SushiSwap blew up on the promise of outsized rewards for those who got in before the automated market maker (AMM) actually started making markets: 1,000 SUSHI tokens per block for liquidity providers (LPs) who committed before it went live.
It was a deal good enough to lure in almost $1.6 billion worth of various crypto assets, but now those heady days of outsized rewards are over. As planned, each block reward has dropped to 100 SUSHI as of 23:10 UTC or Ethereum block 10850000.
Now that SushiSwap is serving up less SUSHI, it's anyone's guess as to what will happen to the piles of crypto locked up in SushiSwap's smart contracts.
SushiSwap successfully migrated over $800 million in crypto assets from rival automated market maker (AMM) Uniswap on Sept. 9, using Uniswap tokens entrusted to the upstart project by users seeking those SUSHI block rewards.
SUSHI is currently trading at $2.45 as the bonuses end, off its seven-day high of $3.17, according to CoinGecko.
All about yield
Crypto denizens want to change the world, sure, but what they really want is money.
Giving away a fresh token has become an obvious way for new protocols to compete with the market leaders. Liquidity mining is a category of yield farming where liquidity providers (LPs) earn an additional token beyond whatever fees they earn from the underlying protocol. The growth hack was pioneered by DeFi lending platform Compound in June, with its COMP governance token kicking off cascading innovations in the following months.
In this instance, both Uniswap and SushiSwap hang on to 0.3% of each transaction in their pools, expressed in whatever tokens are in the pool. But SushiSwap also distributes a fixed amount of newly minted SUSHI to its LPs every block. (Uniswap has yet to offer such a scheme but it is widely expected among DeFi insiders.)
Before block 10850000, each SushiSwap LP got SUSHI in proportion to the liquidity they supplied.
So, if SushiSwap only had 100 LPs and they all put in equal amounts of liquidity, they would each get 10 SUSHI per block. If that number rose to 1,000 LPs at equal amounts, they would only get 1 SUSHI each.
More LPs lowers yield in a mined token, but it also probably drives up the token's value. What's the optimal balance? It's hard to say.
With SUSHI distribution now plummeting to 100 per block, that's going to be the question on every SushiSwapper's mind.
Will liquidity flood out of SushiSwap or will it actually flood in? An argument could be made either way.
SushiSwap's community wants to further refine block rewards but they have been stymied so far.
The project's pseudonymous (and controversial) creator, Chef Nomi, apparently had a vision that the tokenomics of SushiSwap would remain relatively fixed, and that the main governance question for the community would be how fast to add new pools.
The SUSHI community appears to want fine-grained control, though, and that could bode ill for low-governance models currently in the works.
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