Collateralize SUSHI Reactor on Tokemak

Objective

Collateralize a SUSHI reactor in Tokemak to (i) support SUSHI liquidity and (ii) increase liquidity in SushiSwap pools to increase trading fees for xSushi stakers.

Background

SUSHI was a winning reactor in the Tokemak C.o.R.E, where TOKE holders voted for the first supported assets (“reactors”) to launch on Tokemak. Additional winning reactors include Olympus (OHM), Alchemix (ALCX), Frax (FXS) and Tracer (TCR).

Winning a reactor demonstrates the SushiSwap community has a strong overlap with the Tokemak community.

Tokemak enables protocol participants to both provide liquidity into reactors and control where liquidity is deployed in DeFi.

Asset deposits and liquidity direction to DEXs (OHM/ETH example)

Collateralizing a SUSHI reactor will: (i) strengthen liquidity for SUSHI and (ii) create opportunities to direct Tokemak TVL (currently ~$800M and growing) to SushiSwap pools to build market depth for any asset supported by Tokemak.

(i) Strengthen Liquidity for Sushi: A SUSHI reactor massively reduces the complexity and cost for LP’ing SUSHI, increasing the number of users who will become SUSHI LPs.

  • Users simply single-asset (SUSHI) stake with IL protection.

  • Users do not have to also provide equal value in another asset (e.g. ETH), effectively cutting the cost of LP’ing in half.

  • Stakers earn yield in the form of TOKE, Tokemak’s native token.

  • SUSHI will be then paired with a quote asset (e.g. ETH) from other stakers (Liquidity Providers) and deployed to DEXs in order to build market depth and support healthy exchange markets.

  • The simplified process should increase the willingness of especially less sophisticated holders to participate in becoming a SUSHI LP.

  • (Information on IL mitigation can be found in the Tokemak Gitbook at https://docs.tokemak.xyz/)

(ii) Build Sushiswap Liquidity: Approval of this proposal makes the SushiSwap DAO a powerful Liquidity Director. Liquidity Directors stake TOKE into individual Reactors and vote how liquidity is deployed into markets. As a meaningful holder of TOKE, SushiSwap will be in the unique position to direct Tokemak TVL to augment liquidity in any liquidity pool supported by Tokemak.

  • Additional liquidity from Tokemak TVL will add market depth, supporting larger trade sizes, leading to more trade volume and ultimately to higher trading fees for SUSHI holders.

Direct liquidity by voting DEXs (example UI, subject to change)

REACTOR LAUNCH

To launch a SUSHI reactor, Tokemak requires an operational reserve (“collateral”) of SUSHI to efficiently deploy SUSHI liquidity to DEXs and enable SUSHI LPs on Tokemak to benefit from IL mitigation. The operational reserve will be achieved via a DAO-to-DAO swap structured as follows:

  • SushiSwap and Tokemak will execute a token swap valued up to $3M USD in each token, SUSHI and TOKE, respectively.

  • The execution price will be at the 7-day moving average with no price discount the day this proposal passes.

FUTURE POSSIBILITIES

Initiating a reactor will also result in opportunities for Tokemak and SushiSwap to collaborate to enable both SUSHI LPs in SushiSwap and the SushiSwap DAO to earn additional rewards in the future.

For example:

  • SushiSwap can consider supplementing or even replacing single-asset staking with tSUSHI staking in SushiSwap (tSUSHI is the Tokemak LP token). This will effectively roll pool 1 and 2 into one, resulting in multiple benefits:

  • SUSHI stakers that were previously single-asset staked in SushiSwap now become SUSHI liquidity providers, further increasing SUSHI liquidity in DeFi.

  • SushiSwap, as the ultimate tSUSHI holder, would be the recipient of a sizable amount of TOKE rewards, could be used to direct further Tokemak liquidity (to SushiSwap) or to supplement pool rewards.

  • SUSHI rewards to current SUSHI stakers in SushiSwap could be lowered as single-asset SUSHI LPs benefit from IL mitigation and/or SUSHI rewards are supplemented by additional TOKE rewards.

SushiSwap could enable xtSUSHI stakers to control SushiSwap DAO TOKE Voting and direct assets they most want to support.

SushiSwap could investigate if tSUSHI could be utilized for SUSHIPOWAH voting. Much like SLP having SUSHIPOWAH.

  • Approve $3.0M Reactor Collateralization and Treasury Swap
  • Approve $1.5M Reactor Collateralization and Treasury Swap

0 voters

9 Likes

All other reactors are up and active. I think its important that we get our reactor up and rolling asap as well. The ability for SUSHI LPs to not take on IL is a fantastic idea, while still help to deepen the liquidity. Plus, we should be able to direct SUSHPOWAH to tSUSHI holders to enable voting rights. LFG.

