An analysis of Sushi (SushiSwap) in 2024

Sushi (formerly SushiSwap) is a decentralised finance (DeFi) app, running as a blockchain protocol on Ethereum. 

Similar to Uniswap and PancakeSwap, Sushi uses a collection of liquidity pools to create a platform where users can buy and sell crypto assets, all within a decentralised exchange (DEX). Sushi is a DEX that uses automated market makers (AMM) to create a balanced trading environment.

But how does Sushi work? And is Sushi a good investment in 2024?

Sushi’s inception

Launched in August 2020, Sushi was born from a fork of Uniswap, and was one of the first to adopt the model of using smart contracts funded by liquidity providers – breaking away from the centralised exchange model.

Sushi has now expanded to become one of the biggest DEXs in the crypto space, and is widely available – on almost all Ethereum Virtual Machine (EMV)-compatible Layer-1 blockchains and several Layer-2 blockchains.

Sushi has to-date 334 coins and 432 pairs on the platform, and continues to grow, demonstrating the success and viability of the AMM model, and also embodying the central philosophy of cryptocurrency, which is decentralisation. 

Many of the top crypto exchanges are currently embroiled in legal issues, not to mention the catastrophic FTX situation ($8.7 billion lost). While this is due to the lack of regulation in the nascent industry, it does also suggest something about centralised exchanges.

This is where Sushi fits in, and provides an exchange that is theoretically owned by nobody, and can be fully separate from owners who might misappropriate funds.

Furthermore, the efficiency of AMMs protocols cannot be ignored. Traditional centralised exchanges rely on an orderbook to link up traders and then dictate pricing. But with smart contracts within the AMMs, this means that a market can be created for any two tokens. Trading in this way is much faster, and more secure.

What is Sushi for?

Sushi has multiple functions. The main function of Sushi is as an exchange platform, so users can buy and sell their crypto. It offers swap trading and cross chain swaps. 

Users can also store their crypto on Sushi, and have full ownership of these funds, which is not technically the case for some other centralised platforms.

One of the biggest pulls of Sushi is the yield farming capabilities, as well as other methods to earn by providing liquidity. By joining a Pool, users can earn passive income for their crypto stake. Users can also buy bonds on the platform.

Sushi also has a few unique features, such as its Sushi Bar. Within Sushi, the native token is SUSHI or ($SUSHI), but there also exists xSUSHI, which is a form of liquidity provider (LP) token.

For each swap, traders will pay a fee of 0.3%. A small cut of every swap fee (0.25%) made on the platform is locked into the liquidity pool, and then a portion of this (0.05%) is then distributed back to xSUSHI holders.

Users can also directly stake their SUSHI tokens in return for xSUSHI, if they want to stake more into Sushi. This is designed to increase Sushi’s liquidity, and also incentivise users to remain with Sushi as opposed to other platforms. Holders of xSUSHI are also able to participate in governance decisions, which is a reinforcement of their decentralised vision.

How does Sushi work?

Sushi is a blockchain protocol based on Ethereum, which uses a collection of liquidity pools to facilitate the buying and selling of crypto.

This collection of liquidity pools is formed with the crypto staked in the liquidity pools, which is incentivised with yield.

Using smart contracts, the AMM model means that a market can be created for any two tokens, and a trade can be made seamlessly, without any need for an orderbook, as the trade is made directly from the pool.

The introduction of the xSUSHI LP token means that users have an incentive to not only use liquidity pools to yield farm, but also stake in Sushi itself, as rewards will be earned this way too. 

Is Sushi a good investment?

Always do your own research before investing. Any investment in crypto or crypto platforms is considered risky.

Sushi as a company has a good reputation in the crypto space, recovering well from allegations of a rug pull in 2020. Ironically, it was Sam Bankman-Fried who helped restore the clean reputation of Sushi after the actions of Chef Nomi.

Today, the company remains one of the favourites in the DeFi ecosystem, with its proven framework, commitment to decentralisation and active community governance.

You can read more about Sushi’s specific fees and rewards on their website.

Predictions for SUSHI as a cryptocurrency remain mixed, as the SUSHI cryptocurrency has never experienced skyrocketing growth like some, but for many this demonstrates the stability and commitment to cryptocurrency as a new financial model, instead of simply a money-making scheme.

Future of DEXs

DEXs are likely to become the future of exchanges, and Sushi will undoubtedly be part of that future, having stabilised and expanded in the last few years.

One of the clearest benefits of a DEX is the reduction in trading fees. Centralised exchanges charge for activity, such as depositing and withdrawing, as well as overnight fees for leveraged investments.

In contrast, DEX platforms will only charge a small fee to facilitate the transaction, and as these transactions are faster too, this is a no-brainer for consumers, who are already well aware of the foul play involved in crypto.

The security is likely to be a draw too, and the likelihood of a DEX failing is next to none, especially if the reputation is strong.

The one hurdle that DEXs like Sushi need to leap is reduced uptake due to the complexity of the products. According to Forbes, while 90% of those surveyed understood cryptocurrency as a concept, only 58% actually had a “a good understanding” of how the technology works.

Sushi is an ideal bridge to this gap, as it simplifies a lot of the jargon into user-friendly language, such as their liquidity pool staking system branded as the ‘Sushi Bar’ and their token vault branded as ‘Bento Box’.

Furthermore, Sushi is also completely transparent about its code, and has dedicated sections on the website where it displays source code for all its products.

Sushi remains a key part of the rise of DEXs, and is likely to continue to expand, as knowledge around cryptocurrency and decentralisation increases, and also as stablecoins become more intertwined with everyday transactions.

Conclusion

At LiquidityFinder, we host a wide range of liquidity providers including crypto exchange providers which can help with your crypto liquidity.

It takes just a few minutes to register with LiquidityFinder, and once you do, you’ll have immediate access to our exclusive network of liquidity providers, as well as gain access to tools such as our Match Matrix and our multi-provider request form. 

Stay up-to-date with our Insights too, where we update our audience on everything they need to know about liquidity, crypto and more.

Author

Caleb is a financial copywriter with a specialisation in fintech and forex. Former copywriter at Barclays and Paysafe. Contributing writer for LiquidityFinder. You can message Caleb here.