SushiSwap is a decentralized exchange (DEX) that operates on the Ethereum blockchain. Unlike traditional exchanges, which are centralized and controlled by a single entity or organization, DEXs are decentralized and operate autonomously through smart contracts. SushiSwap was created as a clone of Uniswap, another popular DEX, with a few differences and unique reward methods.
SushiSwap is governed by the SushiSwap Token (SUSHI), which serves as a reward token for individuals who provide liquidity to the pools. Each pool on SushiSwap consists of two assets, and the price of the smart contract is determined by the ratio of the two assets in the pool. The platform also includes a limit order market where users can exchange assets stored in BentoBox.
SushiSwap’s history is slightly controversial since it started as a concept to extract liquidity from Uniswap, a practice known as vampire mining. Chef Nomi, the founder of SushiSwap, and a few coders replicated the Uniswap idea but added an incentive that resulted in over $1 billion in liquidity being transferred from Uniswap to SushiSwap. This caused uproar in the cryptocurrency community, with Uniswap inventor Hayden Adam expressing his frustration. However, the move proved to be successful for SushiSwap, which saw a surge in popularity.
Chef Nomi eventually sold $14 million in SUSHI for personal benefit after the platform had gained traction, crippling the Decentralized Finance (DeFi) sector for a day. However, he did refund the money, but the damage had been done, and he was forced to leave the project, handing over authority to former FTX Exchange CEO Sam Bankman-Fried. Despite the controversy surrounding its founding, SushiSwap has continued to operate and has introduced additional features such as lending and borrowing, which are currently not available on Uniswap.
SushiSwap’s decentralized nature means that it is ultimately administered and regulated by its community. The community votes on all important infrastructure modifications, including the usage of the development fund wallet. Little adjustments impacting operations and farming pairings are made by 0xMaki and the SushiSwap core team.
SushiSwap offers a variety of trading features, including the SushiSwap Exchange, which allows users to trade over 100 ERC-20 tokens. The Exchange does not require KYC and allows users to conduct swaps using a Web 3.0 wallet like Metamask and enough Ethereum to pay gas costs. The Exchange provides two main alternatives to its users: Quick Swapping through Liquidity Pools and the Limit Order V2 functionality.
Quick Swapping through Liquidity Pools makes use of the liquidity inherent in Liquidity Pools to enable users to deposit one token and promptly withdraw the other. The protocol levies a 0.3% trading fee on the entire value of the traded item, with 0.25% of these fees going to SushiSwap’s Liquidity Pools and the remaining 0.05% going to the Sushi Bar pool.
The Limit Order V2 functionality addresses a significant problem faced by AMMs, which is that AMMs, unlike order book-driven exchanges, generally only settle orders at market price. A limit order is a request to purchase or sell an asset at a certain price. SushiSwap’s Limit Orders do not employ a standard order-matching method to match orders between peers. Instead, the DEX’s underlying AMM mechanism is used to instantaneously execute a swap in the liquidity pool when the target price is met.
SushiSwap’s Onsen Menu is a reward scheme for liquidity providing for new coins. To encourage liquidity provision, tokens chosen for inclusion on the Onsen “menu” are assigned SUSHI tokens every block. SUSHI tokens may be staked at the Sushi Bar to gain extra SUSHI tokens. The Sushi Bar receives 0.05% of all trading fees on SushiSwap in the form of SLP tokens, which may be liquidated to acquire additional SUSHI tokens.
SushiSwap’s Kashi is a lending and margin trading platform based on BentoBox. It allows users to construct customized and gas-efficient marketplaces for lending, borrowing, and collateralizing different DeFi tokens, stable currencies, and synthetic assets. Users may construct “isolated” loan marketplaces using Kashi, meaning that the risk of assets in one lending market has no bearing on the risk of assets in another lending market.
SushiSwap has a lot of farming possibilities, each with a different APY and risk level. The USDC/WETH farm has the highest TVL and earns about 10.5% APY. SushiSwap also provides its customers with a diverse range of asset pairings, with varying risk levels and APYs.
In conclusion, SushiSwap is a decentralized exchange that operates on the Ethereum blockchain. It allows users to trade over 100 ERC-20 tokens and provides a variety of features and applications, including liquidity pools, limit order functionality, farming, lending, and staking. SushiSwap’s decentralized nature means that it is ultimately regulated by its community, with the community voting on all important infrastructure modifications. While SushiSwap has had a controversial start, it has continued to operate and has introduced additional features, making it a popular choice among DeFi enthusiasts.