[RFC] Deploy new tokenomics for Sushi

Proposals
1

Dear Sushi Community,

We’re seeking feedback on our latest effort to refine Sushi’s token model, aiming to cement its role in the protocol’s ongoing success and contribute to its growth. Since its launch, Sushi has been at the forefront of tokenomics with initiatives like MasterChef and xSushi. We aim to present a token model that sets us on a sustainable growth path and long-term strategy. In January, we published an initial draft, which, thankfully, generated meaningful feedback from the Sushi and DeFi community, and we believe this final draft represents the best model curated from that feedback.

As Kanpai expires in December of this year and Sushi’s current distribution model quickly approaches full distribution, this proposal outlines our vision for a revised Sushi token model crafted to ensure stability and sustained value for all stakeholders. The model builds on three pillars: protocol sustainability, token utility enhancement, and treasury diversification. We invite you to review the proposed changes linked below, which will synergize to support a resilient token economy.

Read the full proposal: Sushi Tokenomics Proposal Final

Below is a brief overview of the newly drafted model’s mechanics and goals.

Challenges and Solutions
Through thorough analysis, we’ve identified several challenges within our current token model.
Here’s a brief on what we’ve found and our proposed solutions:

  • Liquidity Subsidization: We aim to improve the efficiency of our liquidity subsidization, thereby reducing the annual cost of Sushi emissions.
  • Balancing Value: Our current Sushi emissions compared to the income of the Sushi Bar suggests a 1:1 ratio, leading to unsustainable value extraction. A more balanced approach is needed.
  • Financial Stability: We must address the current emissions-to-income ratio impacting our economic viability to enhance stability.
  • LP Incentives: The incentives for Sushi Liquidity Providers need recalibration to remain competitive.
  • Staking Mechanisms: We are considering revising xSushi staking to serve high-conviction participants better.
  • xSushi Distribution: Aligning xSushi staking closer to its original intent will provide a fairer value distribution among participants.

Economic Model
Our economic model design scales strategically via DEX innovations and includes the following:

  • Trading Fees: A primary revenue source from transactions in our liquidity pools.
  • Routing Fees: Income from trade fees via our Aggregation Router.
  • Staking Fees: Potential revenue from staking rewards.
  • Partnerships: Opportunities for revenue growth through strategic partnerships.

Stakeholder Considerations
We’re focused on aligning our tokenomics with the interests of our key stakeholders:

  • Liquidity Providers (LPs): Aimed at ensuring long-term incentives.
  • xSushi Holders: Provide a stable token supply, non-dilutive rewards, and governance.
  • Traders: Looking to offer an improved trading experience with low slippage.
  • Token Projects, DAOs: Building long-term partnerships that contribute to stability.
  • Sushi Treasury: Ensuring diversified and sustainable income streams.

Goals for a Redesigned Token Model
The revised proposal has several objectives:

  • Promote decentralized ownership.
  • Amplify liquidity.
  • Encourage sustainable growth.
  • Enhance the protocol’s sustainability.
  • Bolster $SUSHI utility.
  • Diversify the treasury for robust financial operations.

We’re committed to enhancing liquidity, offering non-dilutive token rewards, instituting a balanced token supply, and ensuring Sushi remains competitive.

We look forward to your insights and feedback on this proposal to facilitate an upcoming governance vote. Your input is invaluable as we aim to refine and improve Sushi’s token model for the betterment of the entire community. Please share your thoughts, suggestions, or concerns regarding the proposal.

For

  1. Reshape Sushi’s token model to promote its long-term ecosystem goals.
  2. Continue to encourage decentralized ownership in the DAO.
  3. Realign stakeholders with optimal outcomes where the current model is limited.
  4. Promote ecosystem growth with sustainable emissions and value.

Against

  1. Continue with the existing model and its limitations.

Poll

  • Yes - deploy new tokenomics (please show your support in comments)
  • No - keep existing tokenomics (please provide feedback in comments)
0 voters
2

Some interesting ideas in the full description. Personally not in full support yet for the following reasons:

Quadratic voting:
Whilst I understand this is a popular way of promoting smaller holders to have a greater say in governance I think it is counter productive. Whales and DAOs that hold Sushi are the true high conviction holders that can drive value. They are the only ones who can use whatever long term boost system you end up implementing as they have the capital to deploy sizeable LP to generate the fees. If you want more decentralized governance architecture then implement a delegation system. (just quietly this fits with what I proposed in the governance overhaul proposal)

xSUSHI holder value accrual:
The DAO is really funded and supported primarily by the Sushi holders. To that end, I read the proposal as essentially seeking to provide more governance to Sushi holders but with less actual assigned incentives (although Kanpai 2.0 meant no fee share at all). ie more governance with less income. That is ok so long as the control over the treasury sits entirely with the community and not with core. If that is the case, and the DAO is moving towards more of a treasury DAO style model, then that is fine too. BUT, I am not super clear if that is what is being discussed.

