Decentralized finance (better known as DeFi) is a set of peer-to-peer financial services running on decentralized blockchains, most commonly Ethereum. Uniswap has been one of Ethereum’s most popular projects since its launch in late 2018. But could the rise of SushiSwap threaten its presence? This article takes an in-depth look at the infamous Uniswap vs Sushiswap competition, comparing the pros and cons for users, liquidity providers, and token holders.
What are Decentralized Exchanges (DEX)?
The most common decentralized exchanges or protocols are UniSwap, Curve, SushiSwap and Balancer. All these DEXs are based on the Ethereum blockchain. A decentralized exchange allows the trading of one coin for another while the coins remain in the hands of the users, unlike CEXs (centralized exchanges) that keep their users’ coins in the custody of the exchange.
How do Uniswap and Sushiswap work?
Uniswap and Sushiswap are DEXs that work according to the AMM principle (Automatic Market Maker). Unlike regular exchanges, AMMs do not require order books to set the price of a pair. AMMs also do not require a buyer and seller on opposite sides to complete a transaction.
Instead, AMMs use liquidity pools. Each user can access these pools to buy or sell their tokens, while the price is determined by the ratio of the two assets within the pool of a trading pair. For example, if the $ETH/$USDT swimming pool has 100 $ETH and 60,000 $USDTthe price of 1 $ETH would be equal to 600 $USDT (60,000/100=600). While users use their $ETH or $USDTchanges the ratio within the pool, which is reflected in the change in price.
The liquidity itself is also provided by users. In fact, anyone can provide liquidity to a pool and earn fees for doing so.
A-user experience: Uniswap vs Sushiswap
1-Uniswap vs Sushiswap: Liquidity
According to DeFi Pulse, Uniswap currently has $1.30 billion in locked liquidity. By comparison, Sushiswap only raises $617.3 million, just under half the liquidity of Uniswap.
While both exchanges have seen better days, Uniswap reached peak liquidity of $3.07 billion on November 14, 2020, and Sushiswap reached a high of $1.43 billion on September 12, 2020.
Uniswap liquidity: $1.30 billion
Liquidity of Sushiswap: $617.3 million
Winner: Uniswap
2-Uniswap vs. Sushiswap: Pair Selections
Sushiswap offers its users 72 coins in 90 different pairs. For comparison, Uniswap offers its users 1355 coins in a total of 2575 pairs. This is because Uniswap has become more established, with almost every new Ethereum-based project using it to increase liquidity, meaning a CEX listing is no longer crucial to a project’s success.
Uniswap: 2575 pairs
Sushi exchange: 90 pairs
Winner: Uniswap
3-Uniswap vs Sushiswap: Cost
Both DEXs charge their users a 0.3% fee when selling or buying a coin. Uniswap and Suschiswap pay these fees differently than the liquidity providers, but this makes no difference for the users and no difference for the end users.
Uniswap fees: 0.3%
Sushi swap fees: 0.3%
Winner: Neither
4-Uniswap vs. Sushiswap: Slip
Slippage is the difference between the price of a pair at the beginning of a trade and at the end of a trade. Low slip is preferred by the user as it guarantees a more exact price for the pair. Slippage is lowest when liquidity is highest, which in this case favors Uniswap. However, some exceptions exist. For example, trading the $SUSHI/$ETH a pair on Sushiswap has a lower slippage than when traded on Uniswap. But these exceptions are good, the exceptions.
Winner: Uniswap
B-Liquidity Providers: Uniswap vs. Sushiswap
Both Uniswap and Sushiswap rely on the community to provide their liquidity. In exchange for blocking their funds, liquidity providers can earn fees on trades.
But which of the two DEXs is more profitable for liquidity providers?
1-Uniswap vs Sushiswap: Earned Fees
As mentioned above, both Uniswap and Sushiswap charge 0.3% transaction fees. Uniswap pays out these fees in full to the liquidity providers, while Sushiswap pays out only 0.25% to the liquidity providers, while the remaining 0.05% is reserved for the $SUSHI token holders.
Moreover, Uniswap’s daily trading volume is much higher than that of Sushiswap. This also results in more fees collected on Uniswap.
Uniswap: 0.3% to liquidity providers
Sushi Swap: 0.25% to liquidity providers
Winner: Uniswap
2-Uniswap vs Sushiswap: Farming Tokens
Another way liquidity providers can earn passive income is through farming $UNI or $SUSHI tokens. While Uniswap ended farming on November 1, 2020, Sushiswap still enables this highly lucrative practice.
To farm $SUSHIliquidity providers will have to stake their SLP (Sushi Liquidity Pool) tokens. These pools can have very attractive returns, as in the case above. In fact, farming can be much more lucrative than the fees previously discussed. Currently, 17 such agricultural pools exist.
Uniswap: No farming
Sushi Swap: Lucrative Farming
Winner: Sushi Swap
C Token Holders: Uniswap vs Sushiswap
1-$UNI vs $SUSHI
The $UNI token is a governance token. It plans to transform Uniswap into a decentralized, community-owned protocol. Its sole function is to vote on proposals relating to the Protocol.
$SUSHI is similar to $UNI in function, with the added benefit of allowing coin holders to share 0.05% of the exchange costs.
$UNI: Governance token
$SUSHI: Governance token + earns 0.05% fees
Winner: $SUSHI
Conclusion
Uniswap remains by far the most popular and widely used DEX. It is also best from the user’s point of view. However, for liquidity providers, Sushiswap could be the most profitable option if we look at the pairs that make this possible $SUSHI agriculture. As for the tokens themselves, subject to any price fluctuations, $SUSHI has the added benefit of passively earning fees for the token holders.