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Sushi Cookbook: A Complete Tutorial on SUSHI DeFi Opportunities

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Published on:
March 16, 2021

Contributor: Sushi gives a detailed walkthrough over how to use their multiple DeFi offerings.

Table of Contents

sushicookbook

This article is meant to act as a tutorial for new Sushi users or for people who are just discovering the benefits of DeFi altogether.

First of all, thank you for your interest in Sushi.com! We are confident that this guide will help you harness the many opportunities that the platform has to offer and avoid any confusion that might come along the way.

 

Why Do People Use Sushi?

Decentralized exchanges like Sushi have become overwhelmingly popular in the past few months. Compared to traditional exchanges, using Sushi can be much simpler and faster to use when buying and selling cryptocurrencies. On top of that, you can find many tokens on decentralized exchanges, or DEXes, that you can’t find anywhere else! DEXes offer a great way to discover unique opportunities.

Sushi is an exchange platform, which uses a mathematical formula (x*y=k) to automatically give you price quotes for the tokens you want to swap. When you trade on other cryptocurrency exchanges, like Coinbase, you are relying on the institution, or Coinbase, to act as a middleman to confirm the price of your desired tokens and process your trade. In that case, the fees on each transaction go to the institution. On Sushi, you are relying on the formula to handle these processes for you. Since there is no institution, there are less hoops for you to jump through to execute your trades and transaction fees are paid to the users who provided liquidity, just as it should be!

How to Start Using Sushi.com

For starters, you don’t need to create an account, which means no need to take a selfie to verify your identity! All you need is a cryptocurrency wallet, with a digital token balance. To use Sushi, regardless of transaction, you will need Ethereum tokens to execute transactions. Please ensure that you have a balance of ETH in your digital or hardware wallet. When you enter sushi.com, simply connect your existing wallet to get started.

swap

Simple Trade Overview

Your first step in getting to know SushiSwap is in the name itself. You should try a simple swap first. Tokens ready? Let’s start swapping!

 

Connecting your wallet:

In order to allow Sushi access to the tokens in your wallet and proceed with a trade, there will be a small fee associated with this initial connection process. This fee is something that cannot be avoided, as it is a fee charged by the Ethereum blockchain. The fees are paid to the ETH miners, not to Sushi. Please make sure you have some Ethereum tokens in your wallet to pay for the gas fees when you trade!

Select the token you wish to sell and the token you wish to buy. If you cannot find the token you are looking for, you can search for the token in Etherscan (www.etherscan.io), copy its “Token Contract Address” and paste it into the search bar on Sushi’s exchange. If it still does not show up, you may need to find the token by selecting a different token list.

After selecting your desired tokens, input the number of tokens you wish to sell.  You will see how many new tokens you will receive, the price impact, which we will discuss a little further on, and the total fee. After approving Sushi’s access to use your tokens and clicking “Swap” then “Confirm Swap,” you will receive a prompt from your wallet, asking you to approve the trade and the gas fees associated with the trade. Once you approve the trade again from your wallet, the transaction will execute and you just have to wait for the process to complete! You can see the status of your transaction in your wallet or by copying the transaction hash and checking it on www.etherscan.io.

Canceling/Reversing a Trade

Due to the nature of cryptocurrency trading, once you execute a trade, you cannot reverse it. If the trade is still pending, and you’re quick enough, you can request to cancel the trade from your wallet.

A Transaction Is Taking Worryingly Long — What Does It Mean?

When a transaction is pending for a very long time, it is more than likely that the processing speed you originally chose was too slow. We suggest that you cancel the transaction in your wallet and execute it again, but choose a faster processing speed. Please keep in mind that, yes, faster speeds mean higher gas fees!

 

What Else Can I Do Other Than Trading Tokens?

This is a great question! Sushi offers features that go beyond mere cryptocurrency trading — let’s take a look at the other offerings that make Sushi one of the DeFi powerhouses.

 

Liquidity Providing

Imagine you really want to sell a token, but you can’t find anyone to buy it. An exchange is the place to buy/sell tokens, but in order to do that, it needs one basic thing — liquidity! Traditionally, centralized exchanges, like Coinbase, provide and manage this liquidity. On Sushi, the liquidity is provided voluntarily by its users.

In return, Sushi rewards those who provide temporary access to their tokens with a share of the 0.25% fee charged to traders of the respective token pair, proportional to the amount of liquidity they added to the pool. This option could be a great opportunity to earn extra yields on tokens that are just sitting in your wallet. 

You will now start earning a portion of the transaction fees for providing liquidity for Sushi. You will receive the total of these rewards when you remove your liquidity.

