The essence of the dispute between Uniswap and SushiSwap: maximizing capital efficiency

At the beginning of this year, Blue Fox’s notes wrote ” Uni to the Left, Sushi to the Right “, and now it is basically developing in this direction. The two have adopted different development paths. Uniswap conducts in-depth exploration on AMM, while Sushiswap conducts horizontal exploration in more areas (such as lending and crowdfunding issuance).

Sushiswap’s Jigsaw

At present, Sushiswap’s puzzle includes DEX (multi-chain AMM, not only Ethereum, but also BSC, Heco, etc.), Kashi lending and leverage, BentoBox, crowdfunding MISO, etc. Some of these puzzles still have their own ideas.

1619502947889644(Puzzle of Sushiswap, Sushiswap)

*KashiKashi is the first major horizontal expansion in Sushi puzzle. It is a lending and margin trading platform.

1619502947876268(Sushiswap-like Kashi, Sushiswap)

Unlike Compound and Aave, Kaishi adopts a model of “segregating” borrowing and lending pairs.

In Compound and Aave, not all assets are eligible to enter their platform. Once an asset enters its platform, users can deposit collateral and use it to borrow various other assets on the platform.

In this model, its asset pool is integrated. If an asset suddenly falls sharply, the entire agreement will also bear correspondingly high risks. For example, there are currently 9 assets on Compound, including ETH, DAI, USDT, Comp, and 0x. Users can deposit any of these 9 assets (such as BAT) and lend 9 assets according to the corresponding mortgage rate. For any type (such as USDC), assuming that BAT has fallen sharply, this will affect the entire agreement.

Kashi did not copy this lending model, but adopted a token pair model similar to DEX, where each group of lending pairs are isolated from each other. Such as RUNE/SUSHI loan pair. The user deposits one token and then borrows another token. In other words, if a risk event occurs in one of the token pairs, it will not affect the other loan token pairs. Through this model, Kashi achieves risk isolation.

Kashi’s interest rate design is also dynamically adjusted based on its target asset utilization rate. Its current utilization target is about 70-80%. If the deviation is serious, the interest rate will also fluctuate greatly. For example, if the utilization rate reaches 100%, the interest rate will double every 8 hours, and if it is only 0%, it will also be halved every 8 hours. Not only that, but two important points have been added to the design of Kashi V2: First, anyone can create its loan pair. This is equivalent to opening the lending market to users. Logically, this may lead to a larger market size. In practice, we can keep an eye on how it will evolve. The second is that users can go long or short various assets, it will be based on a certain mortgage rate, as long as the user has enough margin, and even use the lightning loan function.

From the above plan, Kashi will follow a different model from the current mainstream lending, trying to take a more community-based grassroots route. In addition, it adds margin trading, which is also conducive to improving its asset utilization, thereby attracting more users. In addition, for Sushi token holders, one point of concern is whether Kashi can allow Sushi tokens to capture value.

Kashi’s loan income mainly comes from the interest paid by the borrower and the liquidation income. Of this, 90% is paid to the provider (lender) of the asset, 1% is given to the developers of Kashi, and the remaining 9% is given to the xSushi holders.

*BentoBox BentoBox was originally a fund library serving the loan agreement, and later extended to the fund library for all dApps.

BentoBox’s fund library comes from various assets deposited by users. After users deposit their funds in BentoBox, various protocols can use these assets. That is, BentoBox has become a vault for various dApps. Kashi is the first lending agreement built on BentoBox.

1619502947875831(Sushiswap-like BentoBox, Sushiswap)

There are several benefits of pooling user funds together:

*Reducing transaction costs. At present, the cost of approving the use of tokens on a variety of different protocols is very high. Every time a new protocol is entered, it is approved once, and the cost is not small. All dApps based on the BentoBox protocol can save this cost. Users need to click to authorize, but do not need to pay gas fees. That is, the token can be used in all agreements on BentoBox only once, so that as long as it is based on the dApp on BentoBox, there is no need to pay multiple times for authorization. This is beneficial for users to deposit their funds in BentoBox, for users to use BentoBox-based dApps, and for Sushiswap to retain users.

