Why is Sushi considered to be one of the most underrated protocols in DeFi? What new features does it have, such as BentoBox, Kashi and Miso, and what is Sushi’s approach to rolling out on different blockchains and scaling solutions? You will find the answers to these questions in this article. Let’s start with some background.
Sushi launched in DeFi Summer in August 2020, the first major growth period for DeFi. Due to the nature of its launch, the program quickly gained a lot of traction.
Sushi (then known as SushiSwap) was designed to compete directly with Uniswap through forks and encourage liquidity providers to move their liquidity to a new platform, a process known as a “vampire attack”.
Almost a year after the difficult launch of Sushi seems to be a distant past, the team behind the protocol has been working on providing new and interesting features and building the Sushi ecosystem.
In addition to Sushi’s main feature (a decentralized exchange for exchanging assets), the protocol offers a growing number of other products: a liquidity bootstrapping feature for other projects – Onsen; a lending platform – Kashi; a new protocol’s launch platform – Miso.
The Sushi team takes a very open approach when it comes to protocol deployment to different blockchains and scalable solutions.
Instead of trying to predict which environment will be the most dominant and get the most value, they deploy protocols to all popular and upcoming environments and let the market decide.
In addition to the main Ethernet network, Sushi has been deployed to Polygon, xDai, BSC, Fantom and Moonbeam, and is about to be released on Arbitrum – the Ethernet Layer 2 extension solution.
Another interesting move is the acquisition of the sushi.com domain, which will make the project even more visible.
Now, let’s dive into each of Sushi’s features one by one.
Automated Market Maker (AMM) is the main feature of Sushi, which allows users to exchange their assets in a decentralized and license-free way.
Sushi’s AMM is a branch of Uniswap V2, so the two work in exactly the same way.
Currently, Sushi is the second largest AMM on Ether, with about 16% of the market share. Uniswap remains the undisputed leader, with about 54% of the total AMM market.
Sushi’s daily trading volume (one of the most important measures of AMM) has been steadily growing, from about $250 million at the end of 2020 to more than $500 million by 2021, with a few days of well over $1 billion.
Another metric (the total value locked in the agreement) has also grown from around $1 billion at the end of 2020 to as much as $5.5 billion and is currently valued at around $3.5 billion following the recent market downturn.
A key difference between Uniswap V2 and Sushi is that the latter enables a profit sharing mechanism, which benefits SUSHI token holders. sushi enables fee switching, which reduces the LP’s transaction fee to 0.25% while allocating the remaining 0.05% to SUSHI token holders, rather than the 0.3% transaction fees to the liquidity provider.
This takes us directly to SushiBar.
In order to benefit from the profit share, SUSHI holders must pledge their SUSHI tokens in the SushiBar smart contract and receive xSUSHI, which can later be exchanged for the original SUSHI, as well as additional SUSHI tokens from transaction fees.
For each blockchain exchanged through Sushi, a 0.05% exchange fee is allocated as a pro-rata share of SUSHI to the user in the SushiBar.
The xSUSHI tokens are fully combinable and maintain voting rights in Sushi governance. xSUSHI tokens can also be added to the xSUSHI/ETH liquidity pool and users can benefit from stacking gains on xSUSHI itself as well as additional rewards from the pool.
SushiBar’s yield depends on the volume of transactions through Sushi AMM and has recently been around 10% APR with daily gains of up to 40%.
Due to this profit sharing mechanism, the SUSHI token is essentially one of the most productive assets in the DeFi space. The SUSHI token should better represent the actual value of the Sushi protocol than many other tokens that are primarily driven by speculation.
Another feature of Sushi is also related to the SUSHI token – Onsen.
Revenue Farming and Onsen
Onsen is a liquidity incentive system that accelerates new projects by providing additional rewards in the form of SUSHI tokens.
Projects that choose to be on Onsen receive a certain allocation of SUSHI tokens to incentivize the supply of liquidity for their tokens. This means that projects themselves do not have to allocate their tokens through liquidity mining, they can still benefit from incentivizing liquidity. This is useful for new projects that often struggle to bootstrap liquidity, especially if they don’t want to issue a large number of their own tokens to begin with.
Onsen also benefits the entire Sushi ecosystem, as the transaction fees from the Onsen-enabled liquidity pool are allocated to xSUSHI holders.
