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Sushiswap: The evolution of Uniswap?

September 3, 2020
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In the DeFi field, DEX is the largest position. At present, Uniswap, Balancer, and Curve troika are among the top three. In addition, there are more than a dozen DEX with daily transaction volume of more than 10 million U.S. dollars, and DEX’s transaction volume in the last 7 days has exceeded 2.68 billion U.S. dollars. The trading volume of DEX is getting bigger and bigger, in fact, it has become the future opponent of CEX.
In addition to more than a dozen DEXs with a certain trading volume scale, there are more and more exchanges optimized for Uniswap, and various swaps are still on the way. Follow-up Blue Fox notes will also introduce you to various swaps. Today I first introduced Sushiswap. Sushi means sushi. So, will Sushiswap be delicious? Will it be better than Uniswap? Does it have a chance to surpass Uniswap?
Sushiswap continues the core design of Uniswap
Sushiswap did not build a brand-new model, it still continues the core design of Uniswap, and is still the model of AMM. The token pool of Sushiswap is basically the same as Uniswap.
The main difference between the two is that Sushiswap has increased the token economic incentives, that is, a portion of its transaction costs are allocated to holders of Sushiswap token SUSHI.
In addition, Sushiswap is also consistent with Uniswap on the front-end interface. In this way, if other DeFi protocols (especially those that have integrated Uniswap) want to integrate Sushiswap, the conversion is relatively easy.
The core of Sushiswap is to increase token economic incentives

  • Uniswap left a large plot of land for other swaps

Blue Fox Notes previously predicted that Uniswap will soon launch its own token incentive mechanism, but due to its rapid increase in trading volume, there is a clear first-mover advantage on DEX, which further reduces its willingness to launch tokens. It seems everything All are under control, and the years are well.
However, the development of the DeFi field is fast, and the current leader may not necessarily be the future leader. From the perspective of the locked amount of assets and market value, the same is true. Every year, the ranking will change significantly. Uniswap is facing a bunch of various swap competitions. There is no absolute moat in the provision of liquidity.
Since Uniswap does not launch a token incentive system, this leaves a large gap in the DEX market. In this blank space, various swaps began to perform, such as moonswap and Sushiswap, as well as other swaps.
Users who provide Uniswap with liquidity can get incentives for fees. However, this simple cost incentive has two problems:
1) It is not fair to the users who participated in the early liquidity provision.

The core of Uniswap’s ability to operate is that liquidity providers provide it with a lot of liquidity. Early liquidity providers took more risks, but did not get more benefits. They made early contributions, but failed to capture the value of the agreement’s growth. Second, with the growth of the agreement, more and more large funds enter to provide liquidity (institutions, exchanges, mining pools, etc.), which dilutes the share of early liquidity providers, and the fee income they can obtain is increasing. cut back.

2) loss could not be uncertain to compensate.

Providing liquid mining for Uniswap can capture fees, but there are also impermanence losses. If a token in the token pair rises or falls sharply, it may cause impermanence losses. Of course, it is essentially the rebalancing of assets. From this perspective, it is not an impermanent loss. However, at the time of exit, if it is priced in fiat currency, there may be a fee income that is not as good as the income of directly holding the token.

  • Sushiswap’s liquidity mining incentives

Sushiswap’s liquidity providers can be rewarded with SUSHI tokens. SUSHI token can alleviate the above-mentioned problems.
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On Uniswap, the liquidity provider receives corresponding fees based on the liquidity share it provides, which is more like a one-shot sale and cannot obtain the long-term value of the agreement. The SUSHI token represents the potential benefits of the entire Sushiwap protocol. It can capture part of the cost of the protocol for a long time. Even if the early liquidity providers no longer provide liquidity for the protocol, the SUSHI they earned from early mining can continue to capture the protocol. Long-term value.
This token incentive model binds the early liquidity providers to the long-term benefits of the agreement. At the same time, if the liquidity provider no longer provides liquidity for Sushiswap, then the tokens held by the early liquidity provider will be relatively diluted, because other liquidity providers continue to provide services to the agreement and can continue to obtain More tokens. This also takes into account the interests of latecomers.

  • Sushiswap targets Uniswap’s liquidity provider

Sushiswap first provided Uniswap liquidity providers with the opportunity to earn SUSHI tokens. Uniswap liquidity providers can pledge their liquidity token shares (part of the LP tokens in the liquidity pool), and then start earning SUSHI at the block height of 10750000 (approximately 11:00 pm Beijing time on August 28) Token.
Sushiswap releases 100 SUSHI tokens per block, which will be divided equally among all supported token pools. In the first 100,000 blocks, the production of SUSHI was higher, releasing 1,000 SUSHI per block. This is mainly to incentivize Uniswap’s liquidity providers to provide liquidity to Sushiswap in the future.
The 13 liquid pools that can participate in early mining are: USDT-ETH; USDC-ETH; DAI-ETH; sUSD-ETH; COMP-ETH; LEND-ETH; SNX-ETH; UMA-ETH; LINK-ETH; BAND -ETH; AMPL-ETH; YFI-ETH; SUSHI-ETH.
About two weeks after the start of the agreement (the initial 100,000 blocks), Sushiswap will launch a liquidity pool migration plan for Uniswap. These early Uniswap liquidity pools that participated in Sushiswap mining will be migrated to Sushiswap. In the migration process, the first is to redeem the token pairs on Uniswap and migrate these token pools to Sushiswap. The new token pool is almost the same as Uniswap’s token pool, except that its fee distribution has undergone some changes. That is, the 0.25% mentioned above is directly allocated to the liquidity provider, and the 0.05% fee is exchanged for SUSHI tokens.
After the migration is complete, traders can conduct token transactions in the above token pool on Sushiswap. In this process, the pledger does not need to do anything, and can obtain transaction fee income and SUSHI tokens from the liquidity provision of Sushiswap.
SUSHI’s value capture
Liquidity providers on Uniswap can get 0.3% transaction fees. In Sushiswap, 0.25% of the fee will be directly allocated to the liquidity provider, and the remaining 0.05% will be converted into SUSHI tokens. In addition, in order to ensure the continuity of R&D and operations, 10% of SUSHI tokens will be used for development and future iterations, audits, etc.
From the perspective of this token model, Sushiswap’s token SUSHI can capture 0.05% of transaction fees, that is, the value of SUSHI is linked to its transaction volume. On Sushiswap, the greater the transaction volume, the higher the fees SUSHI captures. Uniswap’s transaction volume in the past 24 hours is approximately 150 million U.S. dollars (as of the writing of Blue Fox Notes). Assuming that Sushiswap can reach this level of transaction volume every day, then the value of 75,000 U.S. dollars that SUSHI tokens can capture in a day, Annualization can capture more than 27 million US dollars in value.
The risks of Sushiswap
According to the information announced by Sushiswap, it has invited one of Trail of Bits, PeckShield, OpenZeppelin, Consensys, Certik, Quantstamp to audit its contract. But so far, no formal audit has been completed. There are potential risks here. Even if the audit is completed, any liquidity mining has potential risks of smart contract vulnerabilities. Therefore, even if you participate in liquidity mining, you need to consider your own risk tolerance and control your risks.
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