Uniswap’s founder Hayden Adams is railing against SushiSwap, a five-day-old fork of Uniswap’s decentralized exchange, which has managed to attract over $1.3 billion in value locked over its short lifespan.
Like most other liquidity mine launches, participants can stake their assets to earn SUSHI — the project’s token. The twist is that the assets are Uniswap pool tokens themselves, which allows yield farmers obtain SUSHI without foregoing their liquidity provider rewards.
The project was launched in a seemingly preemptive move ahead of Uniswap V3, which is speculated to bring the anticipated Uniswap token with it.
The announcement places heavy emphasis on a fair launch, promising that initial liquidity providers will always have a share of the rewards even if they stop the provision later on.
The project’s developers further hinted that LPs may see their stakes diluted on Uniswap as “stakeholders such as venture funds, exchanges, mining pools join the protocol with a huge amount of capital.”
The idea of a fair launch resonates strongly in DeFi. The community often criticizes token distributions that either hint or openly announce premines. Uniswap, with its heavy venture capital backing, is unlikely to devote all of its tokens to the community.
Adams criticized this approach and dismissed suggestions that SushiSwap is more community-centric, noting:
“Can't tell who is pretending and who legitimately doesn't understand that the $1B TVL deposited in an incredibly high risk investment on a single day's notice is mostly massive whales.”
According to him, SushiSwap is “just whales playing whale games.” He may not be entirely off-base.
Etherscan data shows that there are only 2318 unique addresses that staked the Uniswap SUSHI/ETH pool token to receive rewards. Given a total value locked in these contracts of approximately $173 million, the average staker’s position amounts to $74,600. Since the contracts were unaudited and deemed relatively complex by Synthetix co-founder Kain Warwick, this average value is hopefully a small part of the stakers’ capital.
The allure of farming Sushi comes from its extremely enticing yields. According to its dashboard, staking SUSHI/ETH provides 5.58% worth of tokens daily. It is worth noting that any daily single-digit yield quickly compounds to astronomical values, and the promise of daily yields is often used by ponzi schemes to lure participants in.
While the fundamental promise of SushiSwap may entice some DeFi enthusiasts, arguably the biggest reason why the yield is so high is the specific dynamic of providing liquidity. The SUSHI/ETH pool is the only farming pool containing SUSHI itself — and it has been set to yield twice the token amount of others. Liquidity miners must purchase SUSHI equal to half of their capital in order to join the pool — hence providing the demand needed to sustain these yields.
In about 9 days, SushiSwap will automatically redeem all Uniswap tokens pledged and create its own pools to power its decentralized exchange. Currently sitting at 77% of Uniswap’s total value locked, SushiSwap may end up with a significant portion of Uniswap liquidity. The token has already been listed by the likes of Binance, FTX and OKEx.
If TVL stays at its present values, Uniswap may see its lead snatched by its own clone, which could have important ramifications for future projects.