The central theses
- SushiSwap is one of the popular Ethereum-based DeFi platforms that offers liquidity provisioning, yield farming, staking, and peer-to-peer lending and borrowing features.
- Because it is a DEX, SushiSwap is based on an automated market making system and utilizes liquidity pools rather than relying on traditional order books to provide liquidity.
Ethereum facilitated the integration of blockchain and smart contract technology into various traditional industries. This gave rise to several decentralized applications (dApps) that enabled peer-to-peer lending, borrowing, yield farming, staking, and other use cases. SushiSwap is one of the leading DeFi protocols, built in the footsteps of Uniswap, the pioneering DeFi protocol.
Although SushiSwap is a hard fork of Uniswap, it is new in its own way. But what is SushiSwap? How are financial activities enabled in a decentralized manner? We will discuss all these things and more in this article.
What is SushiSwap?
SushiSwap, one of the most popular Ethereum-based DeFi platforms, was developed by pseudonymous founders Chef Nomi and 0xMaki. It was launched in August 2020 by SushiSwap as a clone of the already successful DeFi platform Uniswap.
Starting projects based on open source code has been a tradition in the crypto industry since Bitcoin and allows other new projects to copy the code. SushiSwap is a hard fork of Uniswap, the first DeFi protocol. However, the project ensured that some of its fundamentals are unique and more advanced than Uniswap.
According to DeFiLama, SushiSwap is one of the DEXs with over $290 million TVL. The fact that the platform supports 28 blockchains is not only notable but also makes it a diverse platform. Supported blockchain networks include Ethereum, BSC, Polygon, Arbitrum, Optimism, Avalanche, Fantom, Harmony and more.
How does SushiSwap work?
SushiSwap is a decentralized exchange protocol that enables the buying and selling of crypto tokens. As we mentioned in the previous section, SushiSwap is based on the automated market making system. This system eliminates the need for traditional order books and is based on liquidity pools where liquidity providers lock their funds using smart contracts to simplify the trading process for users.
Anyone can become a liquidity provider (LP) on SushiSwap by depositing and locking a pair of crypto tokens in liquidity pools. In return for providing liquidity, LPs are rewarded with SUSHI tokens in proportion to their contribution. SUSHI is SushiSwap’s native cryptocurrency, which has multiple use cases within the ecosystem.
Since this DeFi platform is based on Ethereum, SUSHI tokens follow the ERC-20 token standard. SUSHI token also acts as a governance token, allowing token holders to vote on proposals and participate in their future development. Additionally, SUSHI token holders can also benefit from discounts on trading fees when using the SushiSwap platform.
Over the years, the SushiSwap ecosystem has grown with new projects and use cases. SushiSwap’s decentralized exchange is the central aspect of its ecosystem. The platform launched a non-fungible token project called “Shoyu” in 2021 to solve the problems of existing NFT marketplaces. However, it was hardly well received by users.
Additionally, “Kashi” is the lending and borrowing product of the SushiSwap ecosystem and also enables other features such as leveraged trading. Finally, “Sushibar” allows users to stake their SUSHI tokens and earn staking rewards in return.
How to provide liquidity on SushiSwap?
It is a must to have a crypto wallet before engaging in any cryptocurrency related activities. You can access the SushiSwap platform using reputed crypto wallets such as Trust Wallet, MetaMask Wallet, Coinbase Wallet, etc. If you don’t already have a crypto wallet, you’ll need to set one up to connect it to SushiSwap and access its features.
Liquidity pool providers (LPs) deposit tokens into liquidity pools to enable easy buying and selling of crypto tokens. Let’s say you want to provide liquidity to SushiSwap. SUSHI-ETH is the most traded liquidity pool pair on SushiSwap. After connecting your crypto wallet to SushiSwap, you need to go to the liquidity section and click on “New Position”. Then select an equal amount of SUSHI and ETH tokens and click “Confirm Adding Liquidity.”
You will now receive LP tokens for depositing your funds on SushiSwap. If you want to receive rewards, you must exchange your LP tokens to receive your original balance along with the rewards. A portion of trading fees will be credited to you based on your SUSHI ETH contribution. In addition to providing liquidity, SushiSwap also allows you to participate in yield farming and staking to earn more rewards.
How is SushiSwap different from Uniswap?
SushiSwap is one of the best Uniswap alternatives and overcomes the limitations of the original Defi protocol. Although it was created based on the Uniswap code, it ensured its novelty through an advanced reward system and use cases. SushiSwap’s revenue sharing model involves distributing trading fees to users as a reward.
Although both platforms have liquidity pools and offer rewards for providing liquidity, SushiSwap also allows users to stake their LP tokens and earn rewards. In addition, the SushiSwap ecosystem has more products and features such as lending, borrowing, margin trading, etc. While Uniswap’s role in the overall DeFi system development is notable, SushiSwap is more diverse and has more supported blockchains and additional features.
Diploma
SushiSwap is one of the most popular decentralized exchanges with attractive features and benefits for users. By supporting over 20 blockchain networks and offering numerous DeFi activities such as decentralized trading, lending, borrowing, and staking, it has a significant usage base in the industry. However, DeFi is an unregulated space, which highlights the importance of doing your own research and being careful when investing.
Frequently Asked Questions (FAQs)
No, SushiSwap is not a blockchain network. It is a DeFi platform that enables decentralized financial activities and runs on the Ethereum blockchain.
Yes, SushiSwap is a good investment considering the various use cases, benefits, and features of the platform. However, you must research the platform thoroughly before using SushiSwap or investing in SUSHI tokens.
The maximum supply of SUSHI tokens is 250 million.
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