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DEX SushiSwap has grown beyond the simple fork of Uniswap that it was 5 months ago. In particular, much of its popularity can be attributed to the lucrative farming programs the decentralized exchange has been offering, in quite the stark contrast to Uniswap’s conservative approach.

What You’ll Learn

  • How SushiSwap works
  • How and where to purchase cryptocurrency
  • How to choose a liquidity pool
  • How to provide liquidity on SushiSwap
  • How to farm SUSHI

How SushiSwap Works

SushiSwap is a decentralized exchange that was forked from Uniswap in August, 2020. The way the platform works is very simple. There are pools of pairs of assets where people can buy or sell cryptocurrency, and provide or remove liquidity. Here’s an example. Let’s say that you have $100 worth of ETH, and that you don’t like it just sitting around in your wallet doing nothing. What you can do is exchange $50 of the ETH for, say, DAI, and then add your DAI and ETH to the DAI-ETH liquidity pool (LP) on SushiSwap. Based on the total amount of liquidity in that pool, you will own a certain share. For example, if the total liquidity of the pool is $200 after your investment, you will have a 50% share.

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SushiSwap pays out 0.25% of each trade in a pool to liquidity providers. This means that every time someone purchases ETH or DAI from the pool, your stake will increase proportionally. With small volumes that doesn’t amount to much, but in the larger pools, with millions of dollars worth of trading volume each day, liquidity providers can make a lot from transaction fees; how much you get from the total of the fees is based on your share. In our example, if there’s $100,000 worth of trading volume in the DAI-ETH pool, the total fees will be $250 (0.25% of that) and your share will be $125.

At present, many liquidity pools on SushiSwap come with the option to farm SUSHI — the native-to-the-platform token. The yields vary from the “normal” 50 – 80 percent annual percentage yield (APY) for the more popular LPs, to the startling 200%+ APY on less popular LPs. All pools that are available for yield farming can be found on this page.

The APY that is shown is based on the price of SUSHI in US dollars and does not include the 0.25% from trading fees that you will also be earning when farming SUSHI. For those who don’t know, APY is the interest you will earn on the principal, e.g., if you invest $1,000 and the APY is 50%, after one year, if the numbers remain the same (which they won’t), you will have earned $500 in SUSHI tokens.

Since the amount of SUSHI you get per day depends on the valuation of your crypto assets in US dollars (you get X amount of SUSHI per $1,000 worth of crypto assets in a liquidity pool), the amount of SUSHI you earn strongly depends on the performance of the crypto market as a whole; if it is doing well, so will your returns; if it is doing bad, your ROI will decrease proportionally. That is why it’s imperative to follow the market closely, and to react appropriately to its behavior.

Here are two great tools that will help you stay on top of your DeFi portfolio:

  • DeBank — shows you all of your positions throughout different DeFi platforms.
  • Croco Finance — shows you data about the liquidity pools you have joined (accumulated fees, transaction expenses, etc).

Comprehensive details about how SushiSwap works can be found on their Documentation page.

How to Farm SUSHI on SushiSwap

In several steps, we will outline the entire process of adding your cryptocurrency to a liquidity pool, and then staking your share to farm SUSHI tokens. First, let’s explain, in a nutshell, how farming on SushiSwap works. The steps are as follows:

  1. You choose a liquidity pool based on thorough research of crypto assets and careful analysis of your financial situation.
  2. You purchase the necessary cryptocurrency.
  3. You install and set up MetaMask.
  4. You add your crypto assets to the LP you chose.
  5. You stake your SLP tokens (when you join an LP you receive SLP tokens in return; they represent your share in the pool).

Note: Not all SUSHI you farm becomes available instantly: one third of it is claimable as soon as it is minted (your SUSHI mounts with every new Ethereum block that is created); the remaining two-thirds are locked for 6 months. You can see how many SUSHI you can claim and how many are locked on the Vesting page.

Choosing a Liquidity Pool

Choosing a liquidity pool is something each individual must do on their own by carefully researching all things necessary. That means weighing the amount of risk you are willing to take based on your current financial situation, and thoroughly researching prospects. For beginners, established LPs with popular assets (such as DAI and ETH) and high total value locked are preferable. Stablecoin pools are less risky since they are more resistant to market volatility (you only have one asset that is volatile, though impermanent loss is still a factor).

