The DeFi community has some hard lessons to learn from the recent SushiSwap controversy.
- SushiSwap is a Uniswap copycat built with the idea of stripping power from VCs and returning it to the community.
- The creator, Chef Nomi, sold the project’s development fund (10% of supply) and transferred control to FTX’s Sam Bankman-Fried.
- Many people are working to revive SushiSwap, but the project’s reputation is tarnished forever.
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SushiSwap’s anonymous creator abandoned the project after cashing in on $13 million of tokens allocated to the development fund. Control of the project now rests in the hands of Sam Bankman-Fried of FTX Exchange, but the experiment serves as a crucial lesson for the DeFi community.
A Bright Start to SushiSwap
The latest drama in DeFi revolves around SushiSwap, a Uniswap fork that launched just over a week ago. Its creator, who goes by the pseudonym of “Chef Nomi,” repeatedly stated that SushiSwap is an attempt to recreate Uniswap’s success without the legion of VCs backing it.
SushiSwap was identical to Uniswap v2 in every way but had one core differentiator: a token that accrued value. This token replaces a contentious design feature in Uniswap.
The Uniswap team can pull a lever and direct 17% of the protocol’s earnings to a designated address. The remaining 83% would still go to liquidity providers (LPs).
It is expected that this 17% will be shared amongst the founding team and investors whenever it’s implemented. This feature has yet to be activated, however.
With Sushi, the dynamics remain the same. But the 17% of earnings mentioned above would be distributed to Sushi holders.
SushiSwap kicked off its liquidity mining to great success, seeing upwards of a billion dollars in the protocol at one point in time. To mine SUSHI tokens, one had to provide liquidity to a Uniswap pool and lock their LP tokens in the Sushi smart contract.
Eventually, the plan was to migrate this liquidity from Uniswap to SushiSwap.
Everything was going as per plan, and the DeFi community was excited to see how this experiment would turn out. These hopes were quickly dashed this weekend, however.
The protocol saw one whole week of success before its creator, Chef Nomi, liquidated their stash of SUSHI and sent the price barrelling 50% in minutes.
Chef Nomi believed they deserved a $13 million reward for a week’s work. All they did, however, was copy a successful product built on three years of blood, sweat, and tears.
For perspective, Nomi’s profit from forking Uniswap is marginally higher than the amount of funding Uniswap has raised since its inception.
Maybe you don’t think I deserved that $ETH? I think my contributions justified that. I wrote the migration code. I did all the audits. I coordinated the largest LP pools ever. I created a large community. I sprung up 100s of LP scam projects. All in 1 week.
— Chef Nomi #SushiSwap (@NomiChef) September 5, 2020
Before Nomi abandoned the project, SushiSwap was genuinely on its way to building a community. All is not lost, though, as a new plan to restore SushiSwap comes to life thanks to FTX’s Sam Bankman-Fried.
Can SUSHI Survive?
Chef Nomi transferred their admin keys to Bankman-Fried so the FTX CEO could take over. Bankman-Fried is also the largest farmer of SUSHI and previously submitted a proposal to migrate SushiSwap to Solana to support his latest project, Serum.
The migration is still slotted to happen, and SUSHI’s price has recovered since Nomi’s exit. However, the future doesn’t look bright for SushiSwap, as the project demolished its only competitive edge against Uniswap.
Having a community with a strong financial incentive to use SushiSwap once it launched gave the project a shot at success. Uniswap is the clear DEX leader, facilitating more volume than Coinbase on most days. Uniswap v3 is expected to launch in the near future, which will inevitably improve the way the DEX works.
There’s no way SushiSwap, a fork of Uniswap v2, could compete with Uniswap v3 on features alone. It needed loyal users to establish market share.
But with the broader community losing faith, the lights are dimming on SushiSwap’s future.
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