Interpreting the trend of popular DeFi protocol forks: Take SushiSwap and Swerve as examples

0

 110 total views

There will be a struggle between the original agreement with branding and development talent and the agreement with “fairer” distribution and more community-driven governance.

Extended reading: ” What about the blood-sucked Uniswap?

Original title: “DeFi | A Review of “Star” Fork Projects: SushiSwap and Swerve”
Written by: Larry Cermak
Translation: Olivia

Summary

  • The current fork of the popular DeFi protocol has begun to appear
  • This is the story of SushiSwap and Swerve and the difference between them and the original

Since the birth of Bitcoin, the field of cryptocurrency has been ideologically rooted in open source. The vast majority of projects in the ecosystem are developed in an open source manner, which means that anyone can review the code, suggest changes, or even fork the project.

However, this also means that the project cannot truly protect its intellectual property rights. In the non-encrypted world, open source software is usually monetized through services (support, installation, training, customization, etc.) or through proprietary alternatives.

A recent trend in the cryptocurrency DeFi field is to fork the protocol, then make a small amount of modification, and finally increase its value by issuing a new governance token to encourage speculation. Anonymous teams that are good at speculation usually use the most successful agreement as a gimmick and try to absorb liquidity through new incentives while promoting fair distribution.

How does the DeFi protocol protect itself from being forked by speculation? In fact it is difficult. Their biggest advantage is that they have written the code and know it well, which means that they are also the best people to continue to improve the code. In an ideal world, the original team should be rewarded because the agreement they write can be accepted and used.

Let’s take a look at the two most famous examples of forks, Sushi and Swerve, and understand the methods they use.

SuShiSwap

SushiSwap is a fork of Uniswap v2, initiated by an anonymous developer named Chef Nomi. SushiSwap introduces a governance token called SUSHI. If a liquidity provider (LP) buys shares in Uniswap LP token, and then finally provides liquidity for SushiSwap, it can earn income.

In Uniswap, LPs can earn 0.3% of transaction fees in any pool, and these fees are proportionally distributed to all LPs in each pool. SushiSwap introduced a commission fee, in which LP only earns 0.25%, and the remaining 0.05% is used to repurchase SUSHI, which is then distributed to all SUSHI holders in proportion. In order to make the project sustainable in the long-term, 10% of the funds will be invested in the development fund whenever new SUSHI needs to be allocated.

After SushiSwap was launched, it was quickly welcomed by everyone. In the first week, the token value of Uniswap LP exceeded $1 billion. At the same time, Uniswap’s liquidity rose from US$300 million to US$2 billion in the first week. Finally, Quantstamp PeckShield also reviewed all the problems in the code in SushiSwap.

Source: Uniswap.info

After SushiSwap quickly “success”, the frenzy followed. On August 31, the trading volume of SUSHI on Uniswap was US$175.2 million, almost twice that of the second most popular USDT/ETH trading pair. After the surge in trading volume, almost all overseas exchanges are eager to list SUSHI, including Binance, FTX, OKEx and Huobi. Binance, FTX and OKEx also listed SUSHI futures contracts.

DeFi | A review of ``star'' fork projects: SushiSwap and SwerveSource: CoinGecko

The price of SUSHI went from less than $1 on August 29 to over $10 on September 1. The increase in the price of SUSHI further increased APY, and then it also attracted more funds to buy shares and earn more SUSHI. This trend will further strengthen the community.

As the hype subsided and the migration to a fully functional AMM was still a few days away, the price of SUSHI began to correct and fell below $5. Executive Nomi announced on Twitter that he had exchanged part of the SUSHI tokens allocated to the development fund into approximately 37,400 ETH, which was worth approximately US$13 million at the time. This conversion was completed through a series of two transactions.

According to executive Nomi, the exchange of tokens into ETH was to allow him to “focus not on price too much” but on technical migration. “I will continue to participate in the discussion and help with the technical part. I will ensure that we have a successful migration.” Nomi explained in a Twitter thread.

After executive Nomi was accused of leaving fraud, prices fell sharply. Since its highest point in history, it has fallen to $1, a drop of more than 90%. Faced with strong criticism, executive Nomi decided to transfer control of the project to FTX CEO Sam Bankman-Fried.

