What Is SushiSwap (SUSHI)? | Notum
Mar 14, 20225 min read
What Is SushiSwap?
SushiSwap is a decentralized exchange (DEX) built on Ethereum that uses an automated market-making system (AMM) instead of a traditional order book. So, no more matching of individual buy and sell orders, but instead of that, users can pool together two assets that are then traded against, with the price based on the ratio between the two.
SushiSwap appeared as a fork of Uniswap; It gave its users to stake their liquidity pool (LP) tokens on Uniswap by paying out extra SUSHI rewards with a high annual percentage yield (APY). That’s it, the project rapidly attracted over $1 billion USD liquidity, and the total value locked reached over $150 million dollars. Two weeks later, the staked LP tokens were transferred from Uniswap to SushiSwap. All Uniswap LP tokens staked on SushiSwap were exchanged on Uniswap for the tokens they represent. New liquidity pools were also created with them on SushiSwap, which was an official start of the SushiSwap exchange.
In Q2 2021, the SushiSwap revealed its latest addition, a non-fungible token (NFT) platform called Shoyu. The idea of Shoyu was proposed by a SUSHI governance member, who offered to make Shoyu an easy-to-use and comprehensive NFT platform. A new platform wants to improve some current drawbacks of NFT marketplaces, such as limited file format options, limited image sizes, and the high Ethereum transaction fees.
What Is SUSHI?
SUSHI is the native SushiSwap’s token. It is an ERC-20 token spread to liquidity providers on SushiSwap by liquidity mining. The token’s maximum supply is about 250 million tokens. The supply depends on the block rate.
SUSHI gives its holders governance rights and an amount of the fees paid to the protocol. To put it simple, you can think of the SUSHI community as owners of the protocol.
What can token holders do with these governance rights they get? For example, holders can submit a SushiSwap Improvement Proposal (SIP), and SUSHI holders can vote on. Doesn’t matter if it’s minor or major changes to the SushiSwap protocol, all proposals are welcome. So, the development of SushiSwap somehow relies on SUSHI token holders.
The matter is that a strong loyal community can be a crucial point for any token project, but this is especially topocal for a DeFi protocol. MISO, or Minimal Initial SushiSwap Offering, for example, appeared thanks to a governance proposal. It is a token launchpad platform in the SushiSwap ecosystem crafted to satisfy the expectations of the SUSHI community. MISO allows users and communities to launch their new project tokens through the SushiSwap platform.
How Does It Work?
SushiSwap allows to buy and sell different cryptocurrencies, make transactions between users. Each swap is 0.30% in fees, 0.25% goes to liquidity providers and 0.05% is converted to SUSHI and spread to users holding the SUSHI token.
Anyone can add liquidity to SushiSwap's pools simply connecting their Ethereum wallet to their SushiSwap account. Then users lock the pool's assets into a smart contract in a 1:1 proportion. As an example, if they want to add 5 ETH worth of liquidity to the SUSHI-ETH pool, they need first to convert 1 ETH of it into SUSHI using the Swap function.
It’s possible to choose to supply liquidity for trading pairs that don't yet exist by providing the cryptocurrencies for the new pools. Like the first LP, they get to place the initial exchange price, which will change itself as others add tokens to the pools through arbitrage.
LP suppliers will get SushiSwap Liquidity Provider tokens (SLP), which is a proportional share of the pooled assets. That allows users to redeem their funds and crypto fees earned whenever they need.
Main SushiSwap's Features
Two main SushiSwap features are token swaps and yield farming. Token swaps are used for trading, and yield farming is for earning interest on existing tokens.
Onsen (Menu of the Week)
In the past, the exchange offered menus that changed weekly. It's important as yield farmers constantly look for new LP opportunities. That's why they usually have to switch back and forth between different platforms to find the most profitable one.
As the profitability of a pool often changes, the team thought of introducing a 'menu of the week.' Governance participants can vote on which LPs to feature every week, which in exchange helped with changing the protocol's diversity and token offering.
Onsen's design can bring new liquidity to the DEX while at the same time making slippage lower, expanding LP offerings, and creating collaborative relations with other DeFi projects.
BentoBox is a lending feature. The idea is to store each token of a trading pair into one contract. On BentoBox, SushiSwap keeps all tokens in one place. This is done not only for lending contracts but other features as well. Developers will be able to build extensions that can use the BentoBox on other protocols.
These are the benefits of the feature:
- Tokens approved in the vault are approved on all protocols that use BentoBox;
- Funds are handled by each protocol individually, especially those that the user approves;
- Provides low gas fees for internal token transfers.
Loans are improved on the BentoBox through the use of multiple decentralized oracles. Previously, the ecosystem saw a rise in dysfunctions related to price reporting as a result of developers using only one or two unreliable oracles. SushiSwap fixes this by offering the user to decide which oracle to use when using the lending platform.
For this purpose, the team will implement SushiSwap TWAP, Compound Open Price Feed, and Chainlink Oracles. Each oracle has its own advantages and disadvantages, which users have to keep in mind when creating a loan.
One of the biggest benefits of SushiSwap is that the majority of fees get paid back to users. Liquidity providers receive large rewards for their added contributions. Impressively, the SUSHI/ETH pool pays out double dividends. SushiSwap is the first AMM to send all profits back to the community that maintains and services it.
SushiSwap fees are more affordable than centralized exchanges like Coinbase. Specifically, SushiSwap users pay a 0.3% fee when they join a liquidity pool. There is also a small transaction fee only paid once when you approve a new token's pool.
The community governance mechanism employed by SushiSwap provides users with a chance to vote on all vital upgrades and protocol changes. Notably, a percentage of all freshly-issued SUSHI is set aside for the project's future development. The community gets to vote directly on what projects deserve this financial boost.
The crypto market has shown major support for this project since its launch. The platform received glowing endorsements from multiple DeFi platforms. Also, some of the largest centralized exchanges in the world added the platform's token, SUSHI, days after the project launched publicly. This combination of market and user support helped SushiSwap to gain popularity quickly.
Staking and Farming Options
SushiSwap offers DeFi users access to the most popular features, such as staking and farming. Many new users prefer staking over trading because it's less labor-intensive and provides more consistent ROIs. Additionally, the farming protocol means you don't need to be a liquidity provider to earn rewards.
How to Buy SUSHI?
1. Compare crypto exchanges
The easiest way to buy Sushi is from a cryptocurrency exchange. Compare exchanges and their most essential features such as low fees, usability, and 24/7customer support.
2. Sign up
Creating an account on an exchange might need to verify your email address and identity.
Once verified, you can deposit $ using the payment method that best suits you – payments are widely accepted.
4. Buy SUSHI
You can now exchange your funds for Sushi. This is as easy as entering the amount you want to purchase and clicking buy on easier-to-use exchanges. If you like, you can now withdraw your Sushi to your personal wallet.
SushiSwap is definitely an interesting project that challenges the competitive advantage of an already successful DeFi protocol – Uniswap. SushiSwap added new features to their protocol, and the key difference is being community governance.
SushiSwap allows people to exchange cryptocurrency assets and earn fees by contributing crypto to a liquidity pool quickly and easily. Its SushiSwap token gives users an opportunity to continue earning SUSHI after they take away their crypto from the pools and have an influence on how SushiSwap is run.