ZoneBitcoin EditorialWell, we hear more and more about DeFi, it’s a fact. While at the very beginning, we talked about it with enthusiasm, today, it's a big rush.
We have really moved to the next level in the world of cryptocurrency and blockchain. With decentralized finance, we have reached a milestone. We are no longer at the stage of Jacques sending money to Jean virtually.
No, everything got a little complicated there.
And, as I like to popularize things that may seem complicated at first glance, I launched into this article and a video to go back a little on the latest striking events in DeFi.
We will therefore rather focus on the case of SushiSwap because I think that with this historical example, there are many things that you will understand about the Defi.
If the SushiSwap case is so interesting and significant in Defi, it is because there was the famous Vampire Attack, which tried to "vampirize" the entire Uniswap decentralized exchange.
Brief reminder of what DeFi is
Amidst the fervor surrounding decentralized finance, multiple projects have multiplied. For example, we have seen the birth of a new generation of token called "Liquidity Mining". Basically, it is the act of depositing assets that will ensure the liquidity of a decentralized exchange platform in order to obtain a governance token.
As you know, a governance token is in some way equivalent to having project equity (even if the comparison should stop there, because it's decentralized, eh). This means that you have some role or voice in the overall development of the project.
The most famous project of "Liquidity Mining" was the famous Yam.Finance. It was from there that we heard about the concept of "farming" on social networks. This concept simply referred to the fact of plowing these new projects to recover new tokens of this type.
To obtain YAM, it was therefore necessary to deposit tokens of certain DeFi protocols into contracts (which were not audited). We then recovered it in proportion to what we had deposited.
So far, everything is clear and clear, you will tell me.
But, the beautiful Yam.Finance project is still born, in fact. There was a technical bug in the governance protocol that could not be resolved. Result? A project literally dead before being born. And, it was from there that we saw the media also release headlines talking about this token which had lost 90% of its value in one night.
That said, for the crypto community, this has only fueled excitement for this type of project. Finally Yam. Finance was unfortunately the first pilot project, in a way.
It was there that we saw copies of Yam.Finance appear. Then, copies of copies and copies of copies. Seriously, it's true. In the space of a week, we saw dozens of projects like this appear. The famous yield farming had become popular with crypto-holders. Most of the time, it used food names to fit Yam's theme. So, we saw wine.finance or even kimchi.finance…And, finally, Shushi.swap
Vampire attack on highly sought-after sushi
Now we can talk frankly about Sushi. We will see why such enthusiasm and what this strange vampire attack is.
The creator of Sushi is called NomiChef; Well, it’s a nickname he gave himself when he first presented himself on the Medium platform, at the end of August 2020.
On August 28 more precisely, he presented the SushiSwap project to us. The project quickly gained popularity in the DeFi community because it directly aimed Uniswap. The main goal of the project was to create a community-run automated market maker and fairly distribute its token – SUSHI.
He wants to offer therefore still in liquidity mining, the possibility of recovering SUSHI tokens in exchange for tokens that Uniswap will grant if liquidity is deposited on a pair. In fact, you should know that this liquidity will be remunerated by fees paid to what are called "liquidity Providers". They are therefore the ones who provide liquidity in a platform and they receive 0,3% of each exchange carried out according to its percentage of its contribution in the total liquidity. He will recover a token which then represents his share in the "liquidity pool" in which he participated. It is there, then, that the token will be able to be deposited on sushi Swap to be able to recover suSHIS tokens.
Do you always follow me?
Because this is where we can understand how it was a vampire attack. We can see that the objective of sushi swap was to capture liquidity from Uniswap by pushing part of the liquidity to go to Sushiswap. Liquidation providers collected fees and SUSHIS tokens.
The ambition of Sushiwap was therefore to siphon off Uniswap by capturing liquidity in order to begin migrating this liquidity to Sushiswap. For LPs, they recover fees and SUSHI tokens, hence a hypothetical additional value than on Uniswap.
Indirectly, this then gave value to the SUSHI token.
So, concretely, that's what a vampire attack is. And how was SushiSwap able to use a vampire attack to attract over $1 billion in liquidity in less than a week?
The Vampire Attack….
In fact, the concept of a vampire attack is rather ingenious, in several respects. In fact, this provides a backdoor incentive to migrate liquidity from one platform to another. So this is the very first step.
In the Sushi case for example, liquidity providers were largely incentivized to deposit on SushiSwap. The goal is to receive additional rewards paid in SUSHI tokens. The rewards were really nice to incentivize liquidity providers. So, for the SUSHI token – 1000 SUSHI per Ethereum block were distributed to Uniswap liquidity providers. It was distributed in different pools like SNX-ETH, LEND-ETH, YFI-ETH, LINK-ETH.
In fact, Yam.Finance had already done this and SUSHI imitated this winning model very well.
The particularity of Chef Nomi
We must admit that Chef Nomi is really very good. Already, it had started to attract a lot of capital just after its launch. In fact, liquidity providers were naturally attracted to very high APYs (between +200 and 1000%). It was in order to generate profits that they then transferred LP tokens from Uniswap to SushiSwap.
The crazy thing is that only a few hours after its launch, SushiSwap reached $150M in value. Unheard of since the days of ICOs.
Although SushiSwap contracts were initially launched without audits, the project still attracted several audits from a few recognized security companies. ChefNomi also decided to start governance of Sushi where SUSHI-ETH LP tokens could be used for voting and making decisions.
The then general craze continued. It was the icing on the cake when Binance announced the listing of SushiSwap, which pushed the price of SUSHI up to $15! A few days later, there was talk of a volume of more than a billion dollars! And to add to this, there were security audits which confirmed that there were no problems on the platform.
Then, on September 4 exactly, one of the largest holders of SUSHI SBK who happened to be the CEO of FTX, presented a future proposal to migrate part of SushiSwap to a new trading platform, built on the blockchain Solana.
So far, we're at the top, we'll say.
But there was a significant event. ChefNomi sold his entire stake in sushi (worth $14 million) and exchanged them for ETH on September 5.
Of course, this was taken very badly by the members of the platform. Even if ChefNomi cleared himself by saying that he had done it for the well-being of the project. People are not fooled and they have clearly lost confidence in ChefNomi.
He subsequently decided to leave the project….
Then, ChefNomi essentially transferred control of the project to SBF. This one actually decided to be a savior of Sushi and further incentivize liquidity providers to stay for the migration with 1 million additional SUSHI tokens. In addition, let's add that SBF has initiated a transfer of the admin key to a multisig address.
Migration
The migration of liquidity to the SushiSwap platform was carried out by SBF on September 9. From the peak of $1,2 billion in value locked, approximately $840 million remained for migration. Everything went smoothly, with all remaining liquidity transferred to SushiSwap, allowing trading of the tokens supported by the migration.
Due to the early migration, there are still a few days left with a high issuance schedule of 1000 SUSHI per block. This will later drop to 100 per block, even 50 per block if it was voted on by the community. It remains to be seen whether liquidity will remain on SushiSwap after the period of very high yields for rewards.
ChefNomi was gone, huh?
Well, another reverberation for you. On August 11, 2 days after the migration, ChefNomi returned to the project, injecting $14 million worth of ETH into the development fund. He apologized to the community.
Conclusion
SushiSwap was clearly a landmark event in the DeFi universe. There is a lot to say and a lot of criticism, indeed.
But, again, we are in the infancy of this technology. It is perhaps completely normal to see projects like this with such complicated paths. Finally, this recalls the craze of ICOs before it was regulated.
Ah…we never get bored in the blockchain, in any case!
