What is SushiSwap and How Does it Work

What is SushiSwap (SUSHI) and How Does it Work?

Table of Contents

SushiSwap is one of the leading decentralized exchanges in the world. It’s fast, efficient and, most importantly, famous for being very easy-to-use and beginner-friendly. While still not as popular as its predecessor Uniswap, SushiSwap is constantly gaining new users and is already a highly respected project among crypto enthusiasts.

But how does SushiSwap actually work, and what’s the main difference between SushiSwap and Uniswap? Read along to find out!

What is SushiSwap?

SushiSwap (SUSHI) is a decentralized exchange (DEX) built on the Ethereum blockchain, allowing crypto investors to easily buy and sell all kinds of ERC20 tokens. Like other decentralized exchanges, SushiSwap provides you with a very accessible way to trade crypto.

SushiSwap homepage
SushiSwap homepage

SushiSwap is powered by its native utility token called SUSHI, which is an ERC20 token. You don’t need to own SUSHI tokens to use SushiSwap, but SUSHI holders gain certain privileges on the platform – for example, they can participate in decentralized governance through on-chain voting.

The fact that SushiSwap is decentralized means that you don’t have to register an account and go through a lengthy and complicated KYC/AML process. All you have to do is connect a crypto wallet app like MetaMask to SushiSwap, and you can start buying and selling ERC20 tokens right away.

Of course, that also means that SushiSwap doesn’t feature the option to trade crypto for fiat. In other words, to trade Ethereum tokens on SushiSwap, you first need to buy some ETH elsewhere – for example, on a centralized exchange like Binance or Coinbase. It’s also worth noting that SushiSwap does not support Bitcoin (BTC).

On the other hand, decentralized exchanges like SushiSwap have a massive advantage over their centralized counterparts. Small projects and crypto startups can add their tokens to SushiSwap directly, without needing to be approved for listing, which means that you can use SushiSwap to buy promising tokens very cheaply, months before they are listed on big exchanges like Coinbase and Binance!

How Does SushiSwap Work?

While most people refer to SushiSwap simply as a decentralized exchange, another, more fancy name that you could have heard is “Automated Market Maker” (AMM). But what exactly are Automated Market Makers, and how do they work?

An AMM is a model pioneered by Uniswap and used by most decentralized exchanges in the blockchain ecosystem. As the name suggests, Automated Market Makers enable trading cryptocurrencies without relying on centralized liquidity providers. Instead, liquidity is provided by the users through fully automated smart contracts.

While that might sound a bit complicated at first, in practice the mechanism used by Automated Market Makers like SushiSwap is quite easy to understand. 

When a project is first added to SushiSwap, the liquidity is generated by locking a proportionate amount of two cryptocurrencies, for example, token XYZ and ETH, in a liquidity pool. This guarantees that up from the start, the XYZ token can be bought and sold without problems. 

What Is a SushiSwap Liquidity Pool?

On the technical level, the most important part of SushiSwap are liquidity pools. Each currency pair on SushiSwap has its own liquidity pool consisting of two cryptocurrencies, which together make up the Total Value Locked (TVL) of the pool.

It’s important to note that the SushiSwap liquidity pools are not manually controlled by anyone. They are fully automated and governed through smart contracts. In other words, SushiSwap doesn’t have a traditional order book that you know from centralized exchanges like Coinbase or Binance – instead, when you buy or sell crypto on SushiSwap, the price is determined by automated algorithms.

In the case of decentralized exchanges like SushiSwap, anyone can add liquidity to the liquidity pools. In exchange for providing liquidity to SushiSwap by locking your funds in a liquidity pool, you can earn token rewards. You can withdraw your funds from the pool whenever you want and keep the rewards, which is why many crypto investors consider adding liquidity to SushiSwap one of the easiest methods of generating blockchain-based passive income.

Who’s Behind SushiSwap?

Like many decentralized crypto projects, SushiSwap was created by two founders working under pseudonyms Chef Nomi and 0xMaki, also known simply as Maki. SushiSwap was launched in August 2020 as a fork of Uniswap, and originally the two founders took care of the platform’s development.

Although SushiSwap is based on the source code of Uniswap, the platform soon added many original features that turned it into a completely unique project. Most importantly, SushiSwap features a beautiful, beginner-friendly user interface, which is the reason why SushiSwap managed to become so popular in very little time.

Chef Nomi didn’t remain in charge of SushiSwap for long. In September 2020, Nomi sold his SUSHI tokens valued at over $6 million at the time. This caused huge controversy, and of course, caused the SUSHI price to plummet.

Because of the controversy, Chef Nomi decided to step down and the control of SushiSwap was relegated to Sam Bankman-Fried, one of the most respected blockchain entrepreneurs in the world. Bankman-Fried is mostly known for being the CEO of the FTX crypto exchange, and he definitely added a lot of credibility to SushiSwap.

Aside from Sam Bankman-Fried’s companies FTX and Alameda Research, SushiSwap is also renowned for numerous high profile partnerships with esteemed DeFi projects. One of the most important partnerships of SushiSwap is Yearn.Finance, founded by the legendary DeFi developer Andre Cronje.

The fact that SushiSwap was created by an anonymous team has led to some controversy. However, thanks to the backing of Bankman-Fried’s FTX as well as its many strong partnerships, SushiSwap is now universally considered a highly reputable decentralized exchange.

Sushi Wrapup

While SushiSwap might not be the most popular decentralized exchange on the market, it’s definitely a very serious competitor to DEXs such as Uniswap or PancakeSwap. The greatest advantage of SushiSwap is that it’s very beginner-friendly, which combined with the fact that it’s governed by a very respected and experienced team make it a great choice of a decentralized exchange for all types of cryptocurrency investors.

Disclaimer
All articles published on Coinmash are strictly for informational purposes only. Any action that is taken from reading content published on this website is done at your own risk. 

About the Author
James Satoshi
James Satoshi
James is a leader in Web3, NFTs, & DeFi. You'll spot him covering all topics through-out Coinmash - some say he's so good he doesn't even seem real.