SushiSwap

SushiSwap Introduction

SushiSwap was launched in September 2020 by two anonymous developers, Chef Nomi and 0xMaki. It is one of the most popular decentralized applications (DApps) on the Ethereum blockchain. SushiSwap’s decentralized exchange (DEX) protocol uses an Automated Market Maker (AMM) model. In simple terms, SushiSwap does not have an order book. Instead, the buying and selling of cryptocurrencies are facilitated by smart contracts, with prices determined by algorithms.

SushiSwap was originally a fork of Uniswap. It uses Uniswap’s codebase as its foundation but introduces some key differences — the most notable being the reward distribution in the form of SUSHI tokens. Liquidity providers on SushiSwap earn rewards in the form of the protocol’s native token, SUSHI, which also serves as a governance token. Unlike Uniswap (UNI), SUSHI holders can continue to earn rewards even after they stop providing liquidity.

At launch, SushiSwap incentivized liquidity providers to stake their Uniswap liquidity pool (LP) tokens on SushiSwap by offering additional SUSHI rewards with high annual percentage rates. Within a week, SushiSwap successfully attracted over $1 billion in liquidity, with a total value locked exceeding $150 million. Two weeks later, the staked LP tokens were migrated from Uniswap to SushiSwap. This meant that all LP tokens staked on SushiSwap had their underlying tokens exchanged on Uniswap. SushiSwap also created new liquidity pools, marking the launch of the SushiSwap exchange.

In Q2 2021, the SushiSwap ecosystem introduced a new member, a non-fungible token (NFT) platform named Shoyu. The idea for Shoyu came from a SUSHI governance member who proposed creating an easy-to-use NFT platform. It aims to address the shortcomings of the current NFT market, such as limited file format options, small image sizes, and high transaction fees on Ethereum.

How Does SushiSwap Work?

As mentioned earlier, SushiSwap is an Automated Market Maker (AMM) protocol that functions as a decentralized exchange. There is no order book or centralized authority. Cryptocurrency trades on SushiSwap are handled by smart contracts in liquidity pools. Liquidity pools are where SushiSwap users lock their crypto assets to become liquidity providers (LPs). Anyone can become a liquidity provider on SushiSwap and earn rewards proportionate to their share of the pool. This is done by depositing two tokens of equal value into the pool. Each pool operates like a market, where other users can buy and sell tokens. For a more comprehensive explanation of how AMMs work in DEX protocols, refer to our Uniswap article.

On SushiSwap, you can swap ERC-20 tokens, just like on other DEX protocols. For example, you can swap stablecoins like USDT for cryptocurrencies like Bitcoin (BTC) and Ether (ETH). Additionally, there are various sushi-themed features to help you earn passive income. For example, you can stake SUSHI tokens in the SushiBar and receive xSUSHI. Staked xSUSHI allows holders to earn 0.05% of the transaction fees from all liquidity pools. After Shoyu launches, SUSHI holders who stake their tokens for xSUSHI will also be eligible to earn 2.5% of each NFT transaction on the Shoyu NFT marketplace.

BentoBox is another feature on SushiSwap to earn rewards. It is an innovative vault that allows users to leverage all of SushiSwap’s available yield tools. This means that by depositing assets into BentoBox, users can automatically earn interest by staking in the SushiBar and lending assets to other users. Additionally, xSUSHI holders can also earn rewards from the transaction fees generated by BentoBox.