Sushi is a decentralized exchange (DEX) that has been at the forefront of tokenomics innovation since its launch. In January 2023, Sushi published an initial draft of a revised token model, aiming to cement its role in the protocol’s ongoing success and contribute to its growth. This final draft represents the best model curated from feedback received from the Sushi and DeFi community.
Challenges and Solutions
Through thorough analysis, the Sushi team identified several challenges within the current token model, including:
- Liquidity Subsidization: The current system for subsidizing liquidity is inefficient and costly.
- Balancing Value: The current Sushi emissions compared to the income of the Sushi Bar suggests a 1:1 ratio, leading to unsustainable value extraction.
- Financial Stability: The current emissions-to-income ratio is impacting economic viability.
- LP Incentives: The incentives for Sushi Liquidity Providers (LPs) need recalibration to remain competitive.
- Staking Mechanisms: The xSushi staking mechanism could be better designed to serve high-conviction participants.
- xSushi Distribution: The current xSushi distribution system does not align with its original intent, leading to unfair value distribution among participants.
The proposed token model addresses these challenges through the following solutions:
- Liquidity Subsidization: The revised model will improve the efficiency of liquidity subsidization by reducing the annual cost of Sushi emissions.
- Balancing Value: The revised model will balance value by reducing Sushi emissions while increasing income from trading fees, routing fees, staking fees, and partnerships.
- Financial Stability: The revised model will address the emissions-to-income ratio by reducing emissions and increasing income, leading to enhanced financial stability.
- LP Incentives: The revised model will recalibrate LP incentives to remain competitive and attract liquidity providers.
- Staking Mechanisms: The revised model will revise xSushi staking to better serve high-conviction participants.
- xSushi Distribution: The revised model will align xSushi staking closer to its original intent, providing a fairer value distribution among participants.
The revised economic model is designed to scale strategically via DEX innovations and includes the following revenue sources:
- Trading Fees: A primary revenue source from transactions in Sushi’s liquidity pools.
- Routing Fees: Income from trade fees via Sushi’s Aggregation Router.
- Staking Fees: Potential revenue from staking rewards.
- Partnerships: Opportunities for revenue growth through strategic partnerships.
The revised token model is focused on aligning with the interests of key stakeholders, including:
- Liquidity Providers (LPs): The revised model aims to ensure long-term incentives for LPs by providing attractive rewards and a sustainable token economy.
- xSushi Holders: The revised model will provide xSushi holders with a stable token supply, non-dilutive rewards, and governance rights.
- Traders: The revised model aims to offer an improved trading experience with low slippage by providing ample liquidity and competitive fees.
- Token Projects, DAOs: The revised model will build long-term partnerships with token projects and DAOs to contribute to the stability and growth of the Sushi ecosystem.
- Sushi Treasury: The revised model will diversify and sustainable income streams for the Sushi treasury to support the protocol’s development and operations.
Goals for a Redesigned Token Model
The revised token model has the following objectives:
- Promote decentralized ownership of Sushi.
- Amplify liquidity on Sushi.
- Encourage sustainable growth of the Sushi ecosystem.
- Enhance the protocol’s sustainability.
- Bolster $SUSHI utility.
- Diversify the Sushi treasury for robust financial operations.
The Sushi team is committed to enhancing liquidity, offering non-dilutive token rewards, instituting a balanced token supply, and ensuring Sushi remains competitive. The revised token model addresses the challenges of the current model and aligns with the interests of key stakeholders. The team looks forward to feedback from the community to facilitate an upcoming governance vote.