The simplest and quickest way to provide liquidity is to use Sushi Lite’s Zapper function. This feature offers users the ability to bypass fees and optimizes gas as it reduces the number of transactions necessary for completing the execution of becoming an LP (https://lite.sushi.com/#/liquidity).

Being an LP seems like a no-brainer, right? However, although you are offsetting an opportunity cost risk by earning interest while you hold, you are exposing yourself to another risk, called impermanent loss. This tutorial will not delve too much into the intricacies of this type of loss, but, instead, will give a simple explanation.

Impermanent loss has been described as the difference in your token value in the liquidity pool versus simply holding them in your wallet. If one of your tokens skyrockets on traditional markets, your assets do not automatically update to match. At this “time lag” stage, there is an opportunity for traders to buy your assets in the pool at a lower price and resell on a centralized exchange at a higher price, realizing an arbitrage gain. That gain could have been yours! Instead, this stolen opportunity can be classified as your impermanent loss. This is one of the risks you take as an LP.

The best-case scenario for an LP is when there are many transactions in the pool and the price of each token does not have significant price fluctuations. The more transactions, the more share of the transaction fees you will earn. So, if you are going to become an LP and earn some yields, it is best to consider the trendiness or popularity of the pool.

There is no vesting period for these earnings and when you remove liquidity, you will also take your earnings. To remove liquidity, simply click “Remove” to initiate the transaction. If you cannot see your liquidity, it probably means you have staked it in a farm. In this case, you need to unstake from the farm first to remove the liquidity entirely.

onsen

Farming

Farming on Sushi is connected to being an LP, but different because you grow SUSHI rewards. Who would’ve thought, in the 21st century, we’d all be farmers? Farms are also known as Menus in the Sushi universe, because Sushi. The SUSHI governance token is one of the main reasons behind Sushi’s massive popularity.

On sushi.com, you can enter a permanent farm or an Onsen menu. Onsen pairs are temporary farms that are allocated bonus SUSHI rewards, through allocPoints. AllocPoints are allotted based on token market cap.

Please note that SUSHI rewards have a vesting or lockup period. 1/3 or 33.33% of your rewards are available immediately, but the remaining 2/3 or 66.67% will remain vested or locked for six months as of the date they are accrued. You do not need to keep your tokens staked in the farm for the entire six months. You can unstake your tokens at any time and still keep your accrued rewards.

There is an added transaction fee when unstaking your tokens from the farm, one to unstake and then one to remove liquidity. Since farming is related to liquidity providing, is it important to note that the same impermanent loss risks are still present.

In order to quit your job as a farmer and remove your liquidity from the farm, click “Unstake.”

Staking

Welcome to the SushiBar, where the revolving belt is serving plates of xSUSHI! Sushi not only offers you the opportunity to earn SUSHI on your dormant tokens, you can also earn xSUSHI on your earned SUSHI! Rewards on rewards? Is the Sushi hype starting to make sense?

You can find details about xSUSHI, like staking APY, here: https://app.sushi.com/farms/xsushi

You might be wondering what the value of xSUSHI is to make staking worthwhile. Well, for starters, 0.05% of all transaction fees go to SUSHI stakers. The redeployment of limit orders will have all fees allocated to xSUSHI holders and with the introduction of Bento Box & Kashi, 9% of the fees accrued from these lending services will also go to xSUSHI holders.

Once per day or more, the liquidity provider rewards contracts are closed and all LP tokens are swapped for SUSHI tokens, which are sent, proportionately, to xSUSHI holders. At this time, xSUSHI would have a greater value than the bought SUSHI tokens.

Many people wonder if it’s better to farm SUSHI on other platforms in lieu of staking. One of the benefits of staking SUSHI over using it to farm is that you can use your staked SUSHI in other DeFi protocols. For instance, you can lend your xSUSHI on CREAM as collateral, use that to borrow ETH, then use that borrowed ETH to farm another asset with an even higher APY. It can really be used to maximize token yield potential.

Users can unstake at any time and there is no vesting period associated with xSUSHI.

 

Migrating

Uniswap has recently terminated their rewards-based liquidity provision program. In light of this, we are offering Uniswap LPs the opportunity to seamlessly and, more importantly, gas-efficiently transfer their liquidity pool from Uniswap to Sushi to start earning governance tokens again. Winter has come to Uniswap, time to migrate South to better weather at Sushi!

Please note that as with any liquidity providing execution, you are exposing yourself to impermanent loss risk. However, unlike Uniswap, Sushi rewards your risk tolerance with mouth-watering SUSHI.

 

We hope that this was an informative piece and entices you to get involved in DeFi protocols, with the intention of taking advantage of all it has to offer!


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Author(s)

Sushi

Sushi is a community-run automated market-making (AMM) decentralized exchange (DEX) on the Ethereum blockchain, among others.

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