Keen to hear more in an AMA or similar. Having only just read this today I am sure I will think of more questions and I look forward to more discussion on your ideas.

1 Like
3

Thank you. AMA’s on Tuesday on Twitter Spaces!

1 Like
5

Back linking this Spaces from earlier today for anyone who’d like to listen to it.

It’s about an hour long. Jared and David go into some detail over the material and answer a few questions.

2 Likes
6

I’ve just begin my review of the more in-depth proposal, but I’m leaving this comment right now to boost the interaction with this post and hope that we can boost community engagement discussing the matter.

1 Like
7

The new tokenomics proposal sounds good to me as a staker and an LP.

What I do not see in the exiting proposal, and let me know if I missed it, will we need to create and deploy additional SUSHI tokens thereby diluting the value of SUSHI tokens already in the market?

1 Like
8

Hey Nick, thanks for the feedback. We propose a 1.5% APR to emissions. Yet, the totality of the model focuses on long-term value capture back to the protocol, whereas it previously leaked that value.

1 Like
9

im voting no on every proposal that deals with any changes to tokenomics and/or governance until normal people are given analytics that are readable for simple people. we have what we have because the few thought it best show us the results from the last almost year of sacrifice.

WTB Year in review on what sushi has done for users of platform both stakers and lp. (how much value to people has sushi given?)

10

What do you find complicated with the proposal? Maybe I can help.

11

Good to see the reveal of new tokenomics my main concerns with them is surrounding the locking of LP position and the lack of early exit.

This will turn LP into relatively stable positions in majority think stable/stable pairs or LST derivatives which are usually not very lucrative when looking at univ3 analytics (1bps pools)

Lowering the appeal for volatile governance tokens LP which are usually more lucrative for the DEX

If the accrued points earned by the LP can be traded in the form of NFT it seems like people could spin up fictive tokens with no value/trading volume to then resell them for proper pools rendering the system useless unless we enforce a per LP - range NFT fragmenting that market making it not very popular

I do think the premise of being an LP on a higher timeframe translate in boosting is good and the system implemented by Across Protocol is among the best solution.

What I’d like to see implemented personally in addition to locking of LP is an early exit with rewards accrued (fees or points) going to other lockers increasing the APY on their position with them being available for claim immediately similar to how Ribbon Finance implemented it for their veRBN.

Overall good to see it shared publicly and would be interesting to have an estimate of when this can be deployed assuming a positive vote? Are we talking months (with/without audits) or is this already all coded?

Thank you for this proposal

4 Likes
12

Thanks for your participation Maki. For clarity, there is no forced locking period for LPs. The only “locks” are for the voting process. LPs receive loyalty points for time and value in the pools, and so the more they contribute, the higher tier of rewards they can receive. With this method, users can withdraw and deposit anytime without losing their accumulated points or any already generated rewards.

2 Likes
13

Awesome ty for the clarity

2 Likes
14

Max supply has nearly been reached, holders invested knowing there is a finite limit, a max supply
team took 1 year of income from sushi stakers and 11 months later we end up with big drop in TVL , abysmal volume and lost ground against competition.
At end of the day, developed products did not provide any tangible results, so this head chef vision must be questioned!
It is high time to stop the drain on users, whether, extracting value through inflation or taking income from xsushi
Hence I will vote against this tokenomics proposal!

1 Like
15

Hey Gizmoh, I appreciate you joining in on the discussion of new tokenomics. As it’s your first post in 3 years, perhaps you’ve not had a chance to stay updated on all the things we’ve tackled in my first year at Sushi as Head Chef. You can get updated by reading my “year in review” memo to the community: Head Chef memo to the Sushi community — a year in review | by Jared Grey | Nov, 2023 | Medium.

