New Craze is Served on the DeFi Table, Competing with Uniswap - Sushi
There is a new item on the decentralized finance (DeFi) table - SushiSwap. While some find it a potential threat to decentralized exchange protocol Uniswap, others are expecting its demise. That said, it's been recording some strong numbers in terms of daily trading volume and total value locked.
As to what this new item is, a commenter described it as "essentially Uniswap but with a native governance token given to LPs that generates revenue from trading fees."
So let's unpack this.
Uniswap is a decentralized exchange protocol that allows users to convert Ethereum (ETH)-based ERC20 tokens on-chain, and it uses liquidity pools which help boost the protocol’s exchange liquidity.
Governance tokens became particularly popular with the recent yield farming frenzy. As previously reported, yield farmers are crypto liquidity providers (LPs), and these earn returns by putting their capital to productive use in DeFi platforms. In the last couple of months, liquidity mining has been mixed into this, where a yield farmer provides liquidity and gets not just the return, but also a governance token, and with it a say in that project.
So the way the community is seeing SushiSwap is Uniswap with liquidity mining.
2/ Some anonymous dev forked @UniswapProtocol the most important piece of infrastructure in the #DeFi space (a real cash cow),— litocoen 🧪 (@litocoen) August 31, 2020
introduced a token on top that entitles its holders to a share of trading fees.
In the current @uniswap implementation all fees go to LP's.
SushiSwap is created by one 'Chef Nomi.' Per SushiSwap, it's "the next step forward in the Uniswap protocol design: an evolution." It's a combination of Uniswap's "elegant core design" and added "community-oriented features."
"(U)nlike Uniswap, those SUSHI tokens will also entitle you to continue to earn a portion of the protocol’s fee, accumulated in SUSHI, even if you decide to no longer participate in the liquidity provision," according to the team.
Furthermore, SushiSwap wants Uniswap liquidity providers to move the liquidity to SushiSwap. Anyone holding Uniswap LP tokens can stake them into the corresponding initial list of pools in order to start providing liquidity and earning SUSHI tokens, the post said, while "for the first 100000 blocks (~2 weeks), the amount of SUSHI tokens produced will be 10x, resulting in 1000 SUSHI tokens being minted per block. This is to incentivize early farmers and adopters of the protocol and to help in The Liquidity Migration™️."
The Chef said that 10% of every minted Sushi will be set aside for future development, adding: "No VC, only community fund."
At 8:40 UTC, Sushi Token (SUSHI) is trading at USD 3.65, having gone up 32% in a day. Total liquidity stands at USD 32m, with the 24-hour volume of USD 53m.
According to Ethereum dashboard Zippo, the total value locked in mere two days of Sushi's existence stands at USD 736m.
It's the governance tokens that seem to have boosted the daily trading volume on Uniswap to its new high of USD 503m, recorded on August 30.
There are opinions within the community that Sushi is YAM 2.0 on its way to implosion. The Sushi is not audited yet, and if there's anything that should've been learned from the YAM story, it's to heed the creators' warnings of dangers that come with unaudited projects.
Chef Nomi has called for blockchain community companies to audit Sushi, stating today that so far "only Quantstamp stands for the community to do the audit."
Its creator sees a bright future for the project, stating that "last 24 hours collected trading fee of SUSHI-ETH Uniswap (with 99% in SushiSwap) alone is [USD] 85k. Assuming that for 365 days, it's ~ [USD] 30M fee per year. 1/6 go to SUSHI holder, so earning is [USD] 5M. If we assume 20 P/E, that's fully diluted cap of 100M just for *one* token pair."
While others challenged the idea:
That's for one pair for a token that was created less than a week ago. How pairs are there on a DEX?— Chef Nomi #SushiSwap (@NomiChef) August 31, 2020
Backlinks are UIs, app-level integrations (e.g. Dharma), aggregators (e.g. 0x API), tutorials, YouTube videos, SEO ranking, even things that are more amorphous like trust & brand.— Nadav from Dharma (@NadavAHollander) August 31, 2020
These things don't fork at the protocol layer, and they're determinant of trading volume.
Meanwhile, Hayden Adams, Uniswap founder, argued that Chef Nomi has been working on forking Uniswap for a week and "selling a token you own 10% of," adding that "You don’t believe in community. You just an opportunist who wants to sell some tokens." Chef Nomi responded that "I don't sell any token. I pay for gas deployment myself. I distribute everything except funds for development."
70% of Uniswap total-value-locked (TVL) came in fresh during the last few days due to people using it to get an air… https://t.co/LWxBaxGcwY— Eric Wall (@ercwl)
reasonable assumptions— 찌 G 跻 じ ⚡️ 🔑 (@DegenSpartan) August 31, 2020
i'd actually be more conservative and use 50% of the past 24h vol, so $240m daily vol
would imply a PE ~7.7 https://t.co/Lud8j4wDot
Over $300M locked in $SUSHI within 25 hours...— Jason Choi (@mrjasonchoi) August 29, 2020
Even at depressed prices APYs still at 3500%+ for the $SUSHI pool (provide SUSHI & ETH in Uniswap, stake Uniswap LP tokens on Sushiswap). https://t.co/LaJmfe4a5M pic.twitter.com/VTNC1AYYzq