Jared Gray, CEO of altcoin SushiSwap, submitted a proposal on Dec. Here are the details…
Big changes are coming for the altcoin project
On December 6, Gray caused a sensation in the SUSHI community after announcing that the treasure of the project was only 1.5 years in scope. At the time, Gray suggested that 100 percent of the fees earned by SushiSwap be diverted to Kanpai, the treasury of the project, for one year or until the new token economy is introduced. The decentralized exchange (DEX) has lost $30 million in the last 12 months due to liquidity provider (LP) incentives. It therefore encouraged the wage exchange proposal. According to Gray, this has proven that SushiSwap’s incentive mechanism is “unsustainable” and needs to be reorganized.
This is because, according to the official altcoin economy design proposal, current tokenomics disproportionately distribute fee revenues and emissions rewards to non-LPs. Additionally, as less than 2 percent of users with xSUSHI staking provide liquidity in any pool, the offer records:
Helping increase liquidity in sushi pools requires a reorganization of token mechanics that properly aligns LP activity with maximum rewards and value accruals.
What is the purpose of the new token economy?
Gray’s proposed token economy aims to reward liquidity growth through “a holistic and sustainable reward mechanism that scales with volume and fees.” In addition to increased liquidity, the new tokenomic model aims to create more benefits for SUSHI and “promote maximum value for all stakeholders”. The new tokenomic model will offer time-locked tiers for emission-based rewards, a token burn mechanism, and locked-in liquidity for price support.
The most important change proposed under the new model is that staked SUSHI (xSUSHI) no longer receives any share of fee income. Instead, according to the new proposal, xSUSHI will only receive emissions-based rewards paid in SUSHI. Emission based rewards will be based on locks – the longer the time lock, the higher the rewards. Users are allowed to withdraw their collateral before the time locks are due. However, withdrawals made before due date will result in forfeiting rewards.
Additionally, LPs will receive a 0.05 percent share of trade fee revenue. Moreover, the highest shares will go to the highest volume liquidity pools. This will help reward LPs in proportion to their contribution to liquidity. LPs can also choose to lock in their liquidity for additional emission-based rewards. However, if they withdraw their tokens early, they will forfeit the rewards. Additionally, SushiSwap will use a variable percentage of the 0.05 percent swap fee to repurchase and burn SUSHI.
New proposal will make SUSHI deflationary
Lost rewards are burned when xSUSHI and LPs withdraw their collateral early from their time lock. According to Gray, it will have a significant deflationary effect on SUSHI supply, as time lock rewards will be paid at maturity and burning will occur in real time when large amounts of collateral are paid prematurely in the new model.
The new tokenomics proposal states that DEX will also use some of the 0.05 percent swap fees to lock in liquidity for price support. Finally, to reduce inflation, DEX will bring emissions to 1-3 percent annualized return (APY) for the SUSHI token. The aim is to balance supply with buybacks, burns and key processes. According to the proposal, all changes are aimed at promoting long-term participation in the Sushi ecosystem.