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Last updated: Jan 04, 2024
Sushi (SushiSwap) is a multi-chain decentralized finance (DeFi) platform that began on the Ethereum network and has expanded to support various blockchains. As a decentralized exchange (DEX), it utilizes an Automated Market Maker (AMM) model to enable cryptocurrency trading. SushiSwap integrates various DeFi services including swapping, earning, lending, and borrowing. It emphasizes community-driven governance, enabling users to participate in decision-making through the SUSHI governance token.
SushiSwap, launched in August 2020 as a fork of Uniswap, quickly gained attention in the DeFi community with its innovative approach and governance token, SUSHI. It marked a notable shift in the DeFi landscape, introducing a mechanism known as "vampire mining" that successfully diverted liquidity from Uniswap to SushiSwap by rewarding Uniswap liquidity providers with SUSHI tokens.
This strategy rapidly escalated SushiSwap’s liquidity and trading volume, positioning it as a serious contender in the DeFi space. The value of the SUSHI token experienced significant volatility during this period. Initially, the token’s value surged as investors and DeFi enthusiasts flocked to the platform, drawn by the novel liquidity mining rewards and governance features.
However, the platform faced a major setback in early September 2020. Chef Nomi, the anonymous founder of SushiSwap, liquidated a significant portion of SUSHI tokens for Ethereum, worth approximately $14 million at that time. This action led to a sharp decline in the price of SUSHI, eroding trust within the community and sparking widespread criticism.
In response to the community backlash, Chef Nomi returned the converted Ethereum to the SushiSwap treasury and relinquished control of the project. Governance was then transferred to Sam Bankman-Fried, at the time CEO of FTX, and later to a multi-signature wallet controlled by community-elected individuals.
SushiSwap offers a range of DeFi services, each catering to different aspects of decentralized finance:
SushiSwap is a decentralized exchange utilizing an Automated Market Maker (AMM) model, a complex yet efficient system for token swaps. This model is grounded in the concept of liquidity pools, which are reservoirs of pairs of different tokens. These pools are the core of token swapping on SushiSwap, as they replace the traditional method of matching buyers and sellers. Instead, the AMM model sets prices using a mathematical formula based on the current ratio of tokens in each pool.
Users who contribute tokens to these pools are known as Liquidity Providers (LPs). They play a crucial role by adding liquidity, and in return, they receive LP tokens. These tokens represent their share in the pool and can be redeemed for the underlying assets at any time. While LPs earn a portion of the trading fees, they also face risks like impermanent loss, which occurs when the price of deposited tokens changes compared to when they were deposited.
Token swapping is a user-centric process on SushiSwap. Users interact with a liquidity pool to swap tokens, with the AMM algorithm determining the exchange rate based on the current token ratio, adhering to the constant product formula. However, large trades can significantly impact the token ratio in a pool, leading to slippage. To mitigate this, SushiSwap allows users to set a maximum slippage tolerance, protecting against extreme price fluctuations.
Fees are an integral part of the SushiSwap ecosystem. Each swap incurs a fee, typically around 0.3%. This fee is split; a major portion (usually 0.25%) is distributed back to the liquidity providers as an incentive, while the remaining fraction is converted to SUSHI tokens and awarded to SUSHI holders. These fees serve to encourage liquidity provision and reward users for their participation in the ecosystem.
Yield farming on SushiSwap encompasses more than just providing liquidity to pools. It involves a variety of methods that allow users to earn returns on their crypto assets. Here's an overview of the different approaches to yield farming on SushiSwap:
Each of these methods comes with its own set of risks and rewards, and the optimal approach depends on individual risk tolerance, investment strategy, and market conditions. It's crucial for users to perform due diligence and stay informed about the latest developments on the platform.
SushiXSwap is built on a multi-chain infrastructure, allowing it to function across different blockchain networks, such as Ethereum, Arbitrum One, Base, Polygon, Optimism, BNB Smart Chain, and Avalanche C-Chain. This is achieved through a series of smart contracts and bridge mechanisms that synchronize assets and data across these chains.
At the core of the SushiXSwap Crosschain AMM are smart contracts that handle liquidity provision and automated trading. These contracts facilitate the exchange of assets on various blockchains and are responsible for maintaining the platform's core functionalities.
SushiXSwap employs crosschain bridges that securely lock assets on one blockchain and mint equivalent assets on another. These bridges aim to ensure that assets are interchangeable across different blockchains.
When a user wants to swap an asset from one blockchain to another, they initiate the process by locking their asset on the source blockchain. This action typically involves interacting with the SushiXSwap smart contract on the source chain.
Once the user's asset is locked, the SushiXSwap platform initiates a crosschain communication protocol. This protocol includes a series of secure messages and verification processes to signal the destination blockchain and initiate the minting of the equivalent asset on that blockchain.
On the destination blockchain, an equivalent amount of the desired asset is minted, ensuring a 1:1 representation of the locked asset. This newly minted asset is now available for trading on the destination blockchain, within the SushiXSwap ecosystem.
