What is SushiSwap and how does it work

What is SushiSwap and how does it work

The main goal of cryptocurrencies is to be decentralized with some aspect of anonymity. But most big crypto exchanges are centralized and don’t allow anonymous activities. Because of this, decentralized exchanges, aka DEX, have started to show up on the web.

SushiSwap is one of those decentralized exchanges that has capitalized on a huge market share. Here you can trade cryptocurrencies that are based on Ethereum's TRC-20 protocol for any other currency of your choice. Using their services is easy and beneficial for all kinds of traders.


Things to Know About SushiSwap

  • SushiSwap at first was a fork of Uniswap, an exchange that offers similar functions
  • SushiSwap uses the Automated Market Maker model and does not have an order book
  • SushiSwap supports 20+ different crypto wallets and 14 chains
  • SUSHI is the native token of SushiSwap

What Is SushiSwap

Launched in September 2020, SushiSwap is one of the biggest decentralized exchanges (DEX) in the world. They use a custom automated market maker model and do not have an order book. 

Decentralized exchanges like SushiSwap provide a platform for peer-to-peer crypto exchange to take place without the need for a middleman. Price on the platform is determined by an automated market maker mode algorithm and does not depend on the order book to calculate these prices.

Most decentralized exchanges are built using open-source codes. Uniswap was one of the original decentralized exchanges which used open-source code. SushiSwap developers, who are known just by their Twitter handle Chef Naomi and 0xMaki saw the open-source code of Uniswap and spotted some areas that could be improved, thus creating SushiSwap.

To make sure success and fast growth of their project, SushiSwap developers did what is today known as a “Vampire Attack”. They wanted to funnel Uniswaps users to their project. To do so they started to offer hugely profitable deals to liquidity providers and encouraged them to move to their project. This was a controversial, yet successful move, which saw 90% of some Uniswap liquidity pools moving to SushiSwap.

“Ultimately, Sushi will make concentrated liquidity available to the most extensive offering of ecosystems & help provide immediate availability of CL to LPs on the most networks. Sushi believes the future of crypto is multi-&-cross-chain. 5/” – Jared Grey


The native token of SushiSwap, SUSHI, is an ERC-20 Ethereum-based token, which is given to liquidity providers, as a form of reward. This token has a max supply of 250 million tokens, with almost 193 million of them already in circulation. 

SUSHI is a governance token and comes with governance rights. SUSHI holders are entitled to receive a portion of the fees that the exchange charges when trading occurs. There is a huge interest in these tokens, as they give governance rights to communities, which is the whole spirit of DeFi.

But what do these governance rights mean, and what power does it give to communities? On SushiSwap, SUSHI holders have the right to submit SushiSwap Improvement Proposal. After the proposal is submitted, SUSHI holders vote in favor or against the suggestion. This system puts the development of SushiSwap in SUSHI holders.

What Gives Value to SUSHI

The utility is something that gives SUSHI its value, alongside the rewards it gives out to the holders. Governance rights are something that most SUSHI holders value in the token. Although proposals made and decided by SUSHI holders are non-binding and only executed by developers, there are suggestions to move this system into a decentralized autonomous organization. With this change, proposals that have passed will be executed automatically. 

SUSHI, at first, had no max supply. This caused SUSHI to be an inflationary token and people speculated that prices would fall over time because of this. But when SushiSwap pays out 0.05% of transaction fees as rewards, SushiSwap needs to buy back SUSHI tokens. This creates a demand in the market. But in 2020 SUSHI holders voted in favor of imposing a max supply on SUSHI at 250 million. This will create a scarcity of SUSHI tokens and potentially raise the value of the token in the future.

How Does SushiSwap Work

SushiSwap allows users to buy and sell different cryptocurrencies with each other. Each trade is charged a 0.3% fee. 0.25% of those fees go to liquidity providers and the remaining 0.05% is converted into SUSHI to then be distributed to SUSHI holders.

Any user can add liquidity to SushiSwap and receive rewards for it. This creation of liquidity happens in pairs with a 1:1 ratio. For example, if you hold Ethereum and USDT, and want to create liquidity for them, you need to connect your wallet and lock those two cryptos in a smart contract. So for example, if 1 Ethereum is worth 1,500 USDT, you need to lock 1 ETH and 1,500 USDT in a smart contract.

