What Is SushiSwap?

A Step-by-Step Guide to one of the Top DEXs in DeFi

What Is SushiSwap?

SushiSwap is Uniswap’s jealous twin. After Uniswap pioneered decentralized exchanges (DEXs), it triggered a DEX race. SushiSwap was one of those race contestants.

Why did SushiSwap become popular, and what does it offer compared to Uniswap? And should you become Sushi “chef”? Find out in this SushiSwap overview.

SushiSwap Origin and Purpose

SushiSwap cannot be understood without looking at Uniswap. Both DEXs use their names to tell their purpose. Proposed by Vitalik Buterin in 2016, but implemented by Siemens engineer Hayden Adams, universal token swapping — Uniswap — came online in November 2018.

The open source protocol enabled anyone to list their cryptocurrencies as ERC-20 compliant tokens on Ethereum, without permission. Users would provide liquidity for token pairs, so that exchange would be possible without any central organization pouring liquidity.

Just before Uniswap hit the $300M TVL milestone, a pseudonymous developer known as Chef Nomi decided to fork Uniswap code and create a Uniswap clone — SushiSwap. This happened on Aug. 28, 2020.

Uniswap’s development as a DEX is inextricably linked with the SushiSwap coup. Source: DeFiLlama

Because Uniswap code is open-source, it was possible to do this hard fork. Meaning, developers tweak the code, so it no longer operates under the existing protocol. Instead, it branches off into a new one, leaving the original one intact.

This has happened many times, even with the first cryptocurrency Bitcoin. Since its launch in 2009, Bitcoin has been hard-forked more than a hundred times. But the situation with SushiSwap was a bit trickier:

  • To draw existing liquidity providers (LPs) away from Uniswap, the new SushiSwap clone issued SUSHI tokens as yield rewards for LPs.
  • To further realize its ambition to become the next big DEX, SushiSwap enticed Uniswap LPs to deposit their tokens in exchange for SUSHI. 
  • When Uniswap tokens are then swapped for SUSHI, SushiSwap would gain Uniswap’s liquidity.

Upper Hand

In other words, SushiSwap was conducting a vampire liquidity mining attack on Uniswap. This SushiSwap migration was quite successful, with over half of Uniswap LP tokens being converted into SUSHI. The SushiSwap would have likely gained the upper hand without a black swan event — a crypto market crash.

Severe asset depreciations leave many weak-willed investors fleeing for the market exits. This is precisely what happened with SushiSwap’s chief, Chef Nomi. He cashed out SUSHI to the tune of $14M, which led many investors to believe that SushiSwap itself was just an exit scam, instead of a legit Uniswap hard fork.

Because of this sentiment, SUSHI further hit the devaluation floor. Amid this chaos, Chef Nomi gave away the protocol’s control to Sam Bankman-Fried, the billionaire crypto entrepreneur and FTX CEO.

To save SushiSwap, Bankman-Fried conducted another vampire mining attack on Uniswap, worth nearly $1B, in which LP’s Uniswap tokens were converted to SUSHI to hijack Uniswap’s liquidity. In the end, Uniswap prevailed as it issued its UNI utility and governance token in September 2020. To get back at SushiSwap, Uniswap developers airdropped 400 UNI to wallets that previously interacted with the protocol.

This brought back investors to Uniswap, leaving it with 8x higher TVL than SushiSwap, as of Sep. 1, 2022.

How Does SushiSwap Work?

After that takeover saga, you might already understand how SushiSwap works, but it always helps to flesh out the details. SushiSwap enables people to become liquidity providers in order for other people to exchange tokens within token pairs.

For instance, if one were to exchange ETH for USDC, they would go to an ETH/USDC liquidity pool. This is a smart contract that locks coins people provided, either ETH or USDC. Therefore, these people are called liquidity providers (LPs). In a centralized system, an institution like a bank would provide that liquidity so that one currency could be exchanged for another. 

Source: SushiSwap

In a decentralized exchange like SushiSwap, Automated Market Maker (AMM) protocol replaced banks by matching traders with liquidity providers’ funds. LPs are incentivized to provide liquidity because they earn staking rewards. Specifically, a 0.25% fee on all token swaps proportional to LP’s share of the liquidity pool.

Therefore, SushiSwap has two main features: Trade (swap tokens) and Liquidity (adding funds to liquidity pools) so token swapping is possible.

SushiSwap’s Extra Features: Kashi and SushiBar

SushiSwap was originally hardforked from Uniswap on the Ethereum blockchain. Since then, SushiSwap expanded to over a dozen Layer 2 scalability networks and competitive chains: Arbitrum, Polygon, Avalanche, Gnosis, Harmony, Celo, Fantom, Moonriver, BSC, Fuse, Telos, OKExChain, Heco, and Palm.

