Sushinomics a New Era

Make $Sushi great again

Sushi was born out of innovation and an attempt to create better protocols. Revenue share and the xSushi model was one of those beautiful things that comes out of seeing the existing problems and tackling them with new solutions. However, since then, Sushi has failed to evolve and create new innovation on the tokenomic side. Because of this and “the macro”, the Sushi price struggled.

In this proposal I will attempt to shed some light on the potential of Sushi and a small vision of what I believe $Sushi can truly become.

Current model problems

The biggest issue with the current $Sushi model is incentives. Incentives were important for some time when attempting to bring in new TVL, however, with mercenary money these incentives are used mostly to farm and dump the token. This not only hurts price but also does not create attachment to the tokens people are collecting. Mercenary money would simply come in for the incentives without a need to stay around.

This was also hurting people that are simply holding the $Sushi token as they are getting diluted, regardless of their participation. Furthermore, Sushi suffers from fractured liquidity across all the chains it is currently operating on. Whenever a new chain is added there are more $Sushi incentives needed to bring in new TVL onto that chain, again hurting the token. For this I have sought an initial solution on what can be done.

ChirashiSushi

ChirashiSushi offers a next step in the evolution of Sushi (a SushiBowl) and it aims to bring a few different parts of the Sushi ecosystem together, Sushi has created many useful tools, however, $Sushi does not yet tie all of these together. Here is my attempt, next I will begin to break it down.

There are a few main topics that $Sushi needs to tackle, in no particular order:

  • Liquidity
  • Multichain
  • Value capture
  • Revenue share
  • User history

Liquidity:

Here we begin to get at the core of the issues. AMM models are largely inefficient, capital is often left unused and collateral is in contracts that sometimes aren’t profitable due to impermanent loss.
I believe Sushi can unlock a new form of multichain liquidity with a new model.

Sushi Buffet liquidity

In this model $Sushi becomes the base pair for all trading pairs, even though it would only be the router. Every new pair listed on SushiSwap would be paired to $Sushi, for every $1 of assets there is 1$ of $Sushi locked in the liquidity.

Solving O(n^2) Problem

Without a native settlement currency, each asset would need to be pooled with every other asset, which resulted in hundreds of new pools created, for every asset there needs to be a different pool if you with to trade USDC/ETH/etc, all this is diluting liquidity. Having $Sushi as the base pair allows any asset to be guaranteed to swap between any other asset.

Providing Liquidity Incentives
Since $Sushi is the pooled asset, incentives can be paid directly into each pool. This extra capital is owned by the liquidity providers, and over time, slowly “purchases” the paired asset via arbitrage. Thus $Sushi liquidity incentives can drive real yield to LPs.

These yield rewards are then split between the protocol and its users, a portion can go to the protocol in order to finance Protocol Owned Liquidity, and another portion goes to the liquidity providers. These can vary depending on user history, more on this later.

$Sushi is pooled 50:50 alongside external assets in its pools, then as the value of those assets increase/decrease, the $Sushi pooled will also increase/decrease by being arbed out/in. The $Sushi unit value may not change, but the quantity of $Sushi in the pool does. This means the system is always aware of the value of the assets it is trying to secure - it’s simply the quantity of $Sushi in all its pools. This happens on all chains that $Sushi is active on (with LayerZero).

Multichain:

Sushi needs to become an OFT token as it accesses more chains, with SushiX already live this is the next logical step. This also cuts out the need for bridging $Sushi and an easier way to track $Sushi across different chains.

As we have learned from the above, Sushi can be the base trading pair, now here is why this is important: SushiX allows users to trade across different chains, however, at the moment the routing is done through Stargate and stablecoins that are locked and unlocked on different chains, this hop adds unnecessary gas and inefficiency.

With the model shown earlier a swap like (native) ETH to (native) AVAX looks like this:

There is no need to bridge a token, or to unlock liquidity elsewhere, or even use a third party like Stargate. All you need is $Sushi liquidity that will be enabled on all chains. And the exogenous pair liquidity on its home chain. This model is currently possible on all LayerZero enabled chains which include: ETH, ARBI, OP, BSC, FTM, MATIC, AVAX.

xSushi 2.0 - Revenue Share & Value Capture

xSushi will evolve into the liquid version of the $Sushi collateral, it actively collects fees from all trades yet is also enabled as a liquid collateral type for DeFi and other options. When users exchange their $Sushi for xSushi the Sushi is added into the pool to aid the collateral needed for the pairs. This way when someone new deposits an exogenous asset like ETH there is enough matching in Sushi to pair it.
All pairs are matched 50/50 extra assets to $Sushi. This effectively creates a black hole for the $Sushi asset without needing to create unnecessary locks in the forms of veTokens.

