Diving into SushiSwap with IntoTheBlock’s New Indicators
SushiSwap Overview
SushiSwap has come a long way from its inception less than a year ago. Starting out as a fork of Uniswap v2, SushiSwap notoriously attracted liquidity by providing liquidity mining incentives to Uniswap LPs that migrate to their protocol.
Since then, SushiSwap has evolved significantly taking a community-driven approach and has outgrown the copycat tag. SushiSwap has launched its decentralized exchange (DEX) platform across 14 blockchains already and added a suite of new features expanding the protocol’s ambitions.
Key Metrics
Within less than a year, SushiSwap has managed to process over $100 billion in trading volume and currently has approximately $4.4 billion in liquidity supplied between its versions in Ethereum and Polygon. The high amount of trading volume has led to fees of $52 million accruing to xSushi stakers, who receive 0.05% of the DEX’s trade volume.
Based on IntoTheBlock’s SUSHI analytics, there are over 60,000 addresses holding SUSHI just on Ethereum. 63% of these addresses are estimated to be profiting on their positions based on IntoTheBlock’s In/Out of the Money.
Protocol-level metrics for their application on Ethereum have been available here since October of 2020, and we are happy to expand these indicators for their DEX on the Polygon side-chain.
Just like with the release on Ethereum, users of SushiSwap on Polygon can gain valuable insights from these metrics whether they are liquidity providers (LPs), traders on SushiSwap or investors in the SUSHI token.
For liquidity providers, one of the most relevant data points is the fees generated per amount of liquidity supplied.
The Fees per Liquidity metric provides the annual percentage yield (APY) that LPs can expect based on 1-hour, 12-hour or 24-hour averages. The data for this and all indicators is broken down into hourly intervals to provide a level of extra granularity for LPs that may allocate funds dynamically as APYs shift.
For traders, one of the most pertinent data points to gain from SushiSwap is the amount being traded of each token in a pair. Being fully transparent, we can track the input and output behind every transaction taking place on SushiSwap. As traders deposit one token in exchange for another, we can aggregate the total amount of inflows and outflows for each asset to get an understanding of market demand. This is displayed in the Swaps Flows indicator.
The netflow measures the amount of inflows minus outflows for a particular crypto-asset. In the image above, for example, we are observing the aggregate amount of volume of ETH being deposited in exchange for USDC minus the amount of USDC being traded for ETH. This relationship means that high inflows relative to outflows point to higher demand for the secondary asset, in this case USDC. On May 18 as Ether’s price collapsed 40% there was understandably higher demand for USDC as evidenced by the spike to 3.39k ETH in netflows.
Going back to liquidity providers, one of the metrics we are the most excited about is the Impermanent Loss/ROI Calculator. This indicator allows users to adjust parameters on their positions on SushiSwap to simulate their returns in comparison to the return they would have received simply holding the two assets separately.
Following the example of the ETH-USDC pool, we can track the returns being generated by liquidity providers. For instance, if an LP had deposited $1,000 split evenly between ETH and USDC into the pool on May 16, they would have gained 0.74%, while simply holding these two assets separately would have netted them a loss of 4.45%. Therefore, it is evident in this case that it has been beneficial for LPs to supply liquidity to this pool, generating them a relative return of 5.43%.
Finally, when it comes to assessing the implications of this data on SUSHI, it is worth looking at the general metrics provided earlier. However, these are more valuable when interpreted along with the general activity taking place on their DEX on Ethereum, as we will on the Analyzing Growth, TAM & Roadmap section.
Team, Development Activity, Partners & Investors
SushiSwap is led by a community of mostly-pseudonymous contributors. It has over 60,000 holders of its governance token, and nearly 40,000 members in its discord.
As evidenced by its Github Activity, contributions and interest in the protocol have grown steadily over time. Commits, which indicate a set of changes being proposed to a crypto-asset’s source code, are at an all-time high, pointing to a growing number of involvement from the community.
Moreover, the number of Github users that “star” SushiSwap point to constant increase in interest in the project. Finally, the recent increase in closed issues, and drop in open issues, provide indication of progress as tasks are being resolved, likely as they prepare for the release of their new DEX, Trident.
In terms of partners, SushiSwap is part of the Yearn Ecosystem as announced by Yearn Finance’s Andre Cronje in December of last year. The involvement of SushiSwap with Yearn led to the merge of development resources between the two protocols and multiple other methods of collaboration. SushiSwap has also partnered with several projects for 2x Reward Farms where LPs earn not only SUSHI tokens but also tokens from other protocols such as Alchemix’s ALCX. It has also partnered with various projects on SushiSwap’s Minimal Initial SushiSwap Offering (MISO), where protocols conduct IDOs to raise funds in exchange for their native token. Most recently BitDAO raised 112,670 ETH ($360 million) and 1.6 million SUSHI ($21 million) in the release of their BIT token.
Finally, when it comes to investors, several have informally disclosed holdings of SUSHI. With a recent, controversial proposal, SushiSwap’s leader 0xMaki proposed raising $60 million by selling SUSHI tokens from the developer treasury to a list of 23 confirmed strategic investors, including large funds such as Three Arrows Capital, Polychain Capital and Multicoin Capital. Even though the initial proposal has not gone through and is being iterated upon, many of these funds have already voiced their support for SushiSwap and hold SUSHI.
Analyzing Growth, TAM & Roadmap
SushiSwap has accrued sizable revenues since its inception. Contrary to Uniswap where all of these revenues go to LPs, SushiSwap gives a portion of fees to xSUSHI stakers. Trade fees of 0.30% paid by takers are distributed 0.25% to LPs and 0.05% to stakers.
Fees generated by stakers are analogous to dividends distributed in traditional finance, except that here they are sent on every transaction block and can be earned by virtually anyone. Therefore, these dividends provide a proxy to the amount of earnings being generated by SushiSwap. This allows us to measure the valuation of SushiSwap similar to equities, using the price-to-earnings (P/E) ratio.
Based on downloaded data from IntoTheBlock’s SushiSwap insights, we can estimate a P/E ratio of 38 for SUSHI, accounting only for activity on Polygon and Ethereum (meaning the actual P/E ratio is likely lower). This P/E ratio is significantly lower than Coinbase’s 160, and slightly higher than Nasdaq’s 36. Considering that SushiSwap grew into a multi-billion dollar protocol within less than a year, it is likely that future growth potential is not factored into SUSHI’s relatively discounted valuation.
In terms of its ambitions, the SushiSwap team is broadening their scope to include various markets and financial services in a multi-chain world, expanding its total addressable market (TAM). It has already launched its platform for IDOs Miso, which has generated traction with the raises of BitDAO and Yield Guild Games. Similarly, SushiSwap users can use Kashi to lend their assets and passively earn yield on them without risk of impermanent loss. Moreover, the SushiSwap team aims to enter the buzzy NFT market with its upcoming marketplace, Shoyu. It is also introducing multiple advanced, capital efficient features in the Trident DEX, which is scheduled to launch in the “next couple of weeks”.
Conclusion
SushiSwap has grown significantly over the past year. Not only has it traded over $100 billion in volume in its core DEX product, it is expanding to adjacent markets that provide high opportunities for the protocol.
Driven by a passionate pseudonymous community, SushiSwap has already expanded into 14 blockchains, with Polygon currently being its second largest in terms of liquidity and volume. At IntoTheBlock we are excited to launch indicators for SushiSwap on Polygon, aiming to help LPs and traders alike to make better informed decisions.
