A rapid expansion has given rise to a host of yield farm opportunities for investors looking to earn a return on their crypto assets.
One of the most popular DEXs of the year turned out to be Uniswap, which provides an AMM system for breakage-free token exchanges
DeFi’s liquidity providers flocked to Sushiswap, which offered better returns than Uniswap, which was behind the concept.
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Decentralized Finance (DeFi) has grown from humble beginnings, with less than $ 700 million in total value stranded across all platforms in January 2020, to a thriving ecosystem of over $ 10 billion in TVL (total value stranded) in September of the same year.
This rapid expansion of over 1,300% has spawned a host of yield-farm, or cash-flow, activity providing opportunities for investors to earn interest on their crypto assets. It also gave birth to a number of decentralized exchanges (DEX). On these, traders can trade tokens on a peer-to-peer (P2P) basis without any company taking a margin or commission.
The nature and ethics of many of these DeFi protocols mean that they are based on open source code. This allows anyone to access their smart contracts and branch off the platform, known as a “fork”, or even just clone it entirely to launch their own version.
One of the most popular DEXs of the year is Uniswap, which provides an Automated Market Maker (AMM) for seamless token trading. The success was such that it was branched off in August to create the SushiSwap fork, which managed to drain it of its cash in the weeks that followed.
A presentation of Uniswap
To understand what SushiSwap is and how it works, one must first have some knowledge of Uniswap, from which it was created at the end of August 2020. Uniswap uses an AMM that works with algorithmic equations to dynamically calculate the swap rate based on token supply and demand, and liquidity on the platform.
Users can also provide liquidity to the platform in order to earn a share of the 0.3% transaction fee that Uniswap charges. However, these rewards can quickly wear off when the whales also join the pools with their heavy bags of assets.
SushiSwap wanted to improve this situation by offering more than just a reduction in transaction fees. It also offered a token called the SUSHI to encourage liquidity providers and, at the time, Uniswap had not yet launched its own token, the UNI.
Brief history of Sushiswap
SushiSwap started to gain momentum around August 28, when the crypto community on Twitter awakened to the idea of using tokens from Uniswap’s liquidity providers to deposit them on a fork platform offering cash. much higher returns. Some industry experts then called it “ vampire mining ”.
The initial ad explaining how it works was released on August 26, but has since been withdrawn after the big upheaval of the next two weeks. The revised version of this announcement was posted here on September 9.
This DeFi clone initially offered three liquidity pools (SUSHI / ETH, USDT / ETH, USDC / ETH, using UNI-V2 LP tokens). At the time of writing, these pools stood at 19. Unlike Uniswap, liquidity providers could continue to collect part of the protocol fees, accrued in SUSHI, even if they decided to no longer participate. the provision of liquidity.
During the first two weeks, ten times the amount, or 1000 SUSHI tokens, were awarded per block. The SUSHI / ETH pool received an additional multiplier of two to encourage more liquidity. In addition, a 0.25% commission was paid directly to active liquidity providers, while the remaining 0.05% was converted back to SUSHI and distributed to token holders.
The big plan was to collect all this cash and transfer it to its own platform after the two weeks expired. It worked, and SushiSwap managed to amass over $ 1.2 billion in cash in the days that followed.
By Tuesday, September 1, those “worthless” SUSHI tokens had gone from zero to over $ 11 in just four days and the yield farm frenzy was in full swing. The movement of cash was equivalent to roughly 80% of the cash on Uniswap, which moved in just 96 hours after the SUSHI Rewards launched.