Nonetheless, the bulk of SushiSwap’s liquidity is still contained on Ethereum, at 73%. Moreover, SushiSwap has expanded outside of its DEX origin into lending — Kashi.

Instead of providing liquidity to swap tokens, Kashi is a lending smart contract. It works on the same principle — LPs lock their tokens into liquidity pools, while borrowers tap into them to get a loan, once they have locked their own tokens as a collateral. In addition, borrowers pay borrow APR, depending on the token pair.

Just some of the token pairs on SushiSwap’s Kashi, serving as liquidity pools for borrowing. Source: SushiSwap

In turn, LPs receive interest rates (supply APR) from these collateralized loans. If the borrower fails to pay on time, the smart contract automatically withdraws that collateral, so the LP is not left out to dry. This is called liquidation price. For example, if one were to borrow 1,000 USDC (equal to $1,000) against 1 ETH collateral, the liquidation price would be 817 USDC.

Source: SushiSwap

In this specific token liquidity pool, ETH/USDC, the loan-to-value (LTV) ratio is 75%, which is the percentage of the collateral against the borrowed amount. So, if one were to borrow 10,000 USDC, one would need to deposit 4.8 ETH as a collateral, which is 75% out of 6.4 ETH (worth $10,000).

An extra option exists in the form of leveraging. This is an extremely risky trading strategy popular among confident crypto traders. To empower their market positions, traders can leverage their loan — amplify it from 0.25x to 2x. For example, a 1.25x leverage would increase the loan from 1,000 USDC to 2,901 USDC.

Source: SushiSwap

Source: SushiSwapOf course, such a leveraged loan would require 2.8 ETH collateral, and if it exceeds 75% of the collateral, it would be liquidated. The implication of this is clear — if the price of the collateral, in this case ETH, drops in value on the market, the lender gets the collateral.


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In addition to Kashi, SushiSwap also offers SushiBar. This is the protocol’s staking liquidity reserve. To provide extra security against extreme market conditions, such as wild price swings that could liquidate a bunch of collaterals, Sushi users can stake their SUSHI tokens into SushiBar’s smart contract.

In return, they receive 0.045% fee of all swaps, in addition to gaining governance vote on the protocols development proposals.

Lastly, over 15,000 token pairs available on SushiSwap use Chainlink as the network’s oracle, feeding off-chain data to on-chain smart contracts, such as asset prices.


As of July 2022, SushiSwap upgraded its protocol with SushiXSwap. This is a cross-chain DEX allowing for token swap across multiple networks besides Ethereum: Optimism, Arbitrum, Fantom, Avalanche Binance Chain, and Polygon.

Built on the Layer 0 Stargate protocol, SushiXSwap acts as a unified user interface that eliminates the cumbersome nature of multi-chains and bridges between networks. This is made possible with BentoBox, the smart contract serving as the central vault for SushiSwap’s entire dApp ecosystem.

SUSHI Tokenomics

As a governance and utility token, there are 250M SUSHI coins as maximum supply. Out of which, 51% are in the circulating supply. Liquidity providers receive SUSHI when traders swap tokens, as 0.25% fee proportional to LP’s stake in a given liquidity pool.

At its peak, SUSHI price got to $23.38 in March 2021. A year later, it dropped by over -90%. It is safe to say that people flocked to Uniswap, especially after its V3 upgrade that allows greater customization in liquidity mining. Moreover, the people behind SushiSwap are still pseudonymous.

SUSHI tokens are available on centralized exchanges as well: Binance, OKE, and Huobi Global.

How To Access SushiSwap

As with any dApp, the easiest way to access SushiSwap token exchange and lending is through MetaMask wallet:

  1. Go to the SushiSwap app.
  2. Click on “Connect to a wallet” in the upper-right corner.
  3. Confirm MetaMask password and access.

With the wallet connected and funded, you can now use it to deposit or withdraw funds from SushiSwap services — Trade, Liquidity, Kashi, Sushibar. At a glance, you can view your SushiSwap status under the Portfolio dropdown menu.

Series Disclaimer:

This series article is intended for general guidance and information purposes only for beginners participating in cryptocurrencies and DeFi. The contents of this article are not to be construed as legal, business, investment, or tax advice. You should consult with your advisors for all legal, business, investment, and tax implications and advice. The Defiant is not responsible for any lost funds. Please use your best judgment and practice due diligence before interacting with smart contracts.

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