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What Is SushiSwap? - An Introductory Guide To The Liquidity Driven Ethereum Deployed DEX

 

By Damian David Mar 9, 2023

 

 

What Is ShuShiSwap?

 

SushiSwap is a product-filled liquidity-driven decentralized exchange(DEX) built with an automated market maker (AMM) smart contract and made to enable the swaps of Ethereum standard tokens between multiple chains and protocols.

 

SushiSwap was launched by two pseudonymous developers tagged "Chef Nomi" and "0xMaki" on Aug. 28, 2020. SushiSwap was made as a clone and subsequent rival of the Uniswap DEX. The Uniswap code is famously known to be "forked" by SushiSwap and this is legal because of the open-source nature of the Uniswap DEX.

 

Chef Nomi and 0xMako however didn't just stop at cloning the Uniswap DEX. To facilitate the adoption of the SushiSwap exchange, they directly targeted the liquidity providers of Uniswap in an operation tagged "Vampire Attack" or "Vampire Liquidity Mining Attack".

 

This was done by incentivizing the Liquidity providers of Uniswap DEX using SUSHI tokens if they agreed to transfer or swap their liquidity pools from Uniswap to SushiSwap. This turned out successful as it got the SushiSwap exchange over $1 Billion worth of liquidity in less than a week.

 

Chef Nomi and 0xMaki reportedly offered 1000 SUSHI tokens to each Ethereum block created by Uniswap Liquidity providers on SushiSwap. This was mainly done to facilitate (and as fast as possible) an Automated Market Maker (AMM) and a substantial trading volume in the SushiSwap exchange.

 

 

How Does SushiSwap Work?

 

SushiSwap is likened to the Uniswap DEX in terms of its use and dependence on Automated Market Makers (AMMs). It is a decentralized exchange platform used to conduct swaps from one Ethereum token to another and this is possible because of the presence of Liquidity providers, Liquidity pools and ultimately an Automated Market Maker (AMM).

 

Aside from the basic functions it forked from the Uniswap DEX, there are quite more handful functionalities to its architecture like the SushiSwap decentralized lending market, SushiSwap yield instruments, SushiSwap auction platform, SushiSwap AMM framework and SushiSwap staking derivatives.

 

SushiSwap decentralized lending market is otherwise called "Kashi" and it is maximized for better lending experience because it works with isolated lending pairs unlike a lot of other lending protocols in the market today. Isolated lending pairs makes it possible to minimize risk and loss to the platform as a whole. 

 

In major lending platforms in the cryptocurrency market, you'll have to use a variety of crypto assets as collateral to get another variety of crypto assets, this makes it high risk as the drop of value in one of those assets will mean the drop of value to other assets. In SushiSwap, the Kashi lending market uses isolated pairs.

 

Isolated pairs makes it possible for a user to borrow a particular token in a particular pair using another crypto asset or token as collateral, inadvertently isolating other pairs from any detrimental outcome the pair might have. This also opens up an opportunity for lenders as the most volatile or riskiest pairs will warrant a high interest rate.

 

The Kashi lending market interest rates is elastic, it is optimized to consume very low and insignificant gas fees, it is used to generate revenue for the SushiSwap exchange and it can also be used to margin shorten any token by borrowing the token, selling it off, putting the token you sold it for back into its pool and repeating the process till desired result.

 

SushiSwap yield instruments are tagged "SushiBar" and "Onsen". SushiBar is where you stake your SUSHI tokens and get xSUSHI, a token that appreciates in value the longer your staked SUSHI tokens stay in the SushiBar. The value your xSUSHI  accumulates from all the fees gotten from the SushiSwap exchange.

 

SushiSwap Onsen program or simply "Onsen" is another way users can earn from yield farming in the SushiSwap exchange. New tokens in the Cryptocurrency market are selected by SushiSwap to be on a "Menu" and users can stake their SLP tokens (SushiSwap Liquidity Pool tokens) gotten from providing liquidity for SushiSwap, on any Token from the menu thereby provide liquidity for them inadvertently earning rewards.

 

SushiSwap auction platform is tagged "Miso"an acronym for "Minimal Initial SushiSwap Offering", this is a platform created by SushiSwap to aid tokens find their value and a loyal marketplace. With Miso, a developer doesn't have to go through the strenuous process of initially trying to sell his tokens to the already saturated cryptocurrency market. The Miso auction platform achieves this for them in three strategies; Crowdsale, Dutch Auction and Batch Auction.

