
SushiSwap. It is an innovative vault that allows users to
take advantage of all available yield-earning tools on
SushiSwap. This means that by depositing your assets into
BentoBox, you can automatically earn interest from staking
on SushiBar, as well as from lending them to other users.
At the same time, xSUSHI holders can also earn rewards
from the transaction fees accrued from BentoBox.
Uniswap vs. SushiSwap
It’s no secret that
crypto is deeply rooted in the spirit of open-source. Many
think that Bitcoin and a growing number of permissionless
DeFi protocols act as new kinds of public goods in the
form of software. Since these projects are so easily
copied and relaunched with small changes, it’s only
natural that this leads to competition between similar
products. We could assume, however, that this should
ultimately lead to the best products for the end-user.
It’s without a doubt that the DeFi space owes
significant advancements to the Uniswap team. But we could
see a future where even both Uniswap and SushiSwap (or
other forks) flourish. Uniswap might remain at the
forefront of innovation in the AMM space, while SushiSwap
could provide an alternative that’s more focused on
features that the community wants to see.
With that said, fragmenting liquidity between
similar protocols isn’t ideal. If you’ve read our Uniswap
article, you know that AMMs work best with as much
liquidity in the pools as possible. If a lot of the
liquidity in DeFi is split between many different AMM
protocols, that could lead to a worse experience for the
end-user.
How to provide liquidity for SushiSwap?
So
you’ve decided that you want to stake tokens in return for
SUSHI. The first step is to acquire those tokens. You can
purchase the cryptocurrencies for staking from centralized
crypto exchanges like Binance, or decentralized exchanges
like Uniswap and 1inch.
In this example, we’re going to provide liquidity
for BNB-ETH, but feel free to follow along with another
pair (provided, of course, that the LP tokens are usable
on SushiSwap).
1. Head to Sushi and click [Enter App] to enter
SushiSwap.
2. Go to [Pool] from the top navigation
bar. You will need to connect your wallet to get started.
You can use Binance Wallet, MetaMask, WalletConnect, or
any other supported Ethereum wallet. In this example, we
will use Binance Wallet.
3. After clicking
[Binance], you will see a pop-up. Enter your password to
unlock the wallet, or click [Create a new wallet] if you
don’t have one.
4. Click [Connect].
5. You
will be redirected back to the SushiSwap Pool. Click [Add]
to add liquidity.
6. Click [Select a token] to find
the pair of cryptocurrencies you wish to provide
liquidity. Then, enter the amount for one of the tokens
(e.g., 1 BNB). The system will automatically calculate the
amount needed for the other token.
7. You will see
another pop-up window with the details and the gas fee for
this transaction. Click [Confirm] to approve, or click
[Reject] to edit.
8. Click [Confirm Adding
Liquidity] and then [Confirm Supply] to add liquidity to
the BNB-ETH pool.
9. Confirm the transaction in your
wallet pop-up.
10. You have successfully added
liquidity to the BNB-ETH pool. You can see your position
and your share in the pool. This means that when users
trade BNB/ETH, you can receive trading fee rewards.
11. To manage your positions, go to the [Pool] tab
from the top navigation bar and click on your position to
add or remove liquidity.
You will notice that there are some SLP tokens in
your wallet from the transaction. SLP tokens are Sushiswap
LP tokens and they represent the share you've deposited in
the pool. All liquidity pools are labeled as SLP on
SushiSwap, but they actually represent different pools.
How to buy or sell SUSHI on Binance?
Apart
from earning SUSHI from SushiSwap, the token can be
purchased on cryptocurrency exchanges like Binance. On the
other hand, if you want to sell SUSHI received from
SushiSwap, you can transfer them to your wallet and sell
them on crypto exchanges like Binance.
1. Log in to your Binance account and click [Trade]
from the top navigation bar to select the classic or
advanced trading page.
2. On the right side of the
screen, type “SUSHI” on the search bar to see the
available trading pairs. In this example, we will use
SUSHI/BUSD. Click [SUSHI/BUSD] to open the trading page.
3. Scroll down to the [Spot] box. You can buy or
sell SUSHI here. Enter the amount of SUSHI you want to
purchase or sell. Then, select the order type for your
order. In this example, we will use a Market order. Click
[Buy SUSHI] or [Sell SUSHI] to confirm the order.
Is SushiSwap safe?
Depositing funds into a
smart contract always carries the risk of bugs, even for
audited and highly reputable projects. You should never
deposit more than you can afford to lose and always DYOR
before investing. In addition, due to the high gas costs
on Ethereum, smaller deposits can have quite a lot of
farming to do before they can actually turn a profit.
Closing thoughts
SushiSwap is an exciting
experiment that challenges the competitive advantage of an
already successful DeFi protocol – Uniswap. Despite a fork
of Uniswap, SushiSwap added new features to their
protocol, with the key difference being community
governance. In 2021, SushiSwap is also introducing an NFT
platform to capitalize on the flourishing NFT market.
SushiSwap had quickly overtaken many other DeFi
projects in terms of total value locked since its launch,
and it could continue to grow in popularity and traction.
No matter how successful SushiSwap becomes in the end, it
shows that no product or service has an indisputable
advantage in DeFi.