From parasitic to newborn: a comprehensive analysis of SushiSwap

What is SushiSwap?

SushiSwap initially based on the mainstream Ethernet Square auto makers (AMM) protocol Uniswap points of support , but in a short time in the field is rapidly becoming the forefront of innovation in the DeFi leader . Although the path that Sushi took is unconventional and by no means smooth sailing, it sets a precedent for what an innovative platform should be and how it can be built on the basis of existing code and transformed into its own. Today, SushiSwap provides a series of products and services , such as the main products: SushiSwap’s AMM, Kashi for lending, BentoBox vault and dApp ecosystem, Miso launchpad, and Trident, the next-generation market maker of Sushi. 

In addition to the nature of decentralized finance, SushiSwap’s native token, SUSHI, can be pledged to xSUSHI or SushiBar contracts to obtain income from the fees generated by AMM and the voting rights of DAO. SushiSwap’s structure is unique; they have several core contributors, established agreement products, and DAO can choose which proposals to support . The SushiBar contract earns income in the form of a 0.3% transaction fee, which is collected in the native LP being traded, and then converted to SUSHI every day. The repurchased SUSHI is then distributed among the Staker to the xSUSHI contract, providing a positive feedback loop that rewards the use of the agreement.

While SushiSwap initially be used as points of Uniswap branch and direct competitors began , but today these two agreements serve two very different markets SushiSwap’s team supports the token life cycle by building a complete set of products, rather than just focusing on the secondary market, proving their ability to provide and maintain a first-mover advantage. This gave them a unique position because they not only expanded vertically in terms of products, but also expanded their products to the first-level chain and second-level extended solutions. This makes Sushi a well-known DeFi name for active participants and provides a certain level of trust and comfort when entering a new ecosystem.

Automatic Market Maker (AMM)

To understand what AMM is, we must first understand the role of market makers in traditional or decentralized exchanges. The role of market makers is to provide liquidity to the market by quoting both the buyer and the seller at the same time . Their purpose is to obtain profit through the fee rebate and the price difference between buying and selling. The goal of market makers is to maintain delta neutral (no directional risk) or take a small amount of delta (minor directional risk) based on the prospects, risk status, and strategy adopted.

When we look at DeFi and on-chain networks, such as Ethereum, it is not feasible for traditional transaction infrastructure to exist in the form of order books and market makers. This is due to network delays and related costs of conducting transactions on the network. As a result, a new method of facilitating transactions around the “liquidity pool” was created, namely the automatic market maker (AMM). In this new transaction mechanism, users all contribute funds to the agreement and receive a certain percentage of transaction fee rewards based on the number of transaction pairs and transaction volume provided. The user must provide capital or liquidity to both parties of the trading pair. This process is called LPing or Liquidity Pooling. For example, a common trading pair may be SUSHI/ ETH , so the user will provide the agreement with SUSHI worth $1,000 and ETH worth $1,000, allowing users to buy and sell between these two trading pairs. When a transaction is made, the fund pool becomes unbalanced because one asset is put into the fund pool and another asset is removed, causing the agreement to rebalance to a 50/50 weight. This is a basic example of how the constant product pool works at a high level.

Introduction to the origin of AMMs

The introduction of AMMs comes from Uniswap, which allows permissionless listing of transaction pairs and token transactions on Ethereum Initially in Uniswap V1, the pool was created for ETH, so all exchanges were conducted in a pool structured like this. ERC20/ETH. Uniswap V2 was unveiled in May 2020, allowing the establishment of pools for transactions between ERC20/ERC20 tokens, not just the ERC20/ETH pair. Many of today’s sub-AMM are Uniswap V2 code base of support , slightly different UI / UX and other adjustments , such as MasterChef award contracts SushiSwap implementation. When referring to V2 AMM and V2 style, it just refers to the constant product library structure popular in Uniswap.

