Decentralized finance (DeFi), a relatively novel concept with endless possibilities, has gained immense popularity in the crypto world over the past couple of years. DeFi is an umbrella term that defines a financial system functioning without third-party intermediaries such as banks. Instead, the entire ecosystem is dependent on every link in the chain rather than a central authority.
SushiSwap (SUSHI) is a DeFi platform designed to improve on other Ethereum dApps out there. Specifically, SushiSwap has introduced additional community control mechanisms and DeFi features compared to other protocols. It is an automated market maker (AMM) that helps in mitigating centralization in the market.
Before analyzing the factors making SushiSwap a millionaire-maker crypto project, let us understand the project fundamentals better.
SushiSwap: What Is It?
SushiSwap is an Automated Market Maker (AMM) that enables users to create decentralized markets for any pair of tokens. Ethereum users commonly use it. In September 2020, SushiSwap launched as a fork of Uniswap, creating a unique and decentralized platform for decentralized trading.
The project aims to expand the AMM market by diversifying the offerings and providing additional features that are not available on Uniswap. Among these is the ability to increase the rewards for network participants through its in-house token, SUSHI, which secures the network. It is also used to create a basic account between various subnetworks.
Like Uniswap, SushiSwap’s design helps to eliminate centralization in the market. Users trade directly with liquidity pools and via non-custodial wallets. Consequently, SushiSwap is less likely to get hacked and provides users with more flexibility in coin selection. The network also provides the users with more control over the AMM and its future developments than the competition.
For these and more reasons, SushiSwap is likely to experience massive growth in 2022.
Check Out: Why SushiSwap Will Skyrocket
Factors That Could Help SushiSwap Become a Millionaire-Maker Coin
1. Network Architecture
One of the most significant benefits of SushiSwap is that the majority of fees get paid back to users. Liquidity providers receive large rewards for their added contributions. SushiSwap is the first AMM to send all profits back to the community that maintains and services it.
SushiSwap fees are more affordable than centralized exchanges like Coinbase. Specifically, SushiSwap users pay a 0.3% fee when they join a liquidity pool. There is also a small transaction fee that is only paid once when you approve a new token’s pool.
Notably, the community governance mechanism employed by SushiSwap provides users with a chance to vote on all vital upgrades and protocol changes. Notably, a percentage of all freshly-issued SUSHI is set aside for the future development of the project. The community gets to vote directly on what projects deserve this financial boost.
2. SushiSwap Structure and Economic Model
SushiSwap’s DEX is powered by an AMM mechanism. Anyone can become a liquidity provider (LP) on the SushiSwap platform by depositing assets into a liquidity pool. In exchange, users will receive SushiSwap Liquidity Provider (SLP) tokens. These SLP tokens represent proportional ownership of the liquidity pool for which the provider supplies assets and are redeemable for the originally deposited tokens at any time.
Anyone can use SushiSwap’s web applications to swap tokens on the SushiSwap DEX with a simple user interface. When exchanging assets, users pay a 0.3% fee. 0.25% of it goes back into the liquidity pool. This means that as more exchange transactions take place, the total supply of tokens in each pool increases incrementally. In turn, this increases the value of the SLP tokens that represent proportional ownership of the liquidity pool itself. This process of generating yield is the incentive for liquidity providers to facilitate liquidity on the SushiSwap platform.
The remaining 0.05% of SushiSwap’s exchange fee fuels the platform’s staking mechanism, SushiBar, providing yet another yield farming opportunity for platform users. SushiBar lets users stake SUSHI tokens in exchange for xSUSHI, a separate asset that appreciates with the 0.05% exchange fee dividends. This enables SushiSwap users to generate yield even when they are not actively providing liquidity to pools. Again, this contrasts Uniswap’s structure, which awards all 0.3% of the exchange fees to LPs.
3. SushiSwap Growth
The SushiSwap team has developed BentoBox, a lending solution similar to Compound or Aave. The feature allows users to deposit digital assets as collateral and borrow other assets against them. With BentoBox, each lending pair is designed to be isolated, as is its risk profile.
This model contrasts other popular DeFi lending platforms where users can deposit tokens and borrow several different assets in return. Essentially, the risk increases with each additional asset involved in the loan.
In many traditional crypto-lending models, where a basket of digital assets is used as collateral, the risk that a borrower presents to the platform is tied to the risk of the borrower’s most unstable collateralized asset. A drop in that asset’s liquidity or price might jeopardize the entire loan and could require the more stable tokens in the basket to be sold to pay down the loan.
On the other hand, BentoBox’s one-to-one structure means that some lending pairs (such as those involving low-cap altcoins) will have higher risk and higher interest rates. Meanwhile, other lending pairs (such as those involving high-cap coins and stablecoins) will have lower risk and lower interest rates.
4. SUSHI And SLP Tokens
SUSHI is an ERC-20 token. The token serves various purposes within the ecosystem. SUSHI is used to reward users with a portion of the exchange fees. SUSHI also entitles users to governance rights. The more SUSHI you hold, the more voting power you have. Notably, SUSHI’s issuance is fixed at 100 tokens per block.
Users receive SLP tokens whenever they provide liquidity to SushiSwap pools. Users earn trading fees as liquidity providers and can double up on these rewards by farming their SLP tokens.
Users can also partake in another layer of yield farming. They can deposit the SLP tokens received from providing liquidity into various “farms” that generate SUSHI rewards with each new block. When users generate these yield farming rewards, two-thirds of the SUSHI is vested for six months. In other words, users can earn LP rewards for staking digital assets in exchange for LP tokens. In addition, they can earn further rewards by staking the LP tokens as well. This networked, “virtuous cycle” approach is a popular DeFi strategy.
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Final Thoughts
SushiSwap has made and continues to make significant and proactive efforts to prioritize the wants and needs of its community. In doing so, the platform has differentiated itself from many other DEXs. With community focus as a primary driver, SushiSwap bolsters the impact its users can have on the protocol’s future while providing permissionless AMM services. Overall, SushiSwap is one of DeFi’s most popular DEXs.
For all these reasons, experts estimate SushiSwap to become a millionaire-maker coin.
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