A few weeks ago SushiSwap plunged into controversy when it moved to pay a prospective new “head chef” what many of its members deemed an exorbitant compensation package.
Turns out the drama was only just beginning at the $1.2B decentralized crypto exchange.
Now SushiSwap’s community is backing a sweeping proposal to overhaul the project’s DAO, voting process, and revenue model.
The proposal is called Meiji Restoration and it aims to do nothing less than revitalize a DeFi project that has been struggling to find its footing after suffering a leadership crisis and losing ground to rivals such as Uniswap and Curve. SushiSwap’s token has dropped 85% this year compared to a 50% decline at Uniswap.
The plan calls for a new DAO funded by protocol fees and directed by voting shares. It also seeks to introduce Curve-style Vote Escrow (VE) tokenomics in a bid to motivate tokenholders to lock their assets over the longer term. The idea is this would kickstart SUSHI out of the doldrums.
So far, SushiSwap’s members like what they see — on Aug. 11, the Meiji Restoration drew 88% of the vote in a preliminary governance poll. Further details relating to the proposal are expected to be finalized over roughly the next two weeks, after which the community will decide whether to proceed with the restructuring in a binding on-chain vote.
The episode is designed to end the crucible the exchange has been enduring for the last year. Months of infighting, leadership spills, and even a failed merger with the DeFi network Frog nation left Sushi’s core team in disarray.
In response, SushiSwap’s community backed the Sushi 2.0 roadmap in May. It sought to establish its informal DAO as a legal entity and find a new head chef to lead the protocol.
But the Meiji proposal comes as the project is divided on how to install a new head chef and resolve Sushi’s long-running leadership crisis.
The trials and tribulations of SushiSwap have pulled back the curtain on one of the most critical challenges confronting DeFi protocols and the web3 ethos of decentralization — governance. Other projects are watching Sushi closely to inform how to navigate their own governance issues in the future.
Neil Bhasin, one of two SushiSwap compensation committee members, told The Defiant that there is a lot he likes about the Meiji proposal. Yet he has reservations.
“There are still a number of details needing to be worked out,” he said. He encouraged its authors to model the impact the proposal will have on SUSHI supply and demand dynamics.
SushiSwap is currently the fifth-largest DEX with a total value locked of $1.2B, according to DeFi Llama. In 2021, it was a go-to project for DeFi traders, having positioned itself as a community-driven alternative to the heavily VC-backed leading DEX, Uniswap.
The Meiji Restoration, which is named after the mid-19th century re-establishment of imperial rule in Japan, is an ambitious 3,000 word plan. Authored by community members ControlCplusControlV, LevX, and Cookie, it is designed to address a raft of issues challenging DAOs, including voter apathy, exhaustion, and the outsized influence of large SUSHI tokenholders. MakerDAO is another project that has also been struggling to address some of these problems.
“DeFi has long thought that token price and governance should be tied together, which can be seen in the many non-revenue generating protocols latching onto a narrative to pump their token,” its authors said. This proposal seeks to introduce a separation of control that will ensure successful token economics as well as honest and healthy governance.”
The Sushi community will now discuss finalizing particular details for voting on the proposal over the coming weeks — such as the length of voting periods, quorum requirements, and minimum token thresholds for participation in the new Meiji DAO — before it is elevated to a binding vote.
Under the terms of the proposal, DAO membership and voting shares would be granted by locking up SUSHI in a smart contract. DAO members can exit the contract at any time, forfeiting their shares in the process.
One of the key provisions in the proposal deals with minimizing the influence of whales who hold big positions in SUSHI.
To that end, share issuance would be designed to mimic quadratic voting. This means big SUSHI holders would receive diminishing returns in voting power as they lock up more SUSHI.
Likewise, the DAO would use formulas to ensure that smaller SUSHI holders won’t get steamrolled in votes by the big guys. The proposal targets so-called Sybil attacks in which holders lock up SUSHI in small batches across multiple accounts to maximize voting shares. Shares are also subject to delayed issuance, with users who lock their SUSHI tokens needing to wait for twice as long as the voting period before being able to participate in governance.
ControlCplusControlV told The Defiant that the delay in share issuance will provide sufficient time for attempted Sybil attacks to be weeded out. “With a voting period of 10 days, initiation would take 20 days,” the community member said. “If an early Sybil attack was attempted… the attackers would wait through a 20-day queue, then any attack they execute would start another 10-day vote.”
DAO members would also be kicked out for malicious behavior, such as attempted Sybiling, provided at least 80% of votes are in favor of their removal.
The proposal also seeks to introduce a “High Kitchen” unit comprising trusted community members and contributors. The High Kitchen would be able to veto proposals to defend the DAO against governance attacks, but would not have special voting rights or the ability to expedite the governance process.
The Meiji DAO would be funded through 10% of SushiSwap protocol fees, plus 30% of the remaining scheduled SUSHI emissions.
The proposal would also introduce Curve-inspired Vote Escrow tokenomics by introducing oSUSHI “gauges” to replace the protocol’s existing xSushi staking program. This move may relieve pressure on SUSHI and give liquidity providers more incentive to lock up the token.
Comments in Sushi’s governance forum show considerable support for the Meiji proposal.
Rsk, a member of SushiSwap’s community engagement team, Samurai, said Sushi’s tokenomics are currently based on an inflationary model popularized during the “DeFi Summer” of 2020.
“[The] emission model keeps creating sell-pressure and we have got no countermeasure to stop it,” they said. “VE tokenomics has proven to be successful in multiple DeFi exchanges like Curve and Balancer. It’s time to progress on this front and implement VE and gauges.”
However, JiroOno, a Sushi software engineer, said he plans to do more research into the viability of the proposal, questioning whether there is enough of an incentive for participants to take part in governance via the share model.
The proposal comes after Sushi suffered a tumultuous period of internal division over the past year.
Sushi enjoyed success in early 2021 under the leadership of co-founder, 0xMaki. But the head chef was allegedly pushed out in October, with its CTO, Joseph Delong, stepping down in December amid rising tensions between himself, the Sushi community, and major SushiSwap investor, Arca. In December, Arca backed a merger proposal from Wonderland developer, Daniele Sesta, and his DeFi network, Frog Nation. But the deal quickly fell apart when it was revealed that the Frog Nation’s CFO, Sifu, was a co-founder of the collapsed crypto exchange, QuadrigaCX, in spite of assurances from Arca that it had done rigorous due diligence into the team.
In May, the Sushi community voted in favor of the Sushi 2.0 roadmap. But the terms of a recent proposal to elect Jon Howard as Sushi’s new head chef again revealed a deeply divided community, with some fearing that large SUSHI holders have captured the project’s existing governance process.