Revenue can be captured in the form of USDC or ETH, this means that LP rewards are in the native asset of the deposit or in an asset not Sushi. As users who provide liquidity look to take profits there is no need to dump the $Sushi token in order for participants to get rewarded. This also highlights a proper revenue share mechanism that does not negatively impact the base asset, $Sushi.

Next xSushi can be used in Kashi as a collateral type, and this also opens the possibility to create a Sushi stablecoin, Gohan, the rice base-layer. Since every Sushi added into the liquidity is also matched to an additional asset the actual collateral that would be backing Gohan would be in fact double. xSushi would in fact me more stable as a reserve for a Stablecoin as it would represent all the collateral in the ecosystem. $1 Gohan = $1 Sushi + $1 ETH/other.

User History
Many protocols have struggled to properly reward their long term holders and users. With this new model you will be able to add boosted incentives to users that have held xSushi for longer as a way to incentivise longer term holders, without the need for upfront lockups.

Boosted rewards, these can be directly tied with your history on providing liquidity. With a higher better history the total % APR you receive can be increased. Not only can you get boosted APR as you hold for longer, but you can also get boosted governance power or, “Sushi POWAH”. Sushi Powah increases the longer you are invested in the protocol.

The basic premise is, 1 $Sushi bought today is not equal to 1 $Sushi bought one year ago. And much less equal to 1 $Sushi, staked or LP’d for one year. This also gives better governing rights to participants that have been active and involved in the ecosystem. Again, rewarding your users.

Conclusion

All this is done in order to have a better $Sushi ecosystem. As $Sushi has grown the tokenomics have not kept up with the value that the protocol offers, with this new model true value can return to the protocol and enable a new future for Sushi to become the #1 DEX in space.

Many parts still have to be fleshed out and hopefully debated, I don’t expect this to be a final version but hopefully this can spark enough debate to create a better model for $Sushi.
I am happy to go on the next forum to talk about what was presented here.

4 Likes

Thanks for tokenomics update, that is great for token holders.

1 Bancor BNT had a similar use of their token. But one time there was a major impermanent loss for liquidity providers. Could you provide more information how you can solve Bancor problem?
2 Stablecoin creation Gohan using xSushi is great because if we need $liquidity, we could stay in Sushi environment

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Appreciate the post, a lot of good thought was put in here.

I think using a native token as a pairing asset (e.g. BNT, RUNE) has proven difficult, as it significantly disincentives Liquidity Provision given high potential IL and forcing a user to hold an asset.

It also implies that the total TVL on the platform is capped by ~2x the market cap of the native token, which I don’t think is desirable.

In reality, the complexity isn’t really O(n^2), it’s more like O(n) with a worse constant than just 1*n, since a swap from something X to Y doesn’t require an (X,Y) pool, but rather gets routed via:

X => ETH or USDC => Y

so if you had X-ETH, and X-USDC pools for all tokens, and one big ETH-USDC pool, then you require 2n+1 pools for n tokens. In general, if you want k pairing assets, then this is kn+k^2 pools, so as long as k grows slower than n, you’ll be ok.

These extra swaps tend to be ok from a UX perspective, and usually the middle, highly liquid pool takes a lower fee. You can also make (X,Y) pools for pairs you suspect will have very high volume and then total complexity is probably O(nlogn) or something around that.

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Hi, why is not done in a way, that SUSHI holders receive or retrieve the 0.05% of the fees in ETH or USDC? Sushi hodlers prefer to receive high liquid assets rewards. I wonder why Xsushi is preferable just because it goes up in price vs sushi, then xsushi investors will have to exchange back to sushi and sell sushi for ETH, making them navigate between illiquid markets, why not saving us all that gas, exchange fees and the hassle and pay the rewards to us directly in liquid ETH or liquid USDC? Which has more liquidity in the markets than SUSHI or XSUSHI, even if you make SUSHI or XSUSHI with this implementation more liquid because it will be paired with all assets and all that, is not going to be more liquid than ETH in the general markets (in all CEXes and DEXES) let’s be real, then each of us will know what to do with their liquid ETH/USDC rewards, maybe buy more sushi.