From parasitic to newborn: a comprehensive analysis of SushiSwap

Finematics’ liquidity pool and AMMs

” Basic liquidity pools, such as those used by Uniswap, use a constant product market maker algorithm to ensure that the product of the two provided tokens always remains the same . Most importantly, due to the algorithm, No matter how large the transaction volume is, the pool can always provide liquidity. The main reason for this is that as the required amount increases, the algorithm gradually (converges to infinity) increases the price of the token.” — Finematics Liquidity Pool Explanation

From parasitic to newborn: a comprehensive analysis of SushiSwap

Centralized liquidity pool and Uniswap V3

Although we briefly discussed the standard composition of AMM/V2, and Finematics decomposed a constant product formula, V3 took a different approach to maximize capital efficiency. If you still don’t know Uniswap V3 or centralized liquidity pools, I strongly recommend you to check out more technical analysis of Finematics, such as this one, to learn more: https://finematics.com/uniswap-v3-explained/

Basic SUSHI system/product supply 

SushiSwap AMM (V2 style)

The original SushiSwap product and the main product are an automatic market maker protocol based on Ethereum, similar to the Uniswap V2 protocol. AMM is accompanied by a set of smart contracts for processing reward distribution, overall operation and protocol governance. But this is only part of their differentiation. Providing a familiar and seamless user experience on multiple platforms is the next step for the team This is a challenge, and few agreements are successfully completed. At the time of writing this article, Sushi is continuing to innovate and provide AMM support for five different first-layer chains, including: Binance Smart Chain, Ethereum , Polygon, Fantom and Huobi ecological chain, making it a variety of networks One-stop service for basic exchange.

From parasitic to newborn: a comprehensive analysis of SushiSwap

BentoBox (passive income vault and dApp ecosystem)

BentoBox is a vault that can hold ERC20 (and other cross-chain) assets, and generates income for its depositors by using the deposited tokens to provide lightning loans. The platform also allows decentralized applications (dApps) to be built on top of it, use the vault in various ways, provide depositors with new sources of income, and give dApps flexibility and effective fund access. BentoBox is a new DeFi product designed to accommodate multiple core DeFi primitives and make them work together to improve gas efficiency, earn passive income, and create a more composable dApp ecosystem between products.

BentoBox itself consists of one or more main libraries that hold assets. Because dApps built on Bento interact from these main vaults, there is no need to re-approve asset transactions every time, because the assets have already been approved for use in the entire vault. Similarly, the interaction between dApps and vaults consumes very little gas, because they are less computationally expensive than interactions with dApps from external wallets. After depositing the agreement, users can obtain passive income from assets through loaned lightning loans and other governance-approved strategies, such as using dApps in the bento box, and dApps, such as CREAM or composite vaults. Bento’s goal is to become an ecosystem where anyone can lend or LP, in which dApp developers can use their treasury and efficiency to build in a permissionless manner. This is an interesting approach because many platforms try to create an ecosystem at the first level, but find that the agreement quickly becomes fragmented. The SUSHI team chose to attack at the protocol level and in this way created a strong ecosystem to ensure composability and efficiency.

From parasitic to newborn: a comprehensive analysis of SushiSwap

Kashi (borrowed / paid)

Kashi is a lending platform that allows users to choose two tokens-one for borrowing and one for collateral, creating an isolated pool for these pairs. Generally, lending platforms like Aave and Compound use shared pool-based lending, which makes the most risky asset the weakest point in the agreement-which is why Aave and Compound do not list many assets. Kashi uses isolated pools in the entire loan agreement instead of cross-collateralization, which has its advantages and disadvantages. With cross-collateralization, you can freely lend and borrow any asset to others, as long as you agree to accept the collateral and issue the required assets. The main problem with this mortgage method is that if an asset’s depreciation speed exceeds the speed at which the liquidation mechanism can deleverage loans, it will result in losses for the entire user group, which will have to be socialized or absorbed by the agreement insurance fund. .

The main safeguard to prevent this situation is to maintain a high loan-to-value ratio (LTV) , which is actually reducing the leverage on the chain and maintaining the selective range of assets that can be used as collateral. The Kashi platform uses a different method in an independent fund pool to limit the liquidation risk of poor execution to this specific loan pool. The disadvantage of this is that it may reduce the capital efficiency of the lender relative to the cross-collateralized counterparts, and a pool must exist or be created for this pair of pools (collateral tokens and loan tokens). By using this method, the SushiSwap team believes that making isolated pools easy to create and finding other ways to supplement yields, such as lightning loans or BentoBox, is a viable and potentially low-risk solution to provide more assets and For lending assets and borrowing collateral.

