DeFi, the only place where unicorns and cartoon sushi face off in a battle for liquidity.
Uniswap has been one of the most successful DeFi protocols for swapping tokens on Ethereum. It was created by a small team of passionate builders who have made the code open-source and available for anyone to fork. And that’s exactly what SushiSwap did!
SushiSwap is a fork of Uniswap that adds the appetizing SUSHI token. It grants control over the protocol to holders and pays a portion of fees to them. Let’s see how you can get it on your plate!
SushiSwap, a new entrant to the field, promised to change that. And over $1 billion worth of value locked into the protocol – only a few days after launch – suggests that many would be interested in this change.
In this article, we’ll discuss the Uniswap fork that’s taking the crypto space by storm.
What is SushiSwap?
SushiSwap is a fork of Uniswap with some key differences – most notably, the SUSHI token. The token has two functions at launch: entitling holders to governance rights and a portion of the fees paid to the protocol. In a simplified way, SUSHI holders “own” the protocol.
Why has this spurred so much interest? Well, community governance is heavily intertwined with the DeFi ethos. The growth of liquidity mining (yield farming) as a valid method for token distribution has given rise to an abundance of new token launches. These aim to level the playing field for everyone involved with no premines, little or no founder allocation, and equal distribution based on the amount of funds supplied. The tokens distributed through these liquidity incentives then grant governance rights to token holders. In addition, we already know that SUSHI holders are also entitled to a portion of the fees paid into the protocol by traders.
Uniswap vs. SushiSwap
It’s without a doubt that the DeFi space owes significant advancements to the Uniswap team. But we could see a future where even both Uniswap and SushiSwap (or other forks) flourish. Uniswap might remain at the forefront of innovation in the AMM space, while SushiSwap could provide an alternative that’s more focused on features that the community wants to see.
With that said, fragmenting liquidity between similar protocols isn’t ideal. If you’ve read our Uniswap article, you know that AMMs work best with as much liquidity in the pools as possible. If a lot of the liquidity in DeFi is split between many different AMM protocols, that could lead to a worse experience for the end-user.
How are SUSHI rewards distributed?
SUSHI is distributed to those who provide liquidity to specific Uniswap pools. Then, they can deposit their Uniswap LP tokens into the SushiSwap staking contracts to start earning SUSHI.
Initially, these Uniswap pools were:
To incentivize the provision of liquidity for the SUSHI market, the SUSHI-ETH pool pays out double rewards. Shortly after launch, SUSHI voters voted on adding additional pools to be eligible for the distribution. This is the power of community governance!
How to provide liquidity for SushiSwap
Getting the tokens
So you’ve decided that you want to stake Uniswap tokens in return for SUSHI. The first step is to acquire those tokens. We’re going to provide liquidity for UMA-ETH, but feel free to follow along with any pair of your choosing (provided, of course, that the LP tokens are usable on SushiSwap).
- Head to Uniswap
- Switch to the Pool tab
- Click Add liquidity
- The base should already be ETH, but if not, select ETH
- Below, click on Select a token and search for UMA
- Now enter the amount of ETH and UMA you are going to add to the liquidity pool
- Finally, add the liquidity to the pool and you’ll receive ETH-UMA UNI-V2 LP tokens – these can later be redeemed to retrieve your tokens once you have finished staking on SushiSwap.
The man, the myth, the legend: Chef Nomi, the sushi chef.
Unlocking the wallet shows you your SUSHI balance and the total supply.
If you scroll down, you’ll see all the options available to you.
For each of these items, you’ll stake a different token. The Umami Squid is looking tasty to us, so we’re going to go with that.
After that, you’ll be able to select the amount you want to stake.
And now, you should be good to go! The chef will get to work making your sushi. At any point, you can harvest your SUSHI, remove your LP tokens, and take them back to Uniswap to retrieve your ETH and UMA.
Is SushiSwap safe?
As of September 2020, SushiSwap is an unaudited project. Depositing funds into a smart contract always carries the risk of bugs, even for audited and highly reputable projects. However, SushiSwap was created by anonymous developers which makes depositing funds into them even riskier.
SushiSwap is a fun experiment, but never deposit more than you could lose. In addition, due to the extremely high gas costs on Ethereum, smaller deposits can have quite a lot of farming to do before they can actually turn a profit.
With that said, the SushiSwap developers have invited a number of auditing firms to audit their contracts. Audits are expensive, but we’ve already seen with other community-owned projects such as YAM that users are willing to fund audits for initiatives they believe in.
SushiSwap is an exciting experiment that challenges the competitive advantage of an already successful DeFi protocol – Uniswap. SushiSwap is a fork of Uniswap with the key difference being community governance.
The real test of SushiSwap will start after the initial two-week distribution period finishes. Is SushiSwap going to siphon significant liquidity from Uniswap? Or are SUSHI farmers only looking for a quick profit?
No matter how successful SushiSwap becomes in the end, it shows that no product or service has an indisputable advantage in DeFi.