*Improve capital efficiency. Because BentoBox’s vault is open to various protocols, various user scenarios can be developed based on it, and logically, it also brings various potential benefits to users. For example, based on BentoBox, not only can there be a loan business, but also a variety of businesses such as margin, options, and wealth management.

In addition, if the vault funds on BentoBox are idle, it can also earn fees by providing liquidity for SushiSwap. In other words, users who deposit funds in BentoBox can not only get the income of a certain agreement, but also get their financial income. For example, when Kashi users deposit funds in BentoBox, one can obtain Kashi’s loan income, and second, it is also possible to obtain income from the provision of liquidity or other financial management. Of course, BentoBox needs a positive cycle of its ecology.

If users deposit more funds in BentoBox, for example, through Kashi at the beginning, the more attractive it is to develop dApps based on BentoBox, and it will also prompt more protocol developers to consider building various types of vaults based on BentoBox. dApp application. This is essentially beneficial to the Sushi ecology, because it will bring more users, bring more benefits, and thus form a greater ecology.

Therefore, from this perspective, Kashi and BentoBox are the key to whether Sushiswap can wash away the Uniswap mark in the future. If the battle for Sushi is completed, then the temperament of Sushiswap will be completely changed. It will move towards the ubiquitous DeFi ecosystem, not just DEX.

*Distribution platform Blue Fox Note also introduced ” Sushi’s MISO: The Expanding DeFi Boundary ” before, which is the distribution platform for new projects. Compared with the current independent IDO platforms, as long as Sushiswap is a little better in mechanism and has a closer relationship with its platform (such as support for token incentives, etc.), then its new project issuance may be more attractive than the current IDO. platform. The distribution platform is more important than Uniswap for DEX rooted in the community like SushiSwap. This is another puzzle that Sushiswap will do next.

The essence of the dispute between UniSwap and SushiSwap

UniSwap is currently the king of AMM DEX on Ethereum. There is no dispute about this, whether it is from the transaction volume, the amount of locked assets, or other things.

UniSwap has also launched its V3 roadmap, and plans to go online soon. Among them, the most impressive is the mechanism it designed to improve the capital efficiency of LP. It introduced the so-called “concentrated liquidity” concept, that is, it allows LPs to customize the price range in which they provide liquidity. Logically, this mechanism will greatly improve the capital efficiency of LP. This is really impressive in DEX in AMM mode.

If implemented successfully, will this have an impact on Sushiswap, Curve, Balancer, etc.? After all, funds will flow to more efficient places. This will put some pressure on other DEX. But “centralized liquidity” is not perfect either. One of them is that due to its flexibility, it requires LP custom settings, and needs to actively manage funds, because once the set price range is exceeded, its funds will be idle. Not all LPs have time to make such settings. If LPs are unwilling to actively manage, perhaps SushiSwap is more suitable for these fund providers.

However, this is not the core of the problem, nor the core of the dispute between Uniswap and Sushiswap. The essence of the dispute between SushiSwap and Uniswap is that who can bring greater benefits to funds, and who has higher efficiency.

Uniswap’s approach is to focus on the improvement of AMM, and to improve the capital efficiency of its LP through mechanisms such as “centralized liquidity”. This is a deep play. And SushiSwao uses borrowing (Kashi) and general treasury (BentoBox) to improve the efficiency of funds. This is a horizontally expanding style of play. Judging from the current situation, Uniswap has a deeper user base and network advantages, and is the current undisputed winner. However, if Sushiswap can achieve higher capital efficiency through puzzles such as Kashi and BentoBox, it will not have no chance to reverse the current situation.

For LP, is it to provide liquidity on Uniswap to obtain higher returns? Or can deposit funds on BentoBox on Sushiswap get higher returns? If, in practice, the funds provided on SushiSwap are more efficient and profitable, then why is it impossible to deposit their funds in the SushiSwap ecosystem? The reverse is also true. If BentoBox fails to prove itself, then its funds will also flow to UniSwap, further widening the gap between the two.

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