Regarding metrics, it’s important to note that we’ve spent considerable time refactoring the infrastructure on which Sushi is built to meet the challenges of scaling a multi-chain dapp, delivering SushiXSwap v2, Route Processor, our aggregation router, and several other notable products. Also, we spent months researching and extracting data regarding the existing token model to build the foundation for a new model that amplified the success of the previous model while optimizing it further to reduce or eliminate its failures. Based on our research and data-driven efforts, we firmly believe the model we presented here reflects the best interests of all stakeholders within the Sushi ecosystem and provides the necessary changes to help Sushi become competitive in the new landscape of DEXs.

One of the challenges we’ve faced with the previous token model is the lack of alignment with stakeholders while capturing enough sustainable value for the protocol so that rewards remain attractive for liquidity providers. The greater the actionable liquidity the DEX can maintain, the more swap volume it can generate and the more fees captured. Sushi’s main challenge in maintaining those metrics you highlighted in your post comes against start-up DEXs using new reward distribution methods and schemes to lure LP away. Providing your support to the new tokenomics model helps Sushi become competitive against those DEXs’ token models where it is currently unable to compete. If you have not, hopefully, you will give the token model paper a thorough read and join us in revitalizing Sushi.

17

Hyperbole aside, what constitutes a “golden egg”? I can tell you the greatest challenge Sushi experiences as a DEX is the protocol fee it takes from LPs for swaps. Without a comprehensive token model accounting for the inefficiency of the protocol fee, you lose LP over time. Our new model realigns all stakeholders and gives LPs the bulk of the value previously leaked to passive stakers. As I’ve mentioned before, the data for the existing xSushi/Sushi Bar model shows that the majority of stakers in the Sushi Bar did not LP; that liquidity subsidy has to come from somewhere, and Sushi paid for it via emissions, in a very costly manner, while not capturing the value via sustainable liquidity practices, like protocol-owned-liquidity. We highlight all of this in the paper. As you mentioned in your comment a few lines above, you wanted more clarity, and I offered my assistance.

1 Like
18

Did I misread that portion? I thought there would be an option of locking my LP position. Or some amount of my LP position.

20

Regardless of who owns Sushi, you must produce optimal outcomes where expenses do not outpace the value created. We denominate expenses in several ways. For all intents and purposes, in our model, we primarily focus on the subsidy cost of emissions for liquidity and how to optimize that ratio amongst stakeholders to reach optimal alignment. All that means is value in/out should be weighted to participants’ value attribution. With the current model, value is leaked and not captured meaningfully; people point to the loss of TVL/volume/fees as the cause; it’s a symptom. AMMs are inefficient, and LPs need compensation for taking on the risk of impermanent loss; incentives are the de facto standard for this hedge/compensation. FWIW, I don’t know how you’re “being let down” if you understand that Sushi’s current token model contributes to the value leakage in all the metrics mentioned. In the current landscape, some DEXs give away portions of their total supply to attract LP. Is that sustainable? Do you think those DEXs will “let down” their stakeholders when the emissions value degrades, or volume drops and fees don’t compensate for the lack of incentives at full distribution in their model(s)? Sushi needs a new model to realign the protocol with its stakeholders for the long term.

22

You won’t lock the actual LP tokens themselves but rather have the ability to lock the rewards that derive from the seeded liquidity.

2 Likes
26

How do you propose we incentivize liquidity if not through new reward mechanisms? Genuinely interested to hear your thoughts and ideas. The product stack is more performant than before, and the missing piece of reviving Sushi’s value offering to the market comes from a revised token model. These are not my unique thoughts or opinions; they’re the historical understanding of the DAO that the current xSushi model needs refactoring, that supply caps may change, and that token utility and governance need updating. Here are some historical tokenomics discussion links from the DAO for reference:

  1. Sushinomics a New Era (economics)
  2. Sushi Meiji Restoration (governance)
  3. Make SushiSwap Decentralized Again (economics)
  4. Meiji Governance Rework (governance)
  5. Sushinomics : introducing oSushi (economics)

These are just a few of the quick search results on the forum from the past few years for tokenomics revamps that sought to fix the existing model. To date, our proposal accounts for many of the best ideas presented by the community. It adds new or additional mechanics from proven models that can give Sushi its best opportunity for renewed growth.

I’ll close by saying that Sushi rewards are one of the most utilized tools for attracting and maintaining liquidity, and without a model that provides sustainable mechanics for reviving TVL, the Sushi protocol won’t have an opportunity to realize the innovations to the product stack that were delivered the past year. I spoke of several product improvements in my recent Head Chef memo.

28

looks ok to me
but as a trader i don’t see any dramatic changes here so idk