Onsen’s featured projects are selected based on their quality and the demand for their products. Some projects only appear for a certain period of time, while others can remain on the Onsen list indefinitely, provided that the quality of the project and the demand for its tokens remains high.
In addition to Onsen, Sushi offers perpetual revenue farming opportunities for popular and established tokens. These opportunities also apply at other levels, for example, Sushi recently launched a liquidity mining program on Polygon that offers high yields to liquidity providers.
It’s time for another feature of Sushi – BentoBox.
BentoBox is a special smart contract that acts as a vault for certain tokens. This vault is basically a pool of money that can be used by Bento-enabled applications in the Sushi ecosystem.
Users who deposit funds into the BentoBox vault can receive additional revenue from its tokens. Vaults can generate revenue in a number of ways, for example, by allowing other participants to get a quick loan and pay a small fee that is returned to the user who provided liquidity to the vault, or by lending out assets in the vault.
This structure is also very gas fee efficient, as different applications running on the same vault do not need to go through as many steps as they would have without the BentoBox architecture.
Currently, the first and only supported Bento application is the lending platform Kashi, but the team is working to bring more applications to BentoBox in the future.
This is a great segue into Kashi.
Kashi, which means “lending” in Japanese, is Sushi’s first lending and margin trading solution powered by BentoBox. kashi allows anyone to create a customized, gas-saving lending marketplace.
In contrast to other popular DeFi token marketplaces such as Aave or Compound, Kashi segregates each marketplace. This means users can create markets for high-risk assets without impacting other markets.
Having the ability to borrow assets also opens up the possibility of shorting assets. This is useful for speculators who believe that assets will depreciate in value but also allow hedging, which is very convenient, for example, when income farming generates risky assets.
For example, suppose a new token is launched.
Someone could create a money market on Kashi for the new token, allowing anyone to provide collateral for the selected token, such as ETH, and borrow the new token. Short sellers can now borrow the new token and immediately sell it for ETH. If the price of the new token falls relative to ETH, the short-seller can buy back the new token at a lower price in the future and repay the loan with the new token.
The main caveat is that in order to create a cryptocurrency market for new tokens, a reliable price predictor must be available. kashi allows users to choose a price predictor when creating a new market. Currently, only the price feed available on Chainlink can be used, thus limiting the number of possible new markets that can be created. However, the Sushi team is working on adding their own TWAP Price Predictor to expand the set of available price feeds.
Adding a new risky asset to an existing token market would threaten the solvency of the entire protocol. This is because if such a token is used as collateral and experiences a sharp drop in price, this could leave many accounts under-collateralized and allow a series of liquidations to occur. On the other hand, if such tokens are borrowed and the price rapidly multiplies, this can also create a problem because the value of the borrowed assets is higher than the collateral, leaving the account under-collateralized again.
The last Sushi feature we introduced in this article is Miso.
Miso is a token issuance platform. It facilitates the launch of new tokens on Sushi.
Miso is focused on providing a great experience for project creators launching new tokens and for people interested in finding and supporting these projects.
For project creators, Miso provides a set of smart contracts that make the process of creating new tokens much easier. Most importantly, it also allows projects to attract a much larger initial audience than they could reach on their own.
For project backers, they can rest assured that tokens and the infrastructure surrounding them are created using audited and battle-tested contracts. They can also easily discover new projects and participate in reliable token offerings.
Miso is clearly another important element of the entire Sushi ecosystem.
With the steady growth of decentralized exchange trading volumes, profit-sharing mechanisms for SUSHI holders, the growing number of blockchains, the expanding number of scalable solutions launched, and the new features added to the ecosystem, Sushi looks like one of the most powerful DeFi projects.
This is why many in the DeFi community believe that Sushi is underrated, especially when compared to other decentralized exchanges. It’s hard to say exactly why this is the case, but it’s probably because Sushi started out as a fork of Uniswap and had some difficulties with the launch process.
That said, Sushi is clearly one of the most interesting DeFi protocols to watch, and it will be interesting to see what new elements BentoBox and the rest of the Sushi ecosystem will add as the team looks for new blockchains and scaling solutions.
One of these is the aforementioned Arbitrum – an Optimistic Rollup-based scaling solution for EtherLayer 2 that looks like the next place to go for Sushi’s upcoming launch.
So, what are your thoughts on Sushi?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-sushi-underrated-or-not/
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