SushiXSwap relies on liquidity providers (LPs) to provide funds for trading pairs on both the source and destination blockchains. LPs deposit their assets into liquidity pools, earning fees and rewards in return. These pools ensure that there is sufficient liquidity for users to execute their swaps.
Once assets are locked, minted, and liquidity is provided, SushiXSwap's automated market maker algorithms come into play. These algorithms determine the exchange rate between the two assets and automatically execute trades when users request swaps. Prices are determined based on the ratio of assets in the liquidity pools.
From a user perspective, the process is seamless. Users specify the source and destination assets they wish to swap and the desired amount. The SushiXSwap platform handles the rest, ensuring that assets are locked, minted, and swapped efficiently across chains.
At the core of the SushiSwap ecosystem are its native tokens - SUSHI and xSUSHI, which play vital roles in the platform's functionality, governance, and liquidity provision. Additionally, SushiSwap uses so-called SLP tokens for representation of liquidity locked in its pools.
SUSHI serves as the primary governance and utility token within the SushiSwap platform. It conforms to Ethereum's ERC-20 token standard. SUSHI holders enjoy several crucial functions and privileges:
xSUSHI, short for "staked SUSHI", represents a specialized version of SUSHI, acquired through staking SUSHI tokens within the SushiSwap ecosystem. xSUSHI tokens offer additional benefits:
SLP tokens represent a unique class of tokens that signify a user's share of a liquidity pool on SushiSwap. These tokens are acquired by contributing an equal value of two different assets (e.g., ETH and DAI) to a specific SushiSwap pool. Here's how SLP tokens function:
Users contribute liquidity by adding assets to a pool, and they receive SLP tokens in proportion to their contribution to the liquidity pool.
Holders of SLP tokens earn a portion of the fees generated by the liquidity pool. These fees are distributed in the form of additional SLP tokens.
SLP tokens can also be staked in various SushiSwap pools, allowing users to earn additional rewards, typically in the form of SUSHI or other tokens. This further incentivizes liquidity providers to participate in the ecosystem.
Unlike traditional automated market makers (AMMs) that are standalone platforms, Trident serves as a foundational standard upon which a diverse range of AMMs can be constructed, each with its unique features.
Trident's core function is to provide a production framework for the design and deployment of AMMs. It doesn't lock itself into any specific AMM model but offers a versatile structure to construct various AMMs. This approach aims to simplify the development process by consolidating essential functions shared among different AMMs into a unified interface, known as the IPool interface. It essentially standardizes the development of AMMs, similar to how the ERC-20 token standard did for tokens.
Within the Trident ecosystem, critical functions like asset swaps, flashSwaps, token minting, and burning are encapsulated within the IPool interface. Every Trident pool contract extends this interface, making it a pivotal element in the Trident framework. The framework aims to accelerate AMM development by offering a common ground for diverse pool types. This approach aligns with the existing Ethereum ecosystem, where various pool types have become well-established. Developers can create novel pool types, such as those tailored for decentralized options trading, stablecoins, or zero-coupon bonds, by building upon the IPool foundation.
The Trident AMM Framework encompasses specific components to support different types of liquidity pools:
SushiSwap introduced Sushi V3 as a significant upgrade to its AMM infrastructure in May 2023, bringing several improvements and innovations that make it more efficient and user-friendly.
Sushi V3 introduces Concentrated Liquidity Pools (similar to Uniswap), which enable liquidity providers to select specific price ranges within which they want to provide liquidity. This feature optimizes capital utilization and minimizes impermanent loss.
Kashi is an integrated lending and borrowing platform within SushiSwap. Users can collateralize their deposited assets in Kashi lending pools to borrow other assets, providing new opportunities for yield generation.
Sushi V3 embraces Layer 2 (L2) scaling solutions such as Optimistic Ethereum and zkRollups. These solutions reduce gas fees and enhance transaction speed, resulting in a smoother user experience.
BentoBox is a smart contract wallet within SushiSwap that facilitates efficient capital utilization. It allows multiple applications to share deposited assets, reducing the need for multiple approvals and minimizing gas costs.
The current Sushi governance model is a decentralized and community-driven system designed to facilitate decision-making for the SushiSwap protocol. At its core, this model relies on two main components: the SUSHI token and a series of governance proposals.
Holders of SUSHI tokens have the ability to influence the protocol's direction through voting power that is proportional to the number of tokens they own. To participate in governance, users can stake their SUSHI tokens in the governance contract, locking them up for a specified period to earn voting power. This mechanism ensures that those who are more heavily invested have a greater say in the decision-making process.
In addition to the SUSHI token, the SushiBar is another critical component that aligns the interests of liquidity providers with governance. Users can stake their LP tokens in the SushiBar, earning xSUSHI tokens in return. These xSUSHI tokens represent both a claim on a share of the protocol's fees and governance power, incentivizing users to actively participate in governance decisions.
