On September 3, the volume of blocked funds in the protocol of the Uniswap decentralized exchange approached a record $ 1.8 billion. However, on September 10, in just one day, the exchange lost more than 70% of this amount. The funds migrated to the Uniswap fork, culinary name SushiSwap, which had launched just two weeks earlier.
Despite such a short period of time, many events have already taken place around the new project, including the scandalous departure of the anonymous founder, who took $ 14 million from the developers fund and then returned it with an apology.
How is SushiSwap different from Uniswap?
The Uniswap exchange operates on the principle of liquidity pools that replace order books. A user who blocks his coins in one of the exchange's smart contracts becomes a liquidity provider. Locked tokens are combined into liquidity pools. Anyone can open a pool with a new cryptocurrency.
Exchange users can conduct exchange transactions (swaps) between any tokens present on the exchange. A flat fee of 0.3% is charged for each trade. It is distributed among liquidity providers in accordance with their share in the pool. The liquidity provider can withdraw all of its funds from the pool, but then it will stop receiving commission income.
Despite its neatly implemented system, Uniswap has been criticized more than once for its lack of decentralization, namely the lack of a decentralized governance system.
The commission rate has remained the same since launch, although the rise of profitable farming has increased competition with other other DeFi apps .
On August 26, Twitter user Chef Nomi unveiled the SushiSwap protocol, calling it the "evolution" of Uniswap. The anonymous creators of SushiSwap called the main difference a new incentive system based on the SUSHI management token.
However, SUSHI was used primarily to lure liquidity providers away from Uniswap.
According to the SushiSwap tokenomics, described in the project's blog, the commission for exchanges is the same 0.3%, but only 0.25% goes directly to the pool participants - the remaining 0.05% is converted into SUSHI tokens and distributed among all token holders. This made it possible to receive passive income even after completely exiting the pool.
An ocean of liquidity
SUSHI tokens are issued every Ethereum block starting at block # 10750000. They were originally distributed as a free reward to members of 13 special Uniswap pools created through the SushiSwap website.
The SushiSwap protocol is based on the emission of 100 tokens in each Ethereum block, although this figure was increased 10 times for the period before the migration to the SushiSwap protocol to encourage early adopters.
Users started investing in SushiSwap pools. The profitability of the pools grew with the increase in the volume of blocked funds, reaching hundreds and even thousands of percent per annum (APY). At the same time, in the "native" SUSHI / ETH pool, the reward in tokens was doubled, which made it the most profitable.
According to the DeFi Rate portal, on August 31, the SUSHI / ETH yield reached 1500% per annum. The need to obtain SUSHI tokens to participate in the pool also pushed the token price up.
In total, from August 27 to September 2, according to DeFi Pulse , the amount of funds blocked in the Uniswap protocol increased from $ 387 million to $ 1.7 billion. A significant part of this amount was withdrawn on September 9 as a result of the migration to the SushiSwap platform.
According to SushiSwap Vision , on September 13, the volume of funds blocked in SushiSwap amounted to $ 870 million. Ironically, the decrease in SUSHI emission to the established standard led to an outflow of liquidity back to Uniswap .
The inflationary mechanism puts pressure on the SUSHI price
SUSHI tokenomics was studied in detail by the Glassnode service. According to their analysis, provided that 100 new SUSHI tokens are issued in a block and the current block generation rate in the Ethereum network, a year later there will be 326 million SUSHI in circulation, and in two years - almost 600 million. At the time of writing, the emission is approximately 90 million. SUSHI has an inflationary mechanism that stimulates not only to keep the token, but to be an active provider of liquidity.
The main source of demand for SUSHI is trading commissions in the protocol. The token price rises with an increase in the trading volume. While maintaining a relatively low trading activity, the price of SUSHI will also be low - new coins are simply added to circulation, diluting the supply.
Glassnode calculates that for a “fair” (that is, protocol demand for liquidity providers) SUSHI price of $ 10 or more, SushiSwap's daily trading volume would need to be tens of billions of dollars. However, a more realistic value for trading volume is around the $ 400 million mark, like Uniswap. In this case, the equilibrium price of the native token will be only $ 0.31 .
Sushi for developers
An important point is that holders and liquidity providers do not receive all SUSHI tokens: 10% of new coins are automatically sent to the developer fund. It is with him that a major scandal is associated that arose in the first days after the launch of the project.
On September 5, it became known that the project leader, "Chef Nomi", unilaterally withdrew SUSHI in the amount of $ 14 million intended for developers, although earlier in the community's Discord chat he had promised not to do so. As a result, SUSHI price collapsed by 50%.
Hype, FUD, and scandals have led to strong volatility in the native token.
Are the whales playing DeFi?
The threat of an outflow of liquidity from Uniswap made the creator of the protocol, Hayden Adams, speak out. On September 1, he stated that SushiSwap is a project of a relatively small group of professional speculators.As early as September 1, the SUSHI / ETH pool on Uniswap had about 2,200 addresses, with a total volume of $ 173 million at that time - that is, an average of $ 75,000 per address. About the same number of addresses voted for the holders of the multisig wallet of the SushiSwap developers.
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