June 2, 2021 · 7 min read

A look at DeFi AMM protocols | SushiSwap Deep Dive

This month in the DeFi space, we saw Uniswap V3 launch and a growing trading volume on DEXes despite the crypto market crash. As shown in the graph below, $170 billion was traded across Ethereum-based exchanges in May 2021, more than double the previous period’s $80 billion. This week Balancer officially launched smart contracts for V2 of the token pooling and swap platform, and subsequently the user-friendly front end application, offering some of the most sophisticated AMM protocols out there. 

Source: Dune Analytics up to Jun 1st

This week, we take a deep dive into decentralized crypto exchanges. We briefly explain the Automated Market Making (AMM) mechanism of decentralized exchanges then we focus a spotlight on Sushiswap. 

Automated Market Makers (AMM)

In the early stages of crypto, investing in this nascent space pretty much revolved around speculating on price movements of different coins. For this, centralized crypto exchanges such as Binance and Coinbase provided a convenient way to gain access to crypto markets.

Centralized crypto exchanges are trading platforms that operate much like traditional stock markets or brokerage systems. A centralized exchange is owned and operated by an overseeing company that has complete oversight of all transactions. Ironically, this runs counter to the decentralized ethos of crypto. 

With the advent of DeFi, crypto participants moved onto decentralized exchanges that use a novel technology of Automated Market Making (AMM). AMM not only provides decentralization, but also opens up new ways of earning returns in crypto - that is earning fees from providing liquidity.

AMM protocols rely on mathematical formulas and self referential algorithms to price an asset, opposed to traditional orderbook systems used by centralized exchanges. AMM’s allow digitised assets to be traded fully automatically without the need for human oversight, by using liquidity pools. AMM protocols utilise smart contracts, that when event-triggered, will exchange asset X for asset Y for a preset price based on the reserve ratio of X/Y. AMM has two players, the trader and the liquidity provider (LP). The LP will first flow a certain amount of tokens into the pool to provide transaction liquidity, while earning fees paid by traders.

Below we map out AMM DEXes on different blockchains. 

We see the impressive proliferation of many DEXes and their respective platforms. The DeFi first mover Ethereum hosts the most well established projects. There is currently $30 billion locked in Ethereum DEXes. Polygon, the layer 2 scaling solution of Ethereum, now supports leading Ethereum liquidity protocols including Curve and Sushiswap. Binance Smart Chain comes next, with Pancakeswap boasting $6.5 billion in liquidity. Other networks like Polkadot and Solana rushed to roll out their own DEXes.

Project Spotlight 💡 : SushiSwap

This week, we delve into one of the highest performing projects in the Ethereum DeFi ecosystem, Sushiswap.

Started as a fork of Uniswap, Sushiswap is now the second biggest AMM DEX on Ethereum. However, it hasn’t been a smooth ride along the way. Founded by an anonymous developer ‘Chef Nomi’ in September 2020 who leapt onto the DeFi Summer train, and nailed a  PR stunt pioneering the food-themed DeFi projects and gained $1 billion in TVL within a week. The glory was temporary. Chef Nomi then rugpulled $14 million worth of ETH from a developer fund. Chef Nomi returned the entirety of the stolen funds and handed over the control of the project to Sam Bankman-Fried of SBF Alameda. Having betrayed the true spirit of decentralized finance, SushiSwap had to hustle to regain community trust and liquidity.  

Enough with Sushiswap’s early inception history, now let’s look at what differentiates Sushiswap from Uniswap. 

The main difference between Sushiswap and Uniswap is the tokenomics design. Traders of Sushiswap pay 0.3% in fees just like in Uniswap V2 (in Uniswap V3, users can choose from 0.05%, 0.3%, and 1% fees. Click here to learn more about Uniswap V3). However, how the liquidity providers are rewarded is different. 0.25% goes directly to liquidity providers and 0.05% goes to SUSHI holders. 

Now let’s look at some numbers

The table below compares 24h trading volume and TVL of Ethereum-based AMM DEXes.

Source: Novum Insights Up to 1st June

Uniswap V2 remains the dominant protocol in terms of liquidity. However, since the Uniswap V3 launch in May 2021, a lot of the V2 liquidity migrated to V3, and the trading volume of $1.05 billion on V3 shows the fast adoption of V3 by the users. Hot on its heels, Sushiswap boasts $4.5 billion in TVL and $524 million in 24h trading volume across different networks - Ethereum, Polygon, xDai and Fantom. If you want to learn more about Polygon and Ethereum scaling solutions, click here

Features unique to Sushiswap

Tokenomics design is not the only factor contributing to the massive growth of Sushiswap. While team Uniswap has been doubling down on its V3, introducing different levels of fees and range orders, team Sushiswap rolled out various offerings to provide diverse avenues to earn more yields. In this section, we look at features unique to Sushiswap.

Sushi allows trading cheaply on many different networks

Sushi has made waves allowing users  to cross different networks - Ethereum, Polygon, xDai and Fantom. The chart below shows Sushiswap’s TVL across different networks.

Source: Novum Insights up to June 1st

Sushiswap on Polygon, the hottest layer 2 Ethereum scaling solution, is grabbing liquidity from Ethereum at a rapid rate. In less then one month of going live on Polygon, almost $1 billion in liquidity moved onto Polygon Sushiswap. TVL and transactions on other networks only make up a small portion of the total.


SushiBar allows users to stake SUSHI and receive xSUSHI. xSUSHI can then be staked in xSUSHI pools to earn more rewards. As mentioned above, 0.25% of the trading fees is distributed to liquidity providers and 0.05% goes to SUSHI holders. It is the xSUSHI staked that receives the additional 0.05% of trading fees. The average staking APR currently stands at 8.61%


Onsen is a liquidity mining incentivization programme. Users who provide liquidity to an Onsen menu, a pool incentivized by Sushi, earn the SLP token (liquidity token). The tokens on the Onsen menu are relatively new. By depositing the SLP into a yield farm, users earn SUSHI. This makes new, less-established projects easier to  become another source of yield opportunity for users. 


BentoBox is a vault that generates yield by allowing users to tap into the liquidity in BentoBox to make flash loans while simultaneously earning interest from farming liquidity pools. 


Kashi is a lending platform built on top of BentoBox. Unlike popular lending protocols such as Aave or Compound that share risk collectively on each platform, Kashi uses an isolated risk market framework where when a risky pair drops in price severely, it only affects the pair, not the entire platform. This framework allows a wider selection of assets to be borrowed and accepted as collateral. 

Summarizing the battle between Uniswap and Sushiswap

What started out as a simple fork of Uniswap has certainly evolved into a serious contender. Over the course of its development, Sushi has rolled out different yield generating platforms within the protocol. Sushi has recently launched MISO, a launchpad that allows projects to launch on Sushiswap exchange, with minimum hassle. While Uniswap may still be the top choice for traders, Sushiswap is becoming home to various attractive yield opportunities. 

AMM Going forward? 

The world of DeFi has exploded  in recent times, and will only continue to do so. Roughly this time last year, there was around $1 Billion locked into the DeFi market, now that number sits closer to $64 billion. 

The interest in crypto investments grows exponentially and as a result, we expect growing usage and participation in AMM based protocols and more innovative ways to unlock the liquidity in those pools to be deployed in yield hunting activities.