As the decentralized finance (DeFi) space evolves rapidly, an increasing number of new DeFi platforms continue to emerge. Almost every other DeFi protocol came about through an organized process: whitepaper publishing, development stage, testnets, security audits, and finally mainnet. But a DeFi protocol, let's discuss it, changed all that.
The introduction of smart contracts in blockchain technology made possible products that had never been thought of before. So, DeFi was born in 2018, and UniSwap, a decentralized exchange (DEX) built on Ethereum, was one of DeFi's first projects.
Uniswap has been one of the most successful DeFi protocols for exchanging tokens on Ethereum. The team, which developed Uniswap, made the code open source and available for anyone to fork.
In early September 2020, just days before the launch of Uniswap V3, a pseudonymous founder, Chef Nomi, copied Uniswap's open source code, added a new token, and then launched the project under the name SushiSwap. The project managed to attract more than $ 1.3 billion in locked value (TVL) in just one week after its launch.
Initially, the project was surrounded by some controversy , but then it moved away from Uniswap and turned over to the community after migrating to a multi-signature contract. SushiSwap is now running smoothly and, according to DeFi Pulse, is ranked # 6 in total locked value (TVL) with $ 3.84 billion locked in its liquidity funds. So, let's take a look at SushiSwap.
What is SushiSwap Protocol?
SushiSwap is an automated market making (AMM) decentralized exchange (DEX) running on the Ethereum blockchain. SushiSwap is a fork of Uniswap with a few key differences, most notably the SUSHI token.
Like other decentralized exchanges (DEX), SushiSwap makes it easy to buy and sell different crypto assets between users. But it does so using a model called automated market making (AMM) rather than the order book model.
Users can add their inactive tokens in wallets to liquidity pools and earn passive income according to their contribution. Traders can exchange tokens from these pools of liquidity. SushiSwap pools are AMMs that use constant x * y = k product algorithms to ensure that the token amounts in the pools are always balanced.
Although SushiSwap has a controversial history, it was and continues to be strongly community driven and committed to the open source spirit of cryptocurrencies. The protocol merged with Yearn Finance (YFI) in December 2020. Since merging with the Yearn ecosystem, SushiSwap has been constantly consuming Uniswap's dominance in the DeFi sector.
What are the main products of SushiSwap?
There are three products within the SushiSwap ecosystem: SushiSwap Exchange, SushiSwap Liquidity Pools, SushiSwap SushiBar Staking (xSushi).
SushiSwap Exchange
It is a web-based application that provides the necessary tools such as Swap, Pool, Stake. Users can trade the Ethereum ERC-20 token using the Swap feature and connecting wallets. SushiSwap is compatible with Metamask, WalletConnect, Coinbase Wallet, Fortmatic, Torus, Lattice, and Portis.
SushiSwap Exchange services come in three versions: SushiSwap Exchange , SushiSwap App, and SushiSwap Lite . All these versions provide similar services like swap, liquidity funds, sushi bets. But SushiSwap lite uses market and limit orders to execute a trade.
Like Uniswap, SushiSwap Exchange also has a protocol analytics dashboard for developers to export reports and status data about the protocol. The SushiSwap Analytics dashboard provides information such as total liquidity, trade volume, the most important reward group, and more detailed information about the protocol.
Liquidity Pools by SushiSwap
SushiSwap's liquidity funds allow anyone to provide liquidity through the SushiSwap or SushiSwap Lite app. When they do, they will receive SLP tokens (Sushiswap liquidity provider tokens). For example, if a user deposited $ SUSHI and $ ETH to a pool, they would receive SUSHI-ETH SLP tokens. A user can also create a new liquidity pool simply by providing a new pair . The proportion of tokens that the user adds will set the price for this new pool.
SushiSwap SushiBar Staking (xSushi)
When users provide liquidity to groups, they also receive Sushi tokens. The SushiBar product allows users to stake their Sushi and receive xSushi in exchange for wagering on the xSushi group.
How does SushiSwap work?
Swap
The exchange on SushiSwap works similarly to other DEXs from AMM. Traders can trade any ERC20 token. When users transact on SushiSwap Exchange, a fee of 0.3% is charged. 0.25% of this trade goes back to the LP group.
In exchange for maintaining liquidity in these pools, liquidity providers are rewarded with protocol fees, along with a portion of the freshly minted SUSHI on a daily basis. They also have SLP tokens (Sushiswap liquidity provider tokens) that represent a proportional part of the pooled assets, allowing the user to claim their funds at any time.
The SushiSwap protocol uses Uniswap's AMM model, but it also introduces limit orders. According to the team, MMAs typically only settle orders at market price, which is a significant limitation compared to order book-driven trades. SushiSwap addresses this critical point in AMM with the launch of the limit order feature.
The limit order model in SushiSwap consists of two contracts: Order Book and Clearance. OrderBook maintains the limit orders that users have submitted. Anyone can call and create a limited order with the quantity to sell and a minimum price. The settlement is responsible for exchanging tokens for orders. This is done with the help of relays. Relayers need to complete an order with the proper parameters to meet the minimum price requirement set out in the order. If the attempt is successful, a fee of 0.2% will be applied to the broadcaster and xSUSHI holders. Of the 0.2% fee, 80% goes to the broadcaster and 20% to xSUSHI holders.
Stakings
The SushiSwap SushiBar product allows users to stake their received SUSHI tokens. By betting with SushiBar, they receive xSUSHI which can then be in the xSushi pool. As we know, when users transact on SushiSwap Exchange, a fee of 0.3% is charged. 0.05% of this fee is added to the SushiBar group in the form of LP tokens for the relative group.
The documentation provided by SushiSwap explains staking as:
“When the rewards contract is executed (minimum once a day), all LP tokens are sold by Sushi (on SushiSwap Exchange). The newly purchased sushi is divided proportionally among the xSushi holders in the pool, which means that your xSushi is now worth more sushi.
Yield Farming
SushiSwap offers users multiple yield farming opportunities , including SushiBar. The protocol allows users to stake their SLP tokens on many farms. Users can enter the farms of their choice. The yield farming in SushiSwap delivers performance of over 300% APY on some farms, but it is not fixed.
SUSHI Token
SUSHI is the native token of the SushiSwap protocol that plays a key role in the maintenance and operation of your network. Users who own SUSHI can help govern the protocol by voting on proposals that could improve their ecosystem, and anyone can submit a proposal for SushiSwap users to vote.
The tokenomics (SUSHINOMICS) includes a SUSHI ceiling of $ 250 million and the expected date to reach the ceiling is November 2023. 10% of all issues will go to the development fund controlled by Multisig.
The SUSHI token also powers SushiSwap's governance model. Currently, the community votes on major structural changes and the use of the development fund wallet, while 0xMaki and the core team decide on the smaller changes that affect operations, as well as changes to the cultivation pairs of the SushiSwap menu. The team is also working to establish a DAO that will take effect sometime in 2021.
Important links
Website: https://www.sushi.com/
Exchange SushiSwap: https://exchange.sushi.com/
SushiSwap App: https://app.sushi.com/experimental/beginner
SushiSwap Lite: https://lite.sushi.com/#/
Documentation: https://docs.sushi.com/
Twitter: https://twitter.com/sushiswap