Fueled by the DeFi frenzy, Uniswap, a decentralized exchange [DEX] on Ethereum has hit a fresh ATH of $1.828 billion in terms of the total value locked. The platform, which happens to be the world’s largest DEX in terms of its volume has managed to outpace some of the industry’s crucial centralized rivals such as Coinbase Pro whose 24-hour volume at the time of writing stood at $704.34 million.
So how did it achieve such feet? Uniswap, the star in the Ethereum world, first saw a massive rise in July 2020. This was when total capital locked up in Uniswap grew by a staggering 200% in a little over a month. The protocol rose to fame in such a short duration of time primarily because of three key factors decentralization, trust in the platform, and accessibility of all ERC 20 tokens. The fact that many small to mid-cap DeF tokens actively traded on Uniswap, especially those not listed on major platforms further extended its popularity.
Centralization concerns
Uniswap’s launch of V2, which introduced new features, came in as a blessing for the ecosystem as by that time the DeFi craze in the community had already taken off.
However, there was a growing concern among the community members that Uniswap was growing away from its guiding principle of decentralization. The venture capitalists [VC] funding worth $11 million was a major controversy that catalyzed the already existing concerns. However, it was not just the involvement of the VCs that gave rise to skepticism, but also the argument that the liquidity providers [LPs] were not highly rewarded as many of them would have liked.
With the introduction of the whole new yield farming protocols, people expected higher returns on staked funds, and that is where Uniswap struggled.
And then entered Sushi
Led by a figure under the name of ‘Chef Nomi’, Sushi is essentially a fork of Uniswap. What bootstrapped Sushi’s adoption was its goal to solve the former’s centralization concerns as well as incentives for LPs. The native SUSHI token was aimed at providing the holder with governance rights as well as revenue share.
Its official announcement detailed,
“With SushiSwap, one can also provide some liquidity into a pool and earn rewards in the form of SUSHI tokens. However, unlike Uniswap, those SUSHI tokens will also entitle you to continue to earn a portion of the protocol’s fee, accumulated in SUSHI, even if you decide to no longer participate in the liquidity provision. As an early adopter to help provider liquidity, you become a significant stakeholder of the protocol.”
Despite the fact that Sushi can potentially take over an alarming amount of liquidity from Uniswap, however, it will not cause the latter’s demise. As noted by the recent Glassnode blog post, Uniswap’s brand recognition, third-party integrations, the DEX will “live on”. If further noted Uniswap will almost certainly have enough liquidity and volume to compete against SushiSwap.