The SushiSwap governance process revolves around the submission and voting on governance proposals. These proposals are the means by which community members suggest and vote on changes to the protocol. Proposals can encompass various aspects, including changes to tokenomics, fee structures, partnerships, or any other relevant changes. Importantly, the technical details of these proposals, including code changes, must be presented for community review and discussion.
When it comes to voting, SushiSwap employs on-chain voting through smart contracts. Each SUSHI token holder can cast their votes either in favor of or against a proposal. The weight of these votes is determined by the number of SUSHI tokens staked in the governance contract, ensuring that those with more tokens have a greater influence on the outcome.
To prevent hasty or malicious changes to the protocol, SushiSwap utilizes timelocks on critical functions. These timelocks introduce a delay between the proposal's approval and its execution, allowing the community time to review and potentially veto the decision.
Deliberation within the SushiSwap community often takes place on forums and social media channels. Proposals may undergo iterations and revisions based on feedback and discussions within the community before being put to an on-chain vote.
To utilize SushiSwap effectively across multiple chains, begin by setting up a compatible wallet that supports the blockchain you intend to use. Wallets like MetaMask, Trust Wallet, or Coinbase Wallet can be used depending on the blockchain you choose. Afterward, ensure you add the SushiSwap token as a custom token within your wallet using the token contract address available on the official SushiSwap website.
Access the SushiSwap platform by visiting the official website to avoid potential scams. Connect your wallet by clicking the "Connect Wallet" button on the website and follow the provided instructions to grant the necessary permissions.
To initiate token swaps on SushiSwap, use the "Swap" feature:
Beyond token swapping, you can engage in liquidity provision within SushiSwap's liquidity pools and earn rewards. Here's how:
Staking your LP tokens is done in the "Farm" section, where you can explore various farms to earn SUSHI tokens as rewards. To manage and claim your SUSHI rewards, head to the "Farm" section and follow the instructions provided.
When you wish to exit a liquidity pool, access the "Pool" section again, select the pool, and click "Remove Liquidity." Follow the instructions to withdraw your tokens. Be aware that this process may incur blockchain-specific transaction fees. Ensure you have sufficient tokens in your wallet to cover these fees.
SushiSwap, like many decentralized finance (DeFi) platforms, places a strong emphasis on security to protect user funds and ensure its integrity. Some of the key features employed by the project include:
SushiSwap has undergone multiple security audits conducted by reputable firms. These audits have helped identify vulnerabilities, bugs, or potential exploits in the smart contracts that power the platform.
SushiSwap offers bug bounties to encourage the community and external security researchers to discover and report vulnerabilities in its code. These programs reward individuals who responsibly disclose security issues, aiming to identify and address potential threats before they can be exploited.
Some critical functions within SushiSwap's smart contracts are protected by timelocks. Timelocks introduce a delay before certain actions can be executed, allowing the community time to review and react if any changes to the protocol are proposed.
Important decisions and governance actions within the SushiSwap protocols require multi-signature (multisig) wallet signatures. Multisig wallets require multiple individuals or parties to approve transactions, aiming to reduce the risk of a single point of failure or malicious actions.
SushiSwap has a decentralized governance system that allows token holders to participate in decision-making processes. This helps ensure that protocol upgrades and changes are determined collectively by the community, promoting decentralization and minimizing the risk of centralization.
Nevertheless, just like many other DeFi players, SushiSwap was hacked in March 2023, resulting in a loss estimated to be worth $3.3 million.
In March 2023, SushiSwap fell victim to a significant security breach that exposed vulnerabilities in its recently launched RouteProcessor2 contract. This incident resulted in attackers successfully siphoning an estimated $3.3 million from SushiSwap users.
The attackers exploited a critical vulnerability within the aforementioned contract, which revolved around the improper validation of the route parameter supplied by users when interacting with the processRoute function.
This vulnerability allowed the attackers to manipulate the route parameter, directing it towards a malevolent pool controlled by the attackers themselves.
With control over the malicious pool, the attacker executed the swapUniV3 function, effectively setting the variable "lastCalledPool" to the address of their pool. Subsequently, they initiated the swap function within the malicious pool, which triggered the execution of uniswapV3SwapCallback.
Within uniswapV3SwapCallback, the attacker validated themselves as the sender by leveraging the fact that "lastCalledPool" was set to their malicious pool's address, enabling them to execute their callback.
By exploiting this callback capability, the attacker constructed transactions designed to deplete tokens from user accounts that had granted approvals for the new RouteProcessor2 contract. This sequence of actions ultimately resulted in the theft of approximately $3.3 million. It's noteworthy that the impact of the attack was limited to some extent by whitehat hackers who preemptively identified and front-ran malicious transactions, mitigating the attack's scope.
As of the time of writing this review SushiSwap hasn’t yet released its 2024 plans. An updated roadmap is expected to be shared publicly soon. In the meantime, users can check the platform’s official social media profiles for latest updates.