Recently, I came across an interesting article with Arthur_0x of DeFiance Capital, one of the most active investors in the DeFi space. He laid out his investment philosophy as follow:
“As software ate the world over the last decade, DeFi will eat traditional finance during the next one”
In this article, he argued that DeFi would eventually replace the costly legacy “trust layer” which the financial system relies on, such as banks and insurance companies. This is because DeFi is simply faster, less costly, and more transparent.
As someone with traditional finance (TradFi) experience, albeit not an extensive one, this made me question the future of our financial system and the impact DeFi would have.
Given the recent DeFi summer, the purpose of this article would be to explore more about DeFi, starting with the 3rd highest Decentralised Exchange (DEX) by Total Value Locked (TVL): Sushi (because who doesn’t love sushi).
Do note this article is neither my opinion nor advice about Sushi, but merely my findings as I learn about Sushi, hence the title.
FYI: A great article detailing the brief history of DeFi can be found here.
How it started
Sushi was known as SushiSwap, and started in Aug. 2020 as a fork (aka copy-and-paste code) of Uniswap, which was the leading DEX running on an Automated Market Maker (AMM) model.
AMMs are, in essence, liquidity providers that use liquidity pools/pairs instead of orderbooks.
To say it was a DeFi Wild West would not be an understatement. Keep in mind, all of this happened as recently as Aug. 2020.
I would highly recommend giving The Sushi Chronicles a read, as it goes into greater detail, and not to mention highly entertaining too.
To summarise — Chef Nomi (an anonymous Panda Chef) started SushiSwap as a copy of Uniswap, but with a governance token ($SUSHI) and a plan to migrate liquidity from Uniswap. Greater incentives and high yields (we’re talking 1500% APY) drew in loads of liquidity and inflated $SUSHI token value. Just before the planned migration, Chef Nomi withdrew $14 million of his devshare out of the development fund. $SUSHI tanked 70% and the community was infuriated.
Of course, the truth always lies in the middle and eventually the story had a good turn, which is why this article was conceived. Also, Chef Nomi returned the $14 million and apologised, good on him.
Sushi’s Rebrand
Having rebranded to ‘Sushi’, it is now a community-driven organisation aimed at solving the “liquidity problem”.
Sushi products comprises of a decentralised exchange, a decentralised lending market, yield instruments, and staking derivatives. Basically, it is an decentralised DeFi ecosystem with network effects across markets and instruments.
SUSHI token holders maintain decentralised governance, while the day-to-day is run by Sushi Chef 0xMaki and the core team.
SushiSwap
The OG.
SushiSwap is a non-custodial DEX that “allows users to trade trustlessly, peer-to-peer, with liquidity that is supplied by other users.”
Users provide liquidity in liquidity pools (LP) and receive LP-specific SushiSwap Liquidity Provider (SLP) tokens in return. When trades are done using that pool, the value of its respective SLP increases.
Yield Farming
Yield farming usually means “staking” your crypto assets and receiving a certain annual percentage yield (APY) for adding liquidity to the network.
Now, here is where it gets interesting. There are three types of yield in DeFi:
- Protocol usage (aka providing liquidity for traders on SushiSwap)
- Network tokens (aka staking SLP and KMP token)
- Leveraged demand (aka interest rates for being lenders)
On Sushi, you can effectively “stack” these three types of yields. How cool is that?
In really basic terms, here’s how: provide liquidity in LPs and earn SLP AND lend asset on Kashi (lending platform)to earn KMP → Deposit SLP and KMP in a yield farm and earn SUSHI → Stake SUSHI in SushiBar and earn xSUSHI.
Highly recommend that you refer here for greater specifics.
BentoBox Apps
BentoBox is a token vault where users provide liquidity to earn yield. This liquidity is used to incentivise DeFi protocols (aka Dapps) to build on top of BentoBox.
BentoBox is permission-less, so anyone can use and build on top of it.
One such protocol is Kashi Lending, which was mentioned earlier.
Kashi is a lending and margin trading platform. The main differentiation, compared to other DeFi money markets, is in its use of lending markets, hence isolated risk markets. This allows users to create any markets.
MISO
Aka Minimal Initial SushiSwap Offering, it is the launchpad for projects on the SushiSwap exchange.
MISO allows non-technical founders to launch projects through their chef-selected “recipes” of open-source smart contracts “ingredients”.
Users can then support and participate in projects through an auction.
Conclusion
This article is just a brief introduction to the extensive and ever-changing world of DeFi, and particularly Sushi.
However, Sushi’s vision of a community-driven, fully decentralised ecosystem of innovative DeFi products, wrapped in a fun and easy-to-use interface is extremely exciting.
To learn more on how to get started, visit here.
In the meantime, I would definitely be diving in to see what it takes to be a sushi chef.