In addition, while using isolated lending pools and lightning loans, these pools can be used to create leveraged short positions on the chain, as described in the SushiSwap document:

From parasitic to newborn: a comprehensive analysis of SushiSwap

In the end, Kashi’s goal is to be more efficient than its competitors in order to provide a better user experience and cheaper transaction costs. Kashi’s contract once again optimizes the minimum usage of gas by using an independent lending pool. Usually on Ethereum, when the contract requires more calculations, the gas price to execute the transaction will be more expensive. This means that sending an erc-20 token will be much cheaper than deploying a contract to the Ethereum mainnet or interacting with a deployed contract. Since the pools are independent, the calculation requirements are much lower than the supply and borrowing of multiple assets in one pool. The agreement also uses a flexible interest rate to maintain a high utilization rate of the funds supplied, which keeps the rate of return within an ideal range. If the asset utilization rate reaches 100% or all assets are lent, users will not be able to withdraw funds until the utilization rate drops. As more lenders enter the market or creditors replay loans, the ratio may drop, which is why it is so important to maintain high utilization but never maximum capacity. By establishing a system that dynamically adjusts incentives according to the excess or deficiency of the fund pool, a healthy balance can be found between the borrower’s maximum return and the maximum utilization buffer when the interest rate is too low.

From parasitic to newborn: a comprehensive analysis of SushiSwap

MISO (IDO Launchpad)

Minimal Initial SushiSwap Offering (MISO) is the transformation of the Initial DEX Offering (IDO) platform by the Sushi team to help the team launch tokens and raise funds in a decentralized manner. Currently, Miso Launch Pad is a set of carefully planned projects, but the goal is to make the platform permissionless in the future. The project will be able to launch and crowdfund capital without any necessary interaction with the core Sushi team.

The idea behind MISO is to provide a direct way for projects to launch tokens and to promote more matching and liquidity for the SushiSwap ecosystem itself. To achieve this by providing a platform is conducive to the complete set of products provided by Sushi and creates a complete ecosystem for the life cycle of the token. The MISO platform itself also provides a set of open source contracts called “Ingredients”. The team can use these contracts to provide a well-executed IDO in a safe and tested manner. The tools provided are divided into the following categories:

From parasitic to newborn: a comprehensive analysis of SushiSwap

SushiSwap Documentation

The SUSHI team organizes these “ingredient” contracts into a bundled smart contract structure called “Recipes”. The team can then choose to deploy various pre-built’recipes’ to meet their needs, knowing that these contracts are battle-tested and will provide seamless integration with the rest of the SushiSwap ecosystem.

From parasitic to newborn: a comprehensive analysis of SushiSwap

Trident (Next Generation AMM)

Trident is the Sushi team’s view on the next generation of AMM, focusing on the composability between capital efficiency and other Sushi products. This product is currently under development and is one of the team’s current core focuses. Before the Trident announcement, it was thought that a proposal called Mirin would be deployed to allow centralized exchanges to host SUSHI staking to earn the benefits of the agreement and introduce more users to the benefits of DeFi. This benefit is achieved through AMM fees earned on the traditional SushiSwap V2 AMM and the boasted V3 AMM. V3 AMM will improve capital efficiency through a centralized liquidity pool. However, this proposal was repealed and replaced by the newly announced Trident release, which was developed under confidentiality.

The agreement has three aspects/categories in structure, making it different from traditional V2 and V3 AMM. Trident has adopted a unique approach to AMM, understanding that different trading pairs have an ideal liquidity pool structure to maximize efficiency.

The first pillar of the Trident agreement is the LP structure.

Four different LP structures are used in this protocol :

Constant product pool or traditional V2 style

Mixed or stable swap pool 

Centralized liquidity pool, such as V3 

Weighted pool 

The second pillar of Trident is built on the BentoBox vault, which improves capital efficiency and breaks the problem of liquidity segmentation between different agreements, such as AMMs, lending and composites, even if they are in the same first layer . In addition, token approval only needs to be done once to save users money, and when combined with the best pool type for each pair, it can potentially reduce slippage.

The third pillar of Trident is the Tines Routing Engine, which will improve the efficiency of swaps, reduce slippage and the overall price impact. Traditionally, if one wants to go from currency X to Z, one must route in the following way:

Transaction X->Y, then, transaction Y->Z

At present, this is a feasible solution, but it is not efficient. The user must perform multiple swaps and approvals. If the spread is not large, or the currency pair is thin due to the nominal scale swap between the X/Y and Y/Z currency pairs, then the jump will have a huge impact on the price.

