SushiSwap’s rapidly gaining DeFi protocol has raised more than $200 million, promising ultra-high yields from so-called steaking. You have to agree that cryptocurrency marketers can make even the most absurd project mega-popular. As soon as a promising project appears that has all chances to become top, it is successfully copied by speculators and crooks. As a result, investors lose money, and creators flee to Bali with millions of dollars.
If you look globally, the current hype around Uniswap and SushiSwap says a lot about the current state of decentralized finance. Here’s a look at what “steaking” on SushiSwap is, and if it’s steaking at all.
What is Uniswap?
Let’s start with the leading player in the DeFi market – Uniswap protocol, which is the basis of SushiSwap. At the time of publication Uniswap is number one on DeFi Pulse, with almost $2 billion in blocked assets.
In simple terms, Uniswap is an auto-marketing protocol that provides liquidity in ERC20-token trading. The main problem of many decentralized trading platforms is a partial or complete lack of liquidity. Sellers simply cannot reach buyers to sell their assets. Uniswap was specifically created to solve this problem: asset holders supply liquidity to the pools, and the price of a token varies with the volume of liquidity. Anyone can buy/sell assets through a liquid pool, and liquidity providers get a reward.
The remuneration is a share of the trading commissions. (on Uniswap it is 0.3%, while on Binance it is about 0.1%). Commissions are distributed among pool participants in proportion to each participant’s investment.
After depositing assets in Uniswap pools, a participant receives UniV2 LP tokens, which represent ownership of their assets. They can be converted back and withdrawn to third-party wallets at any time.
Steaking on Uniswap
One wonders: how does steaking work on Uniswap and its clone projects? Let’s find out.
To date, there are two models of “steaking” on DeFi-protocols:
- Rewards are paid by the token issuer
- Rewards are paid by the protocol system in native tokens
- For example, Uniswap created PizzaCoin and wants to get maximum liquidity on these tokens. The creator offers Uniswap users to invest liquidity in the ETH-PIZZA pool, in exchange for completely free PizzaCoin.
If you look at it from a technical point of view, everything is simpler than it seems at first glance. Uniswap user sends PizzaCoin and Ethereum to the liquidity pool in exchange for tokens called ETH-PIZZA UniV2 LP. They are also sent to the address of the smart contract, from which the LP-tokens will be stacked.
Notably, the creator himself decides how much PIZZA to distribute to liquidity providers. In most cases, after the release of a particular token, the first days activate a huge bonus – for example, 100 PIZZA per block, after which the reward decreases by 2-3-4 times.
SushiSwap Stacking.
Now for the best part – the second steaking model that SushiSwap uses.
SushiSwap is based on a native SUSHI token that accrues to steakers.
Many DeFi market participants claim SushiSwap pool returns of up to 1000%. But there are risks of SUSHI collapsing, so in reality the yield could be zero at all. In fact, this applies to PoS coins, which are now actively steaking and are extremely volatile because of this.
What is the difference between “steaking” on SushiSwap and traditional PoS steaking (like QTUM or EOS)?
Let’s have a little theory: PoS-network nodes desperately need shaking, primarily to qualify for transaction confirmation. By confirming transactions, a node earns coins.
SushiSwap stacking, on the other hand, carries no value. Income in Sushi tokens is accrued out of thin air and is pure marketing gimmickry. And if the air can be sold, then sooner or later the SUSHI rate will sag a lot in price or go to zero altogether.
Let’s summarize.
I wonder how much longer the boom around decentralized finance and farming tokens with yields up to 1000% will last. We predict that this whole DeFi boom will go down by the end of 2020, and participants in various projects will incur significant losses after investing in “air.”
We strongly recommend choosing DeFi-projects with real value – for example, stackablecoin USDN with returns of up to 15% per annum.