Breaking down the Sushi Tokenomics

New to Sushi? Or new to tokenomics? Don't worry; we're here to help break down the updated Sushi Tokenomics. We'll explain where it comes from and what it's all about.

Sushi’s Journey

In 2020, Sushi gained widespread recognition due to the Liquidity Mining Rewards(LMR) in $SUSHI through the Vampire Attack strategy. This approach worked in the short term and attracted billions of liquidity overnight. However, it did not work as well in the long term, as it primarily attracted opportunistic farmers who seized the rewards and abandoned the protocols.Due to the initial success of LMR, many protocols followed suit and began implementing it during the “DeFi Summer.” However, they soon realized this approach was not sustainable for acquiring new users or the protocol's health. Narratives centered around "real yield" started gaining popularity.

Sushi’s Tokenomic (Old)

The craze for LMR has merits. Sushi's MasterChef and xSush are two of the most forked tokenomics initiatives in the DeFi space, forming the backbone of Sushi's existing tokenomics structure.

MasterChef is a relatively simple smart contract that contains a powerful algorithm to reward users who stake tokens on it. SushiSwap has then developed MasterChefV2 and added a lot of new features.

xSushi is an LP token representing your share in the Sushi Bar pool after you stake $Sushi on the SushiBar. The idea behind xSushi is that its value increases over time as the platform collects fees, and some Sushi gets permanently locked in the protocol.In December 2022, the Kanpai Proposal passed, redirecting the fees to the Treasury. Fees for xSushi have been temporarily disabled for a year; however, xSushi will still be used in governance proposals. Here we are, approaching the expiry date of the Kanpai Proposal.

New Sushi Tokenomics

Objective

As one of the LMR OGs, Sushi has identified the challenges in the existing tokenomics and come up with new tokenomics to revise the Sushi token model. The revised model ensures stability and sustained value for all stakeholders. The model builds on three pillars:

Protocol sustainability
Token utility enhancement
Treasury diversification

We invite you to review the proposed changes linked below, which will synergize to support a resilient token economy.

Implementation

Guiding Features

Long-Term Lockups for Greater Rewards:

Enhanced Yields: LPs are incentivized with higher yields for extended durations.
Loyalty Points: Points are accumulated proportional to the duration and value of lockup.
NFT Representation: LPs are issued NFTs representing their contribution and loyalty points.

NFT Trading:

Monetization: LPs can trade their NFTs to monetize loyalty points and benefits.
Reward Transfer: Purchasing an NFT transfers the associated rewards to the buyer.
Loyalty Reset: Selling the NFT resets the loyalty points for that pool.

Dynamic Reward Adjustments:

Market Responsiveness: The protocol adjusts rewards in response to market conditions.
Balanced Growth: Token emissions may be introduced for growth while maintaining balance.

Tier-Based Staking:

Flexible Commitment: Users can opt for different time-based reward tiers without penalties.
Asset Payouts: Rewards are paid out in the same asset collected as fees.

Boost Distribution System:

Volume Incentives: Boosts are allocated to high-volume pools, incentivizing actions and partnerships.
Gauge Voting: Users can direct incentive distributions based on their voting power.

Automated Performance Metrics:

Fee Adjustments: Pools with higher earnings may see dynamically adjusted fees.
Amplified Boosts: The infrastructure ensures fair and enhanced boost distributions.

Emissions and Sustainability:

Stable Emissions: A stable APR emission rate of 1.5% ensures a balanced distribution of rewards.

Sushi Bar Enhancements:

Sushi is updating its staking strategy to prioritize long-term liquidity providers with a new Locked Liquidity Provision system and scaled rewards based on time and contribution. This aims to balance rewards, encourage sustained participation, and increase voting power for active members. Enhanced auto-compounding for stakers and tiered incentives are set to create a growth cycle that boosts rewards in step with Sushi's ecosystem performance.

Liquidity (Locked):

Sushi's Locked Liquidity Provision (LLP) bolsters ecosystem resilience by allocating specific reward tier percentages to protocol-owned liquidity, creating a sustainable market and fee-generating foundation for the Sushi DAO. With a flexible approach to network and base pair selection driven by market demand, the strategy ensures depth and efficiency while fostering partnership opportunities and community value. Implementing LLP from inception could have resulted in significant liquidity control for the DAO, promising lasting operational funds and a stronger, more adaptable ecosystem.

Treasury:

Our ecosystem incentivizes liquidity providers with a tiered reward system that boosts treasury income, driving sustainable development. This structured approach encourages active participation, rewards commitment, and funds critical enhancements in research, security, and user experience, fostering the platform's growth and resilience.

Governance:

We propose a governance revamp for Sushi, shifting from a token-based to a quadratic voting system to democratize decision-making and align influence with ecosystem engagement. A structured transition plan includes initial off-chain testing, a hybrid phase with an oversight council, and a final move to on-chain governance. This system rewards active participants like significant liquidity providers with greater voting power versus passive holders, ensuring representation aligns with economic contribution. Additionally, treasury income will foster innovation, support community initiatives, and promote continuous growth, with loyalty points from NFT participation further amplifying voting weight, ensuring a dynamic, inclusive, and forward-moving ecosystem.

Benefits

For LP (Liquidity Providers):

Incentivized Participation: LPs are rewarded with higher yields and loyalty points for longer durations, ensuring attractive, sustainable returns.
Financial Flexibility: The ability to trade NFTs and opt for tiered staking offers LPs varied financial avenues.
Stable Trading Environment: Locked liquidity ensures a stable market, providing a robust trading environment for LPs.

For xSushi Holders:

Predictable Token Supply: Stable APR emission rates ensure a predictable token supply.
Non-Dilutive Rewards: Dynamic reward adjustments and tier-based staking enhance the value and utility of holding xSushi.
Enhanced Governance: Voting rights through NFTs and gauge voting elevate the governance experience for xSushi holders.

For Traders:

Enhanced Liquidity: The LLP and POL mechanisms ensure ample liquidity, providing low slippage and an improved trading experience.
High-Volume Trading Capabilities: Boost distributions and varied reward tiers cater to high-volume trading.
Rewards for Positive Activities: Boosts can be directed to reward traders through fee rebates, trade competitions, referrals, or VIP programs.

For Token Projects & DAOs:

Long-Term Partnership: Sushi is a partner for deploying liquidity, attracting genuine LPs and project believers over mercenary farmers.
Token Price Stability: The combination of locked liquidity and a focus on long-term incentives contribute to token price stability.

For Sushi Treasury:

Diversified Income Streams: The Treasury generates income based on different reward tiers and may engage in strategic investments.
Effective Resource Allocation: The balance of emissions and rewards ensures the long-term financial sustainability of the Sushi Treasury.

Overall Ecosystem Benefits:

Community Engagement: Governance and the Sushi ecosystem encourage active participation, fostering a vibrant and adaptable community.
Sustainable Growth: The balance of emissions, rewards, and strategic investments ensures continuous development and innovation.

Join us

Hope this help to break down the new Sushi Tokenonmics! If you have any thoughts, questions, or comments, please feel free to share them in discourse.

Full proposal:
https://forum.sushi.com/t/rfc-deploy-new-tokenomics-for-sushi/12513

Join our AMA tomorrow for further discussion!
https://twitter.com/SushiSwap/status/1720840266297524571