If the liquidity for certain trading pairs does not exist, users can create those pairs themselves simply by providing liquidity for those two tokens. When creating a new pool, users have the ability to set initial exchange rates, but it will correct itself as more people start adding liquidity to that pool.

When creating liquidity, users receive liquidity provider tokens (LPs) which represent the amount of the tokens they put in the liquidity pool and the ratio of the pool that they hold. When distributing the rewards for liquidity providers, SushiSwap will give out rewards based on the share of the pool a person holds. Also, these tokens are used to take out tokens you put into the pool, as they are representing ownership rights of those cryptos.

How to Use SushiSwap

Using SushiSwap is an easy process to start. All you have to do is join the website and connect your wallet. With this wallet, you can trade almost any token for another token as there is a liquidity pool for almost any trading pair imaginable. You can also create liquidity with assets you hold on the connected wallet, simply by depositing two tokens on the smart contract and joining the liquidity pool of that pair.

Connecting wallet

When joining the website, the first thing you need to do is connect your wallet. To do so, press the Enter App button which will be at the center of the website. We will be taken to exchange and there we will have the option to connect our wallet at the top right of our screen. 


Once we press it, we will be presented with the list of supported wallets, and we have to select which wallet we want to connect. 

After, this wallet will ask us to confirm the connection, and we will be ready to start using an exchange.


Sushi Bar

Users can stake their SUSHI in Sushi Bar if they want to earn additional crypto from their SUSHI holdings. Here users just select the amount of SUSHI they want to stake and receive xSUSHI tokens as rewards for staking. Currently, staking SUSHI has an APY of 13%.

Add liquidity

To create liquidity on SushiSwap, users need to go to the Liquidity section at the top toolbar and select Add Liquidity. Users will have two sections and here they select those two tokens they want to add liquidity for. These tokens should be added with a 1:1 ratio. You just need to input how many tokens you want to add for liquidity for one token only and the algorithm will calculate the number of second tokens needed. Then simply proceed with the process, and you will be given LP tokens at the end.

The Past Problem of SushiSwap

SushiSwap almost collapsed in 2020. To make sure that the project will be sustainable, there was a development balance set up, that would receive 10% of the SUSHI that goes on the market. There was not much protection placed on this fund and on 5 September 2020, Chef Nomi, one of the founders of SushiSwap, did something that shocked the whole community and even his co-founder 0xMaki. He removed his entire SUSHI stake from the development fund and sold it for about 18,000 Ethereum, which was almost $13 million at the time.

Despite his attempts to justify his actions, he lost the trust of the community and was accused of an exit scam. This loss of trust caused him to leave the project. This is when the CEO of FTX exchange Sam Bankam-Fried joined the project and tried to save it from dying. He received control over the project and placed it into a multi-signature wallet and made it fully decentralized.

Chef Nomi tried to make up for his mistake and two days after Bankman received control of the project, he returned all the money he took out back into the Dev Fund and apologized for his actions.

Things We Learned From This Guide

  • SushiSwap is governed by community members who hold SUSHI
  • SUSHI, the native token of SushiSwap and has a max supply of 250 million
  • SushiSwap has 0.3% transaction fees. These fees are then distributed to liquidity providers and SUSHI holders

FAQs About SushiSwap

Can I connect MetaMask to SushiSwap?

Yes, you can connect your Metamask wallet to SushiSwap. SushiSwap was originally a fork of Uniswap which is built on the Ethereum chain. With Metamask being the biggest Ethereum chain wallet, it is not surprising that SushiSwap supports Metamask.

Can I buy xSUSHI?

You can easily buy xSUSHI on SushiSwap. With it being one of the native tokens of SushiSwap there are countless tokens that are paired with xSUSHI, and you should be able to easily find the trading pair you want to use to purchase xSUSHI.

Can I stake SUSHI?

Yes, you can stake SUSHI in SushiSwap. By doing so you will receive xSUHI as the reward. APY for staking SUSHI currently sits at 13%.