SushiSwap proposes to direct 100% of xSUSHI revenue to treasury wallet

Decentralized exchange SushiSwap is discussing a new proposal to direct all of the fees paid to xSushi holders into its treasury wallet for a year to provide financing for its operations.

The proposal comes at a time when SushiSwap, under new management, is attempting to turn around its declining fortunes. New Head Chef Jared Grey is trying to make the project profitable again and increase its runway — which he said has been reduced to just 1.5 years.

“After reviewing expenditures, it’s clear that a significant deficit in the Treasury threatens Sushi’s operational viability, requiring an immediate remedy,” Grey said.

Grey argued that the team needs $5 million in order to sustain operations during the current bear market. He said SushiSwap needs “immediate action” to ensure adequate funding.

The idea is to take all of the funds generated by trading fees on the exchange. Those that stake the Sushi’s governance token sushi receive a token called xSushi, which gives them a reward fee from all trades on the platform. Currently, xSushi holders receive 0.05% of each swap, 10% of which is directed to the SushiSwap treasury wallet.

In the proposal, Grey recommended that SushiSwap should increase the treasury fee ratio from 10% to 100%, leaving no more token rewards for xSushi holders.

Matthew Lilley, core developer at SushiSwap, agreed with Grey’s proposal that this would be a temporary solution and said the current fee-sharing system will be restored after a year.

“The timeline is 12 months, if nothing has changed after 12 months it will default back to the original model. Hopefully it can be ended early if tokenomics revamp is concluded before,” Lilley said.

Backlash from the community

The proposal, if passed, could have far-reaching implications for investors. This reward fee paid to xSushi incentivizes community members to hold onto SUSHI tokens by providing an additional income on top of any appreciation in value they may experience. 

If the reward fee reserved for xSushi holders is taken away, it removes that revenue. The proposal has already sparked comments from community members, with some users expressing their anger at what they saw as an unjustifiable move. 

“Depriving xSushi holders of the fees they are entitled to is a breach of primary covenant before the community,” one community member responded to the proposal.

Adam Cochran, partner at Cinneamhain Ventures weighed in on the matter, saying the team should justify its performance metrics before asking for a $5 million runway. He described the latest proposal as akin to a “rug,” a term used to describe a situation when a crypto project takes funds from its users.

“The team should probably defend a $5m runway with poor key performance indicators [KPIs] before rugging holders,” Cochran said, referring to how the project’s actions may harm the interest of xSushi holders.

That being said, SushiSwap is hoping to turn its fortunes around with a planned proposal called Meiji, which sets out to create a new decentralized autonomous organization (DAO) that will be funded by protocol fees and governed with non-transferable voting shares. 

In addition to this, the DAO has proposed introducing Curve-style Vote Escrow (VE) tokenomics. That system would incentivize token holders to lock their assets for an extended period of time, as they will receive rewards for doing so. The idea is that, with these two components in place, the new DAO can become self-sustaining and benefit from more stable capitalization over the long term.

© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.