SushiSwap is a decentralized exchange (DEX) protocol that operates on the Ethereum blockchain. It was launched in September 2020 as a fork of Uniswap, another popular DEX protocol. SushiSwap introduces some key differences, such as the addition of the SUSHI token and a community-driven governance model. Let's dive into how SushiSwap works and its key features.
1. Automated Market Making (AMM) Model
SushiSwap adopts the automated market-making (AMM) model, which means there is no order book. Instead, trading is facilitated by smart contracts and the price is determined by an algorithm Liquidity providers (LPs) deposit their tokens into liquidity pools, and these pools are used for trading. The AMM model allows for decentralized and permissionless trading without relying on traditional order matching.
2. SUSHI Token
SUSHI is the native token of SushiSwap. It is an ERC-20 token that is distributed to liquidity providers as a reward for their participation in the protocol. SUSHI holders have governance rights and can vote on proposals that shape the future of SushiSwap. The token also entitles holders to a portion of the fees paid to the protocol.
3. Liquidity Mining and Yield Farming
SushiSwap incentivizes liquidity providers by rewarding them with SUSHI tokens. LPs earn a portion of the trading fees generated by their liquidity pool. This provides an opportunity for users to earn passive income by providing liquidity to the protocol. SushiSwap initially attracted liquidity from Uniswap by offering additional SUSHI rewards with a high annual interest rate. This liquidity was then migrated to SushiSwap, marking the launch of the platform.
4. SushiBar and xSUSHI
SushiSwap offers additional ways for users to earn rewards. Users can stake their SUSHI tokens into the SushiBar and receive xSUSHI in return. xSUSHI holders earn a 0.05% reward fee from all trades across all liquidity pools. This allows users to earn a passive income from the trading activity on the platform.
5. BentoBox
BentoBox is an innovative feature of SushiSwap that allows users to earn rewards by depositing their assets. It acts as a vault that combines different yield-earning tools on SushiSwap. Users can earn interest from staking on SushiBar and from lending their assets to other users. xSUSHI holders can also earn rewards from the transaction fees accrued from BentoBox .
6. Community Governance
One of the key features of SushiSwap is its community-driven governance model. SUSHI token holders can submit proposals called SushiSwap Improvement Proposals (SIPs), and other token holders can vote on these proposals. This gives the community a say in the development and direction of the protocol [1]. The governance model aims to foster transparency and decentralization.In summary, SushiSwap is a decentralized exchange protocol that operates on the Ethereum blockchain. It uses an automated market-making model and rewards liquidity providers with SUSHI tokens. Users can earn passive income through liquidity mining, staking SUSHI, and utilizing features like SushiBar and BentoBox. The community plays a crucial role in the governance of SushiSwap through voting on proposals.