SushiSwap Review

Recently, a big scandal shook the world of DeFi when SushiSwap anonymous creator was accused of scam and returned $14 million worth of ETH to the project’s developer funds. 

After enduring heavy criticism amid the scene, the protocol’s unsighted captain apologized using explicit language.

Despite all the controversy surrounding the brand-new platform, SushiSwap managed to survive by renewing the protocol to add on new products. But will it recover fully? Let us take a closer look. 

Vampire Attack

Uniswap is undoubtedly one of the most popular DEXs in the DeFi scene. Empowered by an algorithm-based Automated Market Maker (AMM), this protocol facilitates token swapping and offers profitable gateways for yield farmers. 

Uniswap users provide liquidity to their pools, receiving 0.3% of trading fees in exchange. These rewards got scarce when token “whales” got into the pools, pouring in vast amounts of cryptocurrencies. 

In August 2020, however, SushiSwap “forked” Uniswap, causing a profitable upheaval. Trying to solve that issue, SushiSwap created its native token, called SUSHI, to incentivize liquidity providers within their network.

This particular strategy was called “Vampire Attack”, which is when someone creates strong incentives for liquidity providers to migrate their liquidity to a new platform. 

In this case, Uniswap liquidity providers’ tokens were migrated to SushiSwap, where these same liquidity providers were incentivized to stake into the platform to receive rewards in exchange (SUSHI tokens). 

Skyrocket Effect 

The project started getting momentum around late August 2020. An anonymous crypto twitter shared an idea about using Uniswap’s liquidity providers tokens cunningly, by depositing the funds into a much more profitable fork in the network.

On August 26, SushiSwap was officially announced. This DeFi “clone” initially offered three liquidity pools: SUSHI/ETH, USDC/ETC, and USDT/ETH. Soon after, these pools were expanded to 19 pools. 

Unlike Uniswap, SushiSwap rewarded its liquidity providers sharing a portion of the protocol’s fees, accrued in SUSHI. In its first two weeks, each block was generating returns of even 10 times, which means 1k SUSHI tokens. 

With expectations of exponential growth ahead, the protocol started incentivizing liquidity providers, even more, using premiums, bonuses, and 0.25% trading fee’s returns for active providers. They planned to use all the liquidity available and migrate it to their platform after two weeks.

Luckily, the plan was successful and SushiSwap managed to accrue more than US$1.2 billion in liquidity in the next few days. On September 1st, the remaining SUSHI tokens experienced a bullish evaluation, as the value of SUSHI reached US$ 11 after four days. 

At this point, the yield farming frenzy was out of control. When SushiSwap decided to migrate the funds definitely, Uniswap was drained in about 80% of its liquidity.  

Unforeseen Issues

The team behind the whole SushiSwap project was anonymous, so the protocol had as its main leader an individual so-called “Chef Nomi”. At the time, experts pointed this was a controversial issue, as the management of this vast amount of funds was under the control of an anonymous team.

On September 6, “Chef Nomi” sold US$8 million worth of SUSHI tokens, which affected its valuation directly. The outcry was loud, as the move affected SUSHI holders, which were facing a potential loss of 50%. 

Failed Solutions

On the next day, September 7, “Chef Nomi” handled to protocol’s control to Sam Bankman-Fried, a seasoned crypto executive and CEO of FTX. Bankman-Fried didn’t linger to act, installing a multi-signature wallet on the protocol’s smart contracts, meaning the control was now in the hands of the community.

However, this measure ended up backfiring, as the SUSHI “whales” took control of the protocol via the voting process. 

An analysis provided by Glassnode on September 8 stated that the project was overrated and that it would need a colossal trading volume to justify the rewards and token prices. Then, just one week after reaching its peak, SUSHI prices started to decrease by around 80%. It was just the beginning of the collapse. 

The Market Starts Reacting 

sushiswap Dashboard Exchange

On September 10, SushiSwap managed to migrate from Uniswap after just two weeks since its official launch. The “fork project” also managed to bring more than US$ 1 billion in liquidity from the original protocol. 

Uniswap, at this point, was deeply affected by the liquidity exodus, reaching a mere US$ 350 million in Total Value Locked (TVL). 

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However, the definitive answer came on September 11, when “Chef Nomi” came out to apologize publicly. Declaring that he would return $14 million worth of ETH to the treasury, he stated that he would let for the community to decide how much he deserved as the “original creator” of the project.

Uniswap Fights Back

As a direct response to SushiSwap, Uniswap announced the launch of its native token, called UNI, on September 17. Yield farmers reacted, going back to Uniswap to require their share of the airdrop of 15 million UNI. Plus, Uniswap was offering four ETH-based liquidity pools with considerable rewards for two months. 

The Total Value Blocked at Uniswap rose to a thrilling US$ 2 billion, which was the dead-end situation for SushiSwap’s hype train. 

On September 23, SUSHI token prices reached a depressing US$ 1.27. SushiSwap’s liquidity pools were heavily affected as well, as various pools regressed to numbers around US$ 450 million. 

Conclusion

Despite the abrupt plunge in volume and the colossal decrease drop in the SUSHI token price, SushiSwap is still the fourth-largest DEX.

They released a redesigned website at a new URL so users can check all their SUSHI in one place. The idea was named “Omakase Bar” and promises to renew the perception about the project. Also, a growth fund was established to attract and reward more volunteers that want to rebuild the platform. 

SushiSwap now is a community-run project governed by vote only. Their ecosystem features brand-new products, such as a crypto exchange, liquidity pools, farms, and staking pools, each one serving for a different purpose.  

The project is fighting to get back on track, and experts hope for a promising growth recapture in the medium-term.