Buying Cryptocurrency

If you don’t already have crypto assets at hand, you will have to purchase some. The platforms we recommend are the following:

Choose the best option depending on your physical location and payment preference; follow this guide to learn how to purchase cryptocurrency on any of these platforms. Once you acquire the needed assets, send them to your MetaMask.

Since we will be working with SushiSwap, which is based on Ethereum, purchasing at least some ETH is required (we will be using that to pay for transaction fees). The rest of your purchase should involve the assets that represent the liquidity pool (pools) that you’ve chosen to join.

For example, if you are going to be joining the SUSHI-ETH liquidity pool, you need to purchase dollar-equivalent values in both SUSHI and ETH (and some additional ETH for transaction fees).

Installing & Setting up MetaMask

Follow this guide to install and set up MetaMask, and to learn your way around the extension. One you feel comfortable, send your cryptocurrency to your MetaMask account.

Investing in a SushiSwap Liquidity Pool

At this point, you have set up the stage and are ready to invest in a SushiSwap liquidity pool. So open app.sushi.com and find the LP you chose to join on the Yield page. Then click Add Liquidity. To illustrate the process we will use the DAI-ETH pool as the crux of our example.

The first thing you need to do is to click the Connect to a wallet button at the top right (you need to log in to your MetaMask vault beforehand), then click Connect below the MetaMask option. A confirmation window will appear that will ask you for permission — on behalf of SushiSwap — to view the addresses in your MetaMask vault. Click the Connect button.

You can then enter the amount of DAI you want to inject into the pool, and the needed ETH will be automatically calculated. If you have ETH instead of WETH, click on the WETH label and select ETH from the options. The first time you click to select a token on SushiSwap, you will be asked to select a list. That list is a library of token names and abbreviations mapped to smart contract addresses. I personally like to use the full CoinGecko list. To select it, click Manage from the list of assets, and turn on the CoinGecko list.

Next you need to click the Approve button, which will be the first transaction we will be sending to the Ethereum network. Depending on its load, the transaction fees could be as high as $30 a piece (we will be sending a few). Confirm the transaction on MetaMask and wait for its confirmation.

Once confirmed, you will be able to add liquidity to the pool. Click the Supply button and confirm the transaction.

Staking Liquidity Tokens

In exchange for staking your assets in the liquidity pool, you will have received tokens that represent your share. In SushiSwap, those tokens are called SLPs. For instance, if you joined the DAI-ETH pool, you will own some amount of DAI-ETH SLP tokens. When you want to withdraw your stake, these tokens are used by the system to return you the correct amount of underlying assets.

Staking your SLP tokens is how you farm SUSHI. Now go back to the Yield page and find the pool you just added liquidity to:

Click the MAX button in the deposit input and click Deposit. Confirm the transaction and wait for it to be added to the blockchain.

Once it is, you will have successfully invested in a SushiSwap pool, staked your SLP tokens, and will be farming SUSHI tokens in proportion to your investment in US dollars — you can follow your progress on DeBank, or on SushiSwap’s Vesting page.

Farming xSUSHI

As you earn SUSHI rewards, you will have three options:

  1. Withdraw and liquidate your earnings
  2. Withdraw and re-invest your earnings in the same or other pools
  3. Withdraw and stake to earn xSUSHI

The first two options are self-explanatory. The last one is how you can get invested even deeper in the platform. As we mentioned, SushiSwap collects fees on each trade executed on the platform: 0.25% go to liquidity providers, but there’s also 0.05% that go to xSUSHI farmers. In short, xSUSHI farmers get rewarded for every trade executed on SushiSwap.

To start farming xSUSHI, go to the Stake page:

Approve your SUSHI tokens, and then stake them. You can track how much xSUSHI you have farmed on the same page.

Summary

SushiSwap is one of the largest decentralized exchanges. It has grown far beyond the Uniswap clone that it was in its inception. Through its SUSHI token, liquidity providers are rewarded for their stakes in various programs, including providing liquidity for approved pools, staking SUSHI tokens to earn xSUSHI, and participating in lending/borrowing on the platform.

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