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Introduction to SushiSwap

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Launched in September 2020, SushiSwap is one of the most popular Decentralized Application (DApp) on Ethereum blockchain. SushiSwap adopts the automated market maker (AMM) protocol for its decentralized exchange (DEX). 

Similar to platforms like UniSwap, SushiSwap uses a collection of liquidity pools. Users first lock up assets into smart contracts, and traders then buy and sell crypto from those pools, swapping out one token for another. As one of the most popular DeFi platforms, SushiSwap allows users to trade crypto without the need for a central operator administrator. Decisions related to the SushiSwap software are made by holders of its native cryptocurrency, SUSHI. The DEX supports over 12 different blockchains.

How SushiSwap Works #

SushiSwap is an automated market maker protocol that uses smart contracts to complete transactions. Tokens are provided by other users via liquidity pools. Liquidity pools are managed by smart contracts, without the need for a central governance party. Other SushiSwap users lock up their funds in token pairs to these pools, which provides the funds needed to complete swaps. Those users are then rewarded with a small percentage of fees generated by trades and this process is called yield farming.

SushiSwap also offers other Defi features like the ability to stake SUSHI coins in the network and earn rewards, lending services, purchase newly offered tokens, etc.

How to use SushiSwap #

As with other DEXs, you need a crypto wallet such as MetaMask to use SushiSwap. It also works with Coinbase Wallet, which does not require an account with the centralized coinbase exchange. Unlock centralized exchanges, you don’t need to register an account or provide identifying information with SushiSwap and you just need a wallet. However, you cannot use debit card or bank account to buy crypto with fiat currency at SushiSwap.

After logging in with a wallet, go to the “Swap” feature at SushiSwap and choose which crypto (e.g., Ethereum) in your wallet you want to trade. SushiSwap allow users to create a trading pair and establish a liquidity pool, thus supports a very wide array of Ethereum-based tokens.

Once you choose which tokens to swap, enter the amount of your token that you want to exchange and SushiSwap will tell you how much of the other token you will get in return. If you agree with the exchange rate, click the rainbow-colored swap button to execute the translation. If it successfully goes through, then the new tokens will appear in your wallet.

How Users Benefit From SushiSwap #

Compared to UniSwap, SushiSwap pays 0.25% to all participating providers, with the remaining 0.05% converted into SUSHI and allocated to token holders through SushiSwap. Meanwhile, UniSwap pays liquidity providers or investors 0.3% of all trading fees. Individuals who hold SUSHI tokens can also benefit from farming.

SushiSwap also helps users keep collecting the protocol’s charge, which is denominated in SUSHI. If a liquidity provider wants to leave the service, he/she can still get profit from SushiSwap protocol’s rewards.

Conclusion #

SushiSwap has made a splash in the DeFi world, outpacing many other well-known DeFi ventures in terms of overall value locked. However, SushiSwap has an emerging problem like other Ethereum-based projects, which is network congestion. The platform is already working on new technology and protocols to speed up transactions and lower fees. By supporting other blockchains, SushiSwap has become one of the largest decentralized exchanges in the DeFi space.

Updated on December 15, 2021
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