14 Likes

Let’s get this going asap. It is a great opportunity for Sushi!

4 Likes

Let’s turn on the reactoooor!

3 Likes

OMMMMMMGG IM A REACTOOOOOOR

Great moves by all. Im very happy to support this.

4 Likes

Love it. Let’s get the Sushi reaktor going!

2 Likes

Enjoyed listening to the Tokemak during their AMA, let’s get our reactor up!

3 Likes

I like it. Let’s go!

1 Like

Thanks for the proposal @Craig_Tokemak . Do you mind clarifying this statement above? It was my understanding that once the sushi reactor is active, you’ll naturally attract individual LPs to deposit their $sushi to earn the $Toke rewards. And you wouldn’t necessarily need the the Dao-to-dao token swap.

I’m supportive of the proposal and a collaboration with Toke, but just want to understand this better.

1 Like

The $SUSHI secured from the DAO-to-DAO swap is not used for deployment. It is used as “assets in reserve” for maintaining the health of a reactor and determining how much $SUSHI provided by LPers can be deployed at a time.

Deployment Logic - Tokemak: The Utility for Sustainable Liquidity - You can find more information about the assets in reserve here. The assets in reserve will continue to grow as Tokemak accrues fees and rewards.

1 Like

@Craig_Tokemak welcome to the community!

It was a pleasure learning more about your project and the aims to inject Sushi with more liquidity.

My main concern here is this project’s affect on governance:

Would combining the current staking model into “tSUSHI” expand voting rights for SushiSwap or limit them considerably? Does tSUSHI garner SUSHIPOWAH? This may be a better question for the core team but is an important long term consideration as the community works to grow participation.

A couple of other considerations here on the program dynamics:

How is $TOKE supported across the rest of the DeFi ecosystem? Are you able to sell it on a DEX or CEX? Can you LP $TOKE in other pools or protocols? If so, it will incentivize more retention.

As liquidity directors, how do you envision DAO’s voting on the liquidity deployment? Is this done through a Snapshot and decided by xSUSHI holders? Or executed by the core team?

We are excited for more partnerships with Sushi and hope this vision may succeed.

4 Likes

Hi roosh,
Cieltan provided an accurate answer before I could hit “reply.”

1 Like

Thanks for the questions @fig.

These “Future Possibilities” are areas we see as exciting to explore with the SushiSwap community. A few initial thoughts to your questions are below as a starting point.

Would combining the current staking model into “tSUSHI” expand voting rights for SushiSwap or limit them considerably? Does tSUSHI garner SUSHIPOWAH? This may be a better question for the core team but is an important long term consideration as the community works to grow participation.

–Generally the idea here is to expand uses and rights of SUSHI holders.

How is $TOKE supported across the rest of the DeFi ecosystem? Are you able to sell it on a DEX or CEX? Can you LP $TOKE in other pools or protocols? If so, it will incentivize more retention.

–TOKE markets can be found here: Tokemak price, TOKE chart, market cap, and info | CoinGecko (currently ~$160M depth on DEXs). TOKE has tremendous utility in Tokemak. Therefore, we anticipate Liquidity Direction will be the primary use of TOKE (Liquidity Direction is performed with TOKE staked into Tokemak itself). TOKE can be thought of as ‘tokenized liquidity’. TOKE increases incentives/rewards for LPs to deposit into asset reactors (e.g. the SUSHI reactor) and it is used to direct liquidity for any supported asset/pairs to DEXs (e.g. to SushiSwap). Additionally, we anticipate TOKE and LP tokens being used as lego pieces in a wide variety of protocols in the future (nothing to announce at this time).

As liquidity directors, how do you envision DAO’s voting on the liquidity deployment? Is this done through a Snapshot and decided by xSUSHI holders? Or executed by the core team?

–Great question! We’re happy to collaborate with DAOs to enable voting as befits their governance structures. I think the structure will vary from DAO to DAO.

1 Like

Good point on the SUSHIPOWAH, and it sounds like we could implement it from chatting with Ross and others. Perhaps we add that into the proposal as well to ensure clarity on this?

  • Add SUSHIPOWAH to the SUSHI Staked in the Reactoooor
  • NO POWAH

0 voters

2 Likes

+1, getting the reactor online is important next step to mitigate IL for Sushi LPs

So even in the discussions with Tokemak on the AMA’s I didn’t fully understand how this would work. This post definitely helped the understanding. My bad for being absent from Forum recently.

2 Likes

Hey! We missed you. :pray:t4:

1 Like

I’ve missed being here. Things have become crazy busy in other work.

Hope it calms down there, good vibes to you and any colleagues.

Great to have you around when we can.

1 Like