As decentralized finance (DeFi) continues to mature into a more inclusive financial system, more and more tools are being developed. If you’re looking to trade crypto using a decentralized exchange (DEX), you have several options on almost every blockchain – and it can be a bit overwhelming to find a place to start.
What is SushiSwap?
SushiSwap is an Ethereum-blockchain DEX founded by pseudonymous open-source developers Chef Nomi and 0xMaki and initially launched as a copy of Uniswap.
As a clone of Uniswap, SushiSwap was a platform to swap tokens without the need for a middleman or intermediary. To make SushiSwap unique, the founders added new features including liquidity mining and governance through SushiSwap’s SUSHI token.
SUSHI, the native token of the SushiSwap ecosystem, gives users voting power to determine the future of the platform as well as a percentage of trading fees and staking rewards. Though holding SUSHI is not required to use SushiSwap, the token does offer some additional functionality – like staking – on the SushiSwap platform that you can’t access without it.
How SushiSwap works
SushiSwap utilizes a decentralized trading method known as an automated market maker (AMM). Unlike traditional exchanges, which require an order book and intermediary for trading, SushiSwap’s AMM makes the entire process peer-to-peer.
AMMs, like the one used by SushiSwap, don’t need an intermediary or order book because trades are with liquidity pools – funds of a particular token, deposited by users, that utilize smart contracts to provide liquidity for trades.
Since the launch of SushiSwap in 2020, the project has continued to develop new DeFi tools and has created a platform no longer just for traders. The SushiSwap "menu" of the product has expanded to give users access to yield farming, staking and lending and borrowing, all within the same app.
Getting started with SushiSwap
To get started on SushiSwap, create an Ethereum-based wallet. There are several kinds on the market, and some of the more popular ones include:
- Coinbase Wallet
Once you have your wallet set up, you’re ready to connect to the SushiSwap decentralized application (dapp). Though not required to get going, you could also get SUSHI tokens either using the DEX or centralized exchanges like Binance or Coinbase.
What can you do on SushiSwap?
Since SushiSwap launched its DEX, it has grown into a fully decentralized platform, offering a variety of different features and tools for users to invest with. Beyond the SushiSwap DEX, SushiSwap offers several features through its BentoBox dapps including:
- SushiSwap Exchange: SushiSwap’s flagship product enables users to swap any ERC-20 token for any other ERC-20 token.
- Kashi: This dapp lets users lend and borrow crypto for a variety of different purposes, including leverage trading.
- SushiBar: This product lets users stake their tokens.
Become a liquidity provider (LP)
One feature you can quickly get going on is becoming a liquidity provider on SushiSwap. Liquidity providers (LPs) are the users who provide tokens to liquidity pools so the AMM can execute trades. LPs are rewarded for staking their assets in liquidity pools by receiving such benefits as a percentage of trading fees.
Though it seems complex, the smart contract responsible for the liquidity pool is doing most of the work for you. To become an LP and start earning rewards from the SUSHI-ETH liquidity pool, for example, just do the following:
- Go to SushiSwap and click on the liquidity tab.
- Connect your wallet and select “+ New Position.”
- Select an even split of SUSHI and ETH tokens under “Confirm Adding Liquidity” and hit Approve.
- Receive your SUSHI-ETH LP tokens.
When you’re ready to receive your LP rewards, all you need to do is exchange your SUSHI-ETH LP tokens back for your deposited crypto.
For every trade made while providing liquidity, users are charged a 0.3% fee, with 0.25% of the fee going toward the pool. After withdrawing, you’ll receive your portion of that 0.25%, relative to the total amount of SUSHI-ETH deposited.
Looking to expand your staking rewards? SushiSwap also lets you participate in yield farming as a part of its liquidity provider offering.
Stake SUSHI with SushiBar
SushiSwap has expanded its menu to offer a new range of DeFi products. One of these is SushiBar.
SushiBar lets SUSHI holders receive staking rewards on their SUSHI in the form of xSUSHI. These rewards come from swap fees and are currently being distributed at an APY (annual percentage yield) of around 11%. With xSUSHI, users can then gain access to SushiSwap’s governance system, maintaining voting rights and giving users immediate access to rewards while their SUSHI continues to grow.
To get started with staking on SushiBar, all you need to do is access the staking tab on SushiSwap, enter the total amount of SUSHI you’re looking to deposit and approve the transaction.
Lend and borrow crypto with Kashi
Finally, SushiSwap recently introduced crypto lending and borrowing through Kashi. For borrows, Kashi requires a certain amount of collateral to be deposited and charges APR (annual percentage rate) based on a variable rate. For lenders, Kashi offers a variable reward APR in exchange for assets deposited.
Although rewards from DeFi lending are sometimes referred to as staking rewards, remember that this is not the same as staking rewards from a validator. DeFi lending rewards come from the borrower on the other side of the transaction. Among other things, this is a fairly unregulated space, so it’s important to be aware of the associated risks.
Read more: How to Stay Safe in DeFi