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  • Tiena Sekharan

What is SUSHI?

Updated: Apr 15, 2021

When a token is called SUSHI and the creator is called CHEF NOMI and its pipeline of projects is called MISO and BENTOBOX and those projects have INGREDIENTS instead of parameters and RECIPES instead of products, then its a little hard to take the token seriously.

If DOGE isn’t enough evidence of how successful memes can be, SUSHI clinches the argument given that it had over $1 billion Total Value Locked (TVL) within a week of launch. This despite the fact that Sushiswap did not boast of any innovation:

Take Uniswap’s Automated Market Maker (AMM) Model +

Add Compound’s governance token concept


Add a meme-worthy name


Use “Vampire Mining” to divert Uniswap users

=> And ta-daaa - SUSHI is born!

What is Sushiswap?

Sushiswap is a Decentralized Exchange (DEX) running on Ethereum where one can buy and sell cryptocurrencies without interference from a centralized authority. There’s no KYC. No employees deciding which tokens can be exchanged. No expensive token listing fees. No need for users to give up custody over coins.

Automated Market Maker (AMM) model- Traditional exchanges have order books of bids and offers. This model doesn’t work in blockchain because every bid and every offer would be a separate transaction attracting transaction fees even if the bids/offers were never hit. Uniswap pioneered a different model where Liquidity Providers (LPs) deposit equal values of 2 tokens in a smart contract and create “liquidity pools”. Traders then buy from or sell to these liquidity pools. The pegs between the tokens is maintained using the Automated Market Maker (AMM) algorithm.

=> Sushiswap copied this liquidity pool model from Uniswap.

Governance token - In order to incentivise usage, protocols offer tokens to early participants that provide liquidity to the platform. This is in addition to their share of the 0.3% trading fees. Tokens are a reward for having faith in the product early on when there are few believers. Governance tokens were first used successfully by the lending platform- Compound which issued the token, COMP.

=> Sushiswap offers a similar token called SUSHI.

Vampire Mining - Sushiswap essentially stole Uniswap users. When you provide liquidity to Uniswap, you gets back Uniswap LP tokens. These LP tokens entitle you to receive a portion of the fees that the Uniswap protocol earns. Sushiswap made an offer to Uniswap LP token holders that was too good to refuse. You could earn SUSHI for free by simply staking your Uniswap LP tokens with Sushiswap. With the price of SUSHI rising from nothing to a high of $11.93 in just a few days, this was a uniquely attractive proposition. Apparently 60% of Uniswap LP tokens were staked with Sushiswap.

After roughly 2 weeks, in order to continue earning SUSHI, staking Uniswap LP tokens was not enough. The Uniswap Liquidity Providers would have to migrate the liquidity they were providing, from Uniswap to Sushiswap. Knowing that Sushiswap code was practically the same as Uniswap, and realising that in case Uniswap ever issued governance tokens of its own in the future, they could move their liquidity back to Uniswap just as easily, Uniswap Liquidity Providers representing $830 million in liquidity, moved their deposits to Sushiswap.

Difference between Uniswap and Sushiswap

Uniswap is the original DEX that developed the Automated Market Maker (AMM) model. As is the ethos in DeFi, it kept the source code open. Sushiswap took advantage of this and copied the code. Sushiswap therefore is a hard fork of Uniswap with the following differences:

SUSHI Token - Sushiswap added a governance token called SUSHI to give control of the protocol to users. SUSHI holders can propose Sushiswap Improvement Protocols (SIPs) and vote on SIPs proposed by others.

Fees - Uniswap distributes the entire 0.3% trading fees paid by traders to Liquidity Providers (LPs). Sushiswap distributes 0.25% to LPs and the balance 0.05% is distributed to SUSHI holders

Scaling - In order to enable scaling before ETH 2, Uniswap is working on Optimistic Rollups and Sushiswap is working on ZK-Rollups.

Why I initially stayed away from SUSHI and what went wrong

When Sushiswap was first launched, I thought that its best to stay away from a copycat token that has been created by an anonymous developer, runs on unaudited code and is attracting participants only for the short haul. I knew I wasn’t going to be quick enough to get out in time when the Jenga collapsed.