 

The Crowdsale strategy is a first come first serve strategy. It works by setting a fixed price for a limited fixed set of tokens, this way investors are eager to buy all or most of it to prevent others from leveraging on the opportunity. 

 

The Dutch Auction strategy works by setting the price of a token higher than its actual value, basically overpricing it and then reducing the price overtime as different investors keep buying it at the price most suitable for them. 

 

The Batch Auction strategy works by allocation directly proportional to contributors to the market event. This way everybody gets rewarded but according to your contribution to the pool. This is an opportunistic strategy for "Whales" as the more contributions you make the more tokens are allocated to you.

 

SushiSwap AMM framework is tagged "Trident" , unlike the Automated Market Makers (AMMs) used in Uniswap v3 and Curve v2 respectively, Trident is not just an AMM, rather it is described as a framework, a framework that can be used to build any type of an Automated Market Maker (AMM). Trident use case is continually evolving to accommodate other protocols and blockchains thus making it a very unique type of AMM created by SushiSwap.

 

SushiSwap staking derivatives is tagged the "MasterChef V1 " and this was the utility that was used to incentivize liquidity providers during the infamous "Vampire Liquidity Mining Attack". MasterChef V1 was improved to MasterChef V2 and with the usage of MasterChef V2 when you're withdrawing and depositing SLP tokens, it is processed with cheaper gas fees unlike the MasterChef V1. 

 

MasterChef V2 also optimizes user staking rewards making it possible to get double rewards in the sense that users can add incentives or rewards from other projects to that of the SUSHI rewards making liquidity higher and subsequently making their overall incentives more profitable. 

 

With the MasterChef V2 staking derivatives, you can also claim your reward whenever and however you like using a function called "Claiming On-Demand" unlike MasterChef V1 that automatically sends you your accumulated rewards by making use of your own gas fees (in ETH) which you might have not want to use yet.

 

What Is SUSHI?

 

SUSHI is the native ERC20 token of the SushiSwap decentralized exchange (DEX). It is used as a utility token, an incentivizing,  economic and a governance token.

 

The SushiSwap decentralized exchange (DEX) was deployed on the Ethereum blockchain mainnet, this makes the SUSHI token inadvertently an Ethereum standard token, precisely ERC20.

 

According to CoinMarketCap,  SUSHI as of March 2023, is valued at $1.71, with a market cap of $261,257,074. SUSHI has a total supply of 250,000,000 SUSHI tokens and a circulating supply of 222,257,372 SUSHI tokens.

 

SushiSwap And Uniswap

 

SushiSwap was created by forking Uniswap open source codes. SushiSwap tried its best to outperform Uniswap including a controversial attempt at robbing Uniswap of its user base and liquidity providers. But unfortunately, Uniswap is still the leading decentralized exchange on the Ethereum Blockchain Mainnet. 

 

As of March 2023, SushiSwap has a Total Value Locked (TVL) of $497.14m and Uniswap has a Total Value Locked (TVL) of $3.91b. With this stat Uniswap is still the Apex of decentralized exchanges on the Ethereum Blockchain Mainnet as it is leading with a X8 Margin compared to SushiSwap.

 

Is SushiSwap Safe?

 

On September 5, 2020 Chef Nomi withdrew 38,000 in Ethereum (ETH) from the SushiSwap decentralized exchange, which was allegedly part of a fund secured for the future development of SushiSwap. 

 

This was met with heavy backlash from users and most cryptocurrency enthusiasts' personalities. The fund was however returned to the SushiSwap decentralized exchange on the 11th of September, 2020 following an apology from Chef Nomi using his Twitter handle.

 

On September 6th, 2020, a day after the initial withdrawal of the funds and following the backlash, SushiSwap was handed over to Sam Bankman-Fried, CEO of derivatives exchange FTX and quantitative trading startup Alameda Research, who is also a controversial figure in the cryptocurrency space.

 

These two events are what mostly puts the SushiSwap exchange in a tough spot in respect to trust and safety. The SushiSwap exchange is however still functional till today and still maintains a significant ranking amongst decentralized exchanges. Personal research is therefore advised before investing in the SushiSwap.

 

Why Choose SushiSwap?

 

SushiSwap offers AMM powered swap and trade functions laced with other resourceful products most other decentralized exchanges on the Ethereum Blockchain aren't offering. It was made as a clone so its relevance should inadvertently be maintained by providing better services.

 

Right from its launch it has maintained a reputation of being a highly incentivizing DEX for liquidity providers and cryptocurrency users at large. SushiSwap has rewarding options anyone can leverage on while experiencing one of the best swapping functions and rates on the Ethereum Blockchain.