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SushiSwap: What just happened?

Posted by
Ilya Abugov

While most projects try to use governance token distribution as a way to build up liquidity, SushiSwap went a step forward.

The emergence of food-meme projects in the DeFi sector has been captivating the attention of yield farmers for over a month. However, with SushiSwap successfully attracting over $1B in crypto assets to its platform and surviving internal turmoil, the trend has finally yielded a meaningful project.

With most of the assets now migrated off Uniswap to the SushiSwap contracts, it is time to review what happened and what it means for the industry.

Setting the table

Over the summer it was revealed that Uniswap had an $11M funding round. The project was at the center of the DeFi universe with many projects executing their IDOs on the platform. Still despite the governance token boom, Uniswap’s team has opted to not issue one over the summer. This has left the door open for competitors to give the market what it wants.

SushiSwap forked Uniswap and added a governance token and higher rewards for liquidity providers. 

Prior to the launch, there have been a number of defi product launches based on a fork. Most notably YAM tried to stitch together smart contracts from multiple different projects. SushiSwap, on the other hand, kept the operational structure intact and simply added on top of it.

A dish served cold

While most projects try to use governance token distribution as a way to build up liquidity, SushiSwap went a step forward. It went after the liquidity of the project it was forked from. There were a number of Uniswap pools launched which yielded Sushi rewards to providers. However, the key was that after SushiSwap would be launched, the assets in the pools would be migrated away to SushiSwap.

This has been described as a “vampire attack”, a name that implies if not malicious then at least hostile behavior. Uniswap being an open-source, decentralized project had no mechanism for defending itself against such a threat.

A touch of wasabi

It now seems common for an upstart DeFi project to come with a bit of controversy. SushiSwap was no different. The TVL in the associated pools quickly crossed $1B, but then the community noticed the pseudo-anonymous founder sold his un-staked dev share tokens.

The community was outraged, with some speculating as to the identity of the founder. The storms were calmed when the founder transferred over admin keys, and effectively control of the project to FTX CEO Sam Bankman-Fried.

SushiSwap
Source: coingecko.com

Interestingly, an FTX associated account may have been an important miner in the Sushi ecosystem. Further curious were the comments around Serum, an FTX backed DEX on Solana. If one of the chief supporters of SushiSwap launches a competing AMM, what does that mean for the project?

The main course

The community held an election to nominate 9 users to control the multi-sig wallet and effectively, the project. This has resulted in some known industry leaders like Robert Leshner being selected. How this will evolve and whether or not conflicts of interest will arise is worth watching. Also, interesting is the fact that after the election was called, the rankings have changed, and now differ from the screenshot in CoinDesk’s article.

On September 9th, SushiSwap initiated the migration process of the assets from Uniswap to its platform. As of the time of the writing, most of the assets have been transferred.

The migration looks to have been reviewed and tested prior to execution, and the process passed without any major incidents.

Something for desert

Now that the migration has passed it is important to look at the aftermath of the event. SushiSwap now stands as one of the top projects in DeFi by TVL.

Although, the number does stand below the peak, prior to the controversy with the dev share funds.

However, Uniswap also came out stronger from this. The project, whose TVL hovered around $300M prior to the competitor’s liquidity attack, came out on the other side with TVL over $400M.

There was some talk in the industry about the fact that SushiSwap had a vibrant community, the UAW (unique active wallets) numbers from the SushiSwap associated pools, appear to support this claim.

It will be important to monitor over the next few days whether or not Uniswap will be able to maintain its 13K-15K UAW level. If so, then the migration will be seen as the launchpad process, that does not harm the launch platform. However, if the UAW levels see a significant drop the “vampire attack” moniker may get further justification.

Regardless of the ultimate outcome for Uniswap, SushiSwap’s example will likely inspire startups to use a similar model to get base liquidity on their platforms. Open-source AMM projects are highly susceptible to this attack.

If Uniswap appears to take a major hit, it may provoke incumbent projects to look to “poison pill” defensive strategies in order to protect what they have built. At the moment, though, the industry appears to have gained a new functioning project.

NB: The information provided here is for reference and informational purposes only. This is not investment advice and should not be treated as such.

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