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.
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 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:
- Value capture
- Revenue share
- User history
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).
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 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.
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.
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.