Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.
With the blockchain and cryptocurrency industry being adopted on all corners of the globe, innovation has been exponential. From simply buying bitcoin on Mt. Gox to liquidity farming, the industry has a lot to offer these days. However, the most significant innovation that comes in line with Satoshi Nakamoto’s ideologies has been decentralized exchanges (DEX). The need to rid ourselves of the shackles of centralized platforms and risky custodians has resulted in the creation of a completely independent market for DEXes.
However, while discussing decentralized exchanges, SushiSwap and UniSwap are unavoidable. As a result of their similarities, both protocols are in direct competition with one another. It’s not a mere coincidence that the two resemble each other. After all, SushiSwap is a fork, or a modified clone, of UniSwap. However, what began as a simple clone has grown into a formidable opponent.
Each of these Crypto exchanges is founded on the Ethereum network. Initially, SUSHI introduced certain unique advantages, such as a yield farming platform and incentives for token holders, whereas UNI has a larger volume and has been operating longer. However, both are unique in their own ways. Let’s take a closer look.
Uniswap is a decentralized exchange where anyone can deposit funds and use them to swap currencies for a small fee. Each pool is a token pair of two Ethereum-based currencies.
This fee is earned by those who make a deposit. They are referred to as liquidity providers (LPs), and they are compensated for providing liquidity by earning a fee on each swap for which they provide liquidity.
LPs can select which crypto pair to provide liquidity for, and in the newly released Uniswap V3, LPs can even choose which section of the price curve to provide liquidity for. As a result, they can concentrate their liquidity in the relevant range, where the vast bulk of swaps occur. By concentrating their liquidity, they also earn higher yields but are at the risk of being priced out of the fee-earning range.
At their core, Uniswap liquidity pools are Ethereum smart contracts. Market making is automated by these smart contracts, and the code also handles all of the swap features.
In the beginning, SushiSwap was nothing more than a ripoff of UniSwap. The user interface saw a few alterations. It was first made available to the public in August of 2020. Many users made the switch to SushiSwap to take advantage of the new decentralized exchange’s features.
Since its inception in August 2020 by its anonymous founder “chef,” Nomi, there has been much tension for Uniswap and its founder, Hayden Adams. A clone stole about a billion dollars in staked liquidity in just a few hours of starting, and it made Hayden furious, and he had every reason to be angry.
However, why did so many LPs abandon the tried-and-true Uniswap? Because Uniswap had finished some of the token distribution benefits that SushiSwap was still giving, it became more profitable for LPs to provide liquidity for SUSHI pools in the short term.
Similarities betweenUniswap andSushiSwap
Both platforms are decentralized automated market makers (AMMs) on the Ethereum blockchain. Both services enable currency swaps by utilizing liquidity pools created by other DeFi ecosystem customers.
Additionally, you can become a liquidity provider on both platforms and earn fees on the swaps for which you offer liquidity. All of this is automated by the smart contract, thereby turning you into a passive source of revenue.
SushiSwap Vs Uniswap
Uniswap has announced V3, which enables concentrated liquidity positions to be represented by NFTs and held in Ethereum wallets in the same way that ETH, UNI, or any other NFT is. Since no legacy financial institution has ever attained concentrated liquidity before, Uniswap and DeFi are among the financial industry’s most innovative ventures to date.
On both platforms, liquidity can be offered only across the whole price curve, which implies that a significant section of your position is not fee-earning, and achieving an identical yield to the v3 version would require a massive quantity of V2 liquidity.
Uniswap has several fee tiers, all of which are paid in full by the liquidity provider. In comparison, SushiSwap charges a 0.3 percent fee for exchanges, of which 0.25 percent goes to the LP, and the remaining 0.05 percent goes to SUSHI token holders. As a token holder, you will earn more in SUSHI, however, as a liquidity provider, you will earn the whole 0.3% in a Uniswap pool.
SushiSwap is a platform for yield farming. As an example, suppose you stake ETH in a smart contract to support the Ethereum 2.0 upgrade. After that, you’ll receive an ETH2.0 token that may be exchanged for your original ETH. Thus, you hold a “wrapped” token that serves as a representation of your “real” token. Certain wrapped tokens can also be staked, multiplying the yield. This is referred to as “yield farming.” Several of its yield farming pools offer annual percentage yields of up to 96%. Simply keep in mind that this is an increasingly risky tactic that should be implemented with extreme caution.
Finally, whether you use SushiSwap or Uniswap is entirely dependent on how you wish to receive incentives from your transaction.
Uniswap pays a higher fee to liquidity providers (0.3 percent vs. 0.25 percent for SushiSwap), however, SushiSwap also pays SUSHI holders an additional 0.05 percent. Thus, the latter incentivizes SUSHI ownership, whilst the former rewards LPs.
However, while using the Uniswap app, the exchange experience is faster, cleaner, and more straightforward. SushiSwap’s Japanese izakaya experience is innovative but clogs the exchange’s interface in the end.
Uniswap wins the battle between Sushi and Uni for traders, liquidity providers, and the crypto-curious. On the other hand, yield farmers will flock to SushiSwap’s tempting APY opportunities.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.