- Time-lock tiers are to be introduced for emission-based rewards.
- LPs are to receive 0.05% Swap fees.
- Rewards will be forfeited if accessed prematurely.
CEO Jared Grey of decentralized exchange SushiSwap plans to completely redesign the tokenomics, per the proposal introduced in Sushi’s forum on December 30, 2022. SushiSwap, soon to undergo soft rebranding to be named Sushi, was created in 2020 by a pseudonymous individual or group called Chef Nomi.
The proposed tokenomics model will have time-lock tiers to be introduced for emission-based rewards. Along with a token-burning mechanism and liquidity lock for price support. It aims to boost the liquidity and decentralization of the platform. Also, it would
“Strengthen treasury reserves to ensure continual operation development.”
The model proposes that Liquidity Providers (LPs) would receive 0.05% of swap fees revenue and pools with higher volumes to receive the biggest share. LPs can also lock their liquidity to earn boosted, emission-based rewards. And if the rewards were to be removed before maturity, they would be forfeited and burned.
Staked SUSHI (xSUSHI) will not receive any share of the fee revenue but will be paid in SUSHI tokens for emission-based rewards, with longer time locks attracting bigger rewards. Here withdrawals before the maturity of time locks are allowed. However, the rewards would be forfeited and burned.
The exchange could use a dynamic percentage of 0.05% swap fee to buy back and burn SUSHI tokens. The percentage change will depend upon the total time-lock tiers selected.
“Because time locks get paid after maturity, but burns happen in real-time when a large amount of collateral gets unstaked before maturity, it has a sizable deflationary effect on supply.”
The need for tokenomics redesign came after SushiSwap disclosed that they had almost eighteen months of fuel left in their treasury, meaning the operational viability of the exchange was facing a significant deficit.
SushiSwap experienced a loss of $30 million in 2022 on incentives for LPs because of the token-based emission strategy, and this loss led the platform to introduce the new tokenomics model.
The foundation of SushiSwap was created based on a copied open-source code used by Uniswap. It then attracted users by promising SUSHI token rewards if funds were locked in a special pool on Uniswap. After the code was ready, funds from the pool were to be transferred to UniSwap.
Before the transfer was completed, Chef Nomi removed $13 million in funds from the pool. People feared Naomi would run away with funds, so the control was given to Sam Bankman-Fried.
A few days later, Chef Nomi returned the liquidated funds to the pool, apologizing to the user. Then SBF oversaw the process of funds being moved as planned.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/01/02/sushiswap-proposed-new-tokenomics-to-benefit-liquidity-and-decentralization/