So Liquidity providers will get the revenue in native liquid ETH currency but the SUSHI hodlers will get xSUSHI? I’m asking this because I’m interested in investing, but I have my doubts about the whole xsushi thing. Can someone please explain to me what I’m missing?

Impermanent loss is a fallacy. It’s just DCAing. The way to solve the inefficiency of AMMs is to:

  1. Collect as little in fees as possible.
  2. Ensure as many of the traded assets are productive (lsds)
  3. Make borrowing against LPs easy and cheap.

This would also solve the mercenary problem. If your LP is locked due to debt, which is being offset by the LP appreciating, you are less likely to want to move it. It would allow people to collect cash from their LPs without exiting their positions. Or to use those positions as a pool of capital from which to draw credit to invest elsewhere. Sushi could even take advantage of this to get into the stablecoin business.

I think the idea of SUSHI being a base for all the pairs is good, but I think the multi-chain approach is a mistake. You are basically opening yourself up to bridge risk. By making the LPs low fee, and having one token through which all trades are routed, arbitragers have a much wider field of opportunities to extract MEV from the LPs, and everything is concentrated lowering slippage. If Sushi, the base Sushi and not xSushi (which I honestly think is a retarded idea), could be made into a productive, appreciating asset through fee collection and maybe a burn, that would also help solve one half of issue #2. And low fees also mean more network usage on Ethereum, which is good for the ETH/lsdETH positions.

Credit is the key issue. The whole uniswap v3 model is a mistake. Open up the credit markets, stop trying to extract so much in fees, and just chill. Let arbitragers take advantage of the slightest of moves. The key is volume.

I just want as a sushi owner to be able to receive or retrieve my liquid ETH or USDC rewards from the 0.05% cut, I don’t like illiquid sushi rewards.

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Yes REAL YIELD will be the norm in DeFi : yield in USDC or ETH (or BTC) no more token farming associated with veSUSHI !!!

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The worst of it, is that we are paid in SUSHI, which is illiquid. No!! we want the rewards in the real thing, ETH or USDC or BTC, which are the most liquid assets you can get paid on.

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Improve the credit market to enable LPs as collateral. Keep your investments in xSUSHI/ETH or xSUSHI/USDC pools. Borrow against them as needed to simulate income. “Real yield” is stupid for many reasons, including gas fees and taxes. Not to mention tokenomics.

What you mean real yield is stupid? That doesn’t make sense, real yield is REAL liquid yield. I don’t want to be an LP (workers) thanks but no, SUSHI token holders are supposed to be the OWNERs of the exchange, and take a part of the revenue traders (clients) pay in fees to the platform. You give 5/6 to (lps) for providing liquidity, and owners (sushi hodlers) take 1/6 cut, and owners take that 1/6 in ETH liquid rewards.

I don’t care about your “taxes”, that is your problem. Gas fees are not a problem anymore since we have L2s and ethereum gas fees are very low since PoS migration, so no excuse.

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If you are an owner, what are you doing to improve the exchange? Last I checked it was less than a year from running out of money.

As an owner I can CHOOSE to be a trader (client) and pay the fees since I will get a cashback in REAL yield when the rewards are paid out to sushi holders, that way I contribute to increase average trading volume. You think that owners won’t want to use their OWN exchange for their trades? Also, as a OWNER I can CHOOSE to increase my yield by being an LP, and the rewards I receive in ETH will mitigate some IL risk. As i OWNER I can contribute by buying more SUSHI making the price go up, As i owner I can do LOTS of things that will contribute to lots of things, but first I need to feel like I’M a OWNER of the business and receive part of the revenue in a liquid currency like ETH, not a shitcoin fake owner who receives illiquid “rewards”.

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:tophat: :pray: awesome updates. Here is something additional to consider.

Give xSUSHI stakers who mint GOHAN have early access to funding new projects.

Leverage the Sushi :sushi: brand to invest in legitimate web3 innovation for the most loyal and long term $SUSHI holders.