Ethereum facilitated the integration of blockchain and smart contract technology into various traditional industries. It gave rise to several decentralized applications (dApps) that enabled peer-to-peer lending, borrowing, yield farming, staking, and more use cases. SushiSwap is one of the leading DeFi protocols that was developed in the footsteps of Uniswap, the pioneering DeFi protocol.

Even after being a hard fork of Uniswap, SushiSwap is novel in its own way. But, what is SushiSwap? How does it enable financial activities in a decentralized manner? We will discuss all these things and more in the present article.

What is SushiSwap?

SushiSwap, one of the most popular Ethereum-based DeFi platforms, was developed by pseudonymous founders Chef Nomi and 0xMaki. It was launched by SushiSwap in August 2020, as a clone of the already successful DeFi platform, Uniswap.

Launching projects on an open-source code has been a tradition in the crypto industry since Bitcoin, enabling other new projects to copy the code. SushiSwap is a hard fork of Uniswap, the first DeFi protocol. However, the project made sure that some of its fundamentals are unique and advanced than Uniswap.

SushiSwap is one of the  DEXs, with over $290 million TVL, as per DeFiLama. The fact that the platform supports 28 blockchain blockchain is not only noteworthy, but also makes it a diverse platform. Some of its supported blockchain networks include Ethereum, BSC, Polygon, Arbitrum, Optimism, Avalanche, Fantom, Harmony, and more.

How Does SushiSwap Work?

SushiSwap is a decentralized exchange protocol that enables buying and selling of crypto tokens. As we mentioned in the previous section, SushiSwap works based on the automated market-making system. This system eliminates the need for traditional order books and relies on liquidity pools, in which liquidity providers lock their funds using smart contracts to simplify the trading process for users.

Anyone can become a liquidity provider (LP) on SushiSwap by depositing and locking a pair of crypto tokens in liquidity pools. In exchange for providing liquidity, LPs are rewarded with SUSHI tokens in proportion to their contribution. SUSHI is the native cryptocurrency of SushiSwap, which has several use cases within the ecosystem.

Since this DeFi platform works based on Ethereum, SUSHI tokens follow the ERC-20 token standard. SUSHI token also works as a governance token, allowing token holders to vote on proposals and take part in its future development. Additionally, SUSHI token holders can also benefit from discounts on trading fees while using the SushiSwap platform.

Over the years, the SushiSwap ecosystem has grown with new projects and use cases. SushiSwap decentralized exchange is the central aspect of its ecosystem. The platform launched a non-fungible token project called “Shoyu” in 2021 to solve the issues of existing NFT marketplaces. However, it didn’t gain much traction from the users.

Additionally, “Kashi” is the lending and borrowing product of the SushiSwap ecosystem and also facilitates other features like leverage trading. Finally, “Sushibar” allows users to stake their SUSHI tokens and earn staking rewards in exchange.

How to Provide Liquidity on SushiSwap?

It is a must to have a crypto wallet before involving in any activity related to cryptocurrencies. You can access SushiSwap platform with reputed hot crypto wallets like Trust Wallet, MetaMask wallet, Coinbase wallet, etc. If you don’t have a crypto wallet yet, you must set up one to connect it to SushiSwap and access its features.

Liquidity pool providers (LPs) deposit tokens on liquidity pools to enable easy buying and selling of crypto tokens. Let us say, you would like to provide liquidity to SushiSwap. SUSHI-ETH is the most common trading pair of liquidity pools on SushiSwap. After connecting your crypto wallet to SushiSwap, you need to go to the liquidity section and click on “New Position”. Then, select an equal amount of SUSHI and ETH tokens and click on “Confirm Adding Liquidity”.

You will now receive LP tokens for depositing your funds on SushiSwap. If you would like to receive rewards, you need to exchange your LP tokens to get your original funds along with rewards. A portion of the trading fees will be rewarded to you based on your SUSHI-ETH contribution. Apart from liquidity providing, you can also participate in yield farming and staking to earn more rewards on SushiSwap.

How is SushiSwap Different from Uniswap?

SushiSwap is one of the best Uniswap alternatives, improving upon the original Defi protocol’s limitations. Even though it was created based on Uniswap’s code, it ensured its novelty with an advanced reward system and use cases. SushiSwap’s revenue sharing model includes distribution of trading fees to users as rewards.

Even though both the platforms have liquidity pools and offer rewards for liquidity providing, SushiSwap further allows users to stake their LP tokens and earn rewards. Additionally, the SushiSwap ecosystem has more products and features such as lending, borrowing, margin trading, etc. While the role of Uniswap is remarkable in the entire DeFi system development, SushiSwap is more diverse with more supported blockchains and additional features.

Conclusion

SushiSwap is one of the most popular decentralized exchanges with attractive features and benefits to users. By supporting over 20 blockchain networks and offering multiple DeFi activities like decentralized trading, lending, borrowing, and staking, it has a considerable use base in the industry. However, DeFi is an unregulated space, which highlights the importance of doing your own research and being careful while investing.

Frequently Asked Questions (FAQs)