Tines Routing Engine helps to reduce the impact on these currency pairs by finding other routes and combination pools as a whole to execute transactions. This helps break down the nominal size and find the best fund pool optimized for each route, that is, if there is a stable swap between the two, it is a concentrated fund pool . Under normal circumstances, this will greatly reduce cost-effectiveness, but because Trident is deployed on BentoBox, all approvals only need to be done once for each asset, and all contracts are optimized to save gas, which makes this both the Sushi team Looking for solutions for cost and execution efficiency. Trident will be released in the near future.

Pool type (from Trident Documentation)

Constant product pool

In this type of pool, the exchange takes place automatically due to the function of the formula. x*y=k, also known as the constant return formula.

Mixing pool

The emergence of the hybrid pool is to allow users to exchange similar assets while reducing the impact of prices. In a mixed pool, users can include up to 32 assets in a pool. Based on the idea of ​​a stable swap curve, this allows similar assets to be traded with each other in a pool, reducing interference from other market factors or significantly different tokens.

Concentrated Liquidity Pool

As shown in the figure, liquidity providers will be able to choose the token price range they wish to charge for the platform. This is to hope that the number of pools you need to share with other suppliers can be more evenly distributed within a few ranges, and provide you with a larger piece of cake within the range you choose, which means higher cost accumulation. For a centralized liquidity pool, the ultimate benefit is that it will allow liquidity providers to provide liquidity in a narrower range to maximize their share of the income they receive from the entire SUSHI platform swap fee .

From parasitic to newborn: a comprehensive analysis of SushiSwap

Shoyu (NFT market)

Others mentioned SushiSwap’s NFT market product and deployed a test site. However, no timetable or in-depth details have been provided yet, except for the governance proposal to grant a core contributor a grant to start developing the Shoyu market.

SUSHI Token Economics (from the latest file of the current SushiSwap)

The $SUSHI cap of 250 million.

10% of all emissions will be used for financial/development funds controlled by Multisig.

The expected hard cap date is November 2023.

Currently, there are less than 20 $SUSHI tokens minted in each block 

0.05% of exchange transaction fees will be awarded to holders of xSUSHI tokens.

Sentiment and number of tweets

We can see that there is a correlation between the amount of tweets surrounding Sushi and the mood of the project. The Trident agreement was announced in late July 2021. We can see the direct impact on Twitter volume and all sentiment. We can assume that this is largely due to this announcement and a series of other major events, such as Cross-chain integration of other first-level chains.

From parasitic to newborn: a comprehensive analysis of SushiSwap

From parasitic to newborn: a comprehensive analysis of SushiSwap

Coingecko

Important development

Using The TIE’s proprietary SigDev feed, we can look at some of the most notable events of the SushiSwap team in the past few months. With the release of the next-generation AMM Trident and NFT market Shoyu, the team has been working hard to integrate and form partnerships with other L1 solutions.

In the past few months, Sushi has announced integration with Harmony (ONE) and Avalanche, as well as other joint DeFi programs to help push the space to new heights.

From parasitic to newborn: a comprehensive analysis of SushiSwap

AMM comparison

Although Sushi’s AMM is no longer the only flagship product, it still has an advantage in the competition with other major AMMs, such as Uniswap v2, Uniswap v3 and PancakeSwap. Based on daily transaction volume, SushiSwap currently holds approximately 8.6% of the market share. However, this list of SushiSwap only records ETH transaction volume. Considering the main existence of Sushi in other chains in question, if these non-ETH transaction volumes are aggregated, Sushi will sit close to ~10%, second only to PancakeSwap.

From parasitic to newborn: a comprehensive analysis of SushiSwap

Since the early days, Sushi has come a long way and overcome many obstacles, which come from the perspective of innovation and the early internal struggles with anonymous founders . On a difficult road, the team started to make Sushi its own unique product and got rid of the notion of being a Uniswap clone. At the time of writing this article, Sushi has been established for more than a year, and it stands out in this rapidly developing space with amazing numbers and products. The main AMM products are currently supported on 14 different chains, making it one of the largest cross-chain liquidity agreements. Since its establishment, the liquidity provided has just exceeded 1.4 billion U.S. dollars and the transaction volume has reached 108 billion U.S. dollars. Looking to the future, the border will continue to be pushed because the Shoyu NFT market is under development, the Trident AMM agreement will be released later this year, and SUSHI supporters continue to have great hopes for the future.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/from-parasitic-to-newborn-a-comprehensive-analysis-of-sushiswap/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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