All fears came true when on 5th Sept’2020 Chef Nomi exit scammed after siphoning off $14million from the Sushiswap development fund and handed over control of the project to FTX CEO, Sam Bankman-Fried. Chef Nomi’s tweets indicated that he believed he was entitled to those funds. This was obviously followed by public outrage. He eventually returned the funds on 11th Sept’2020 either because he saw the error of his ways or because co-founder OxMaki threatened to reveal his identity. We’ll never know. Chef Nomi is no longer involved with the project and his twitter heading says “Former head chef @Sushiswap”

With this history, are you wondering why I’m wasting time writing about this degenerate protocol? I never thought that I would. But something changed in December’2020.

The Prince that saved the Princess

The legendary Andre Cronje of Yearn Finance fame had been on an M&A spree collaborating with several DeFi protocols to benefit from the combined developer resources and TVL (Total Value Locked). He had already acquired Pickle Finance, Cream Finance, Cover and Akropolis and decided to add Sushiswap to his collection. In addition to developer resources and TVL, Sushiswap was likely to help with Yearn’s upcoming project- Deriswap which aims to combine various segments of DeFi- Swaps, Options, Futures and Lending into a single platform.

Andre’s vision appears to be to expand Yearn Finance strategies beyond swaps, guard DeFi against high costs, improve capital efficiency and consolidate liquidity to a single platform to reduce slippage and fees.

Andre Cronje, Sam Bankman-Fried and OxMaki together are a formidable team and under their leadership Sushiswap has had some pretty remarkable developments.

Developments after Yearn

The team has been working on several upgrades since the merger with Yearn. They plan to move to a new domain to indicate that they’re more than just an AMM platform and their ambitions have gone beyond becoming the Number 1 DEX. They are working on cross-chain integration, moving to a completely decentralized governance structure and even planning an integration with ArcherDAO to tackle the issue to miners front-running trades. Some of the concrete proposals include:

Franchised Pools - are a mutually beneficial collaboration between Sushiswap and Centralized Exchanges (CEX). Once a customer buys a cryptocurrency on a CEX, she is likely to send the tokens to herself to self-custody or transfer to a DeFi platform. This means that other than the trading fees, a CEX business model cannot enjoy any additional revenue streams. With Franchised Pools, the CEX can offer its users the option to becomes Liquidity Providers (LPs) through Sushiswap. The liquidity provided by such third parties is called a Subpool. This helps CEXes offer additional services to users and keep deposits within the exchange, and it gives Sushiswap too the benefits of higher liquidity.

Double Yield (SUSHI + Exchange Governance Token)- CEXes can offer users an exchange governance token in addition to the SUSHI they get from Sushiswap. This will increase the APY users earn from providing liquidity.

K3PR Powered Yield Rebalancing - APYs change constantly in different protocols with changes in the value of governance tokens and changes in interest rates with changes in liquidity. There’s also the added complication of ever changing gas fees. The most efficient yield farming is therefore done not by humans sitting in front of a computer but by bots that can process all the data instantly. Sushi Protocol will incorporate an automated yield rebalancing capabilities (bot) that users can enable to seek out the best LP Yields. It’ll do all the heavy calculations and comparisons to determine the optimal yield after factoring in gas costs.

BentoBox - Once a token is approved for a BentoBox which is a single vault that holds all tokens, any protocol using the BentoBox as a vault does not need separate per token approval and internal token transfers even between protocols will attract low gas fees and.

MISO (Minimal Initial Sushi Offering) - A token launchpad similar to Binance Launchpad which will help new projects launch their tokens through a variety of ways including crowd sales, Initial DEX Offering (IDO), auctions, etc. It will allow protocol creators to focus on the project instead of getting bogged down by the technicalities of price discovery, token launch and distribution.

Final words

Sushiswap may have had a checkered past but seems to have got its act together with a plethora of promising projects. The increase in liquidity that I foresee from these proposals makes me quite bullish on SUSHI.

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