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.
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)
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.
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.
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