“I hope SushiSwap can do well without me.” Nomi said on Twitter. “I repeat, I did not intentionally do anything to harm SuShiSwap. If my decision does not meet everyone’s expectations, I am deeply sorry.”

DeFi | A review of ``star'' fork projects: SushiSwap and SwerveSource: CoinGecko

SuShi is currently trading at $2.72 because it is waiting for the migration of its own functional AMM, which should take place around 10 a.m. Eastern Time on September 9th. Currently, there is a value bet of US$1.32 billion in the SushiSwap contract, which accounts for approximately 77% of Uniswap’s liquidity. So far, Uniswap’s trading volume peaked on September 1, at 953.6 million US dollars. Yesterday, Uniswap recorded a turnover of US$439 million.

DeFi | A review of ``star'' fork projects: SushiSwap and SwerveSource: Uniswap.info

It remains to be seen how much liquidity and trading volume SushiSwap can take away from Uniswap. LPs will earn higher fees on Uniswap. However, when the SuShi inflation rate drops, it is likely that most of the existing LPs on Uniswap will completely leave and chase gains elsewhere.

Swerve

The way Swerve forks Curve is similar to the way Sushi forks Uniswap, but at least not so dramatic – at least for now.

However, there are some differences. The main difference is that there is no development fund in Swerve, which means that developers cannot even cash out.

Curve is an optimized version of AMM used to trade between relatively stable assets. It has always been one of the biggest beneficiaries of the liquidity mining trend, which has led to a large demand for exchange of stablecoins to chase the highest yields. Up to now, Curve is one of the few DeFi projects that has found a clear product and market fit.

In the last week, Curve generated $1.46 billion in transaction volume. Only Uniswap surpassed it, and Curve generated $5.8 billion in transaction volume last week. It is worth noting that the Uniswap contract needs to charge a fee of 30 basis points, while the Curve contract only needs to charge a fee of 4 basis points. That is to say, for the same transaction volume, Uniswap’s revenue is more than 6 times that of Curve.

Why did Swerve decide to fork Curve? Curve is highly inflationary, and the daily supply will increase by about 2 million CRV (about 4 million US dollars). In addition, there are some divergent disputes in the community.

One of them was the release of Curve, where an anonymous person deployed the contract without warning, and several miners pre-mined some CRVs without a front-end. It seems to be to counter 50% or more of the voting power of the yEarn agreement. In the words of the founder of Curve, it is “overreacted” and locked in more CRVs than he expected, thus greatly reducing the factors that benefit him. Recently, a controversial Huobi BTC pool was added to Curve.

Swerve will allocate all supply to LP instead of 62% in Curve. All tokens will be distributed within 6 years, while Curve will take decades. One thing to note is that Swerve uses Curve’s contract as an API on the chain through authorized delegation, which means that it currently cannot run independently. The launch of the agreement itself is not announced, which means that early users have an advantage.

In the past 24 hours, Curve’s daily volume was $145.6 million, while Swerve’s was $12.8 million. Curve’s user deposit is US$1.05 billion, while Swerve’s is US$415 million.

DeFi | A review of ``star'' fork projects: SushiSwap and SwerveSource: The Block Research

in conclusion

SushiSwap and Swerve are just two successful examples, but in the past few weeks, there have been countless attempts to replicate some of DeFi’s most competitive protocols, without success.

The biggest concern of SushiSwap will be to allow LP to migrate from an agreement with no commission and an agreement with commission. Swerve will need to stop relying on Curve, because ultimately it will be a winner-takes-all situation.

After Uniswap launched V3, it inevitably introduced a certain level of commission fee and got its own governance token. It will be interesting to observe how profitable LPs respond. Someone is already discussing the fork to remove the token fee for a version. Uniswap CEO Hayden Adams has stated that “V3 will not be a product that can be forked quickly, unless it is a direct fork with no other changes,” and confirmed that there will be “a high barrier to entry to create The most effective AMM in existence”. Complexity and adding a token, and ultimately building a more loyal community, seems to be a protection for the next fork.

There will be a struggle between the original agreement with branding and development talent and the agreement with “fairer” distribution and more community-driven governance. Obviously, these discussions will continue in the coming months, because there are many opportunists and speculators among them.

Source link: mp.weixin.qq.com