Launched in August 2020, SushiSwap is one of the leading decentralized exchange platforms. Deployed across 14 blockchains, the app accounts for a total volume of $225 billion in cryptocurrencies. However, after two years of good and loyal service, the community wishes to undertake a restructuring of the economic model of the protocol. This will also impact the SUSHI token.
The restoration of meiji and the separation of powers on sushiswap
On August 3rd, three members of the SushiSwap community, @ControlCplusControlV, @levx.io and @Cookies submitted a proposal on the protocol governance forum.
Entitled “Restoration of Meiji”, it takes the example of Japanese history to introduce a change in the SushiSwap policy.
“This proposal aims to establish a new era for Sushi. An era led by a reinvigorated DAO. An era where the SUSHI token reclaims its place as one of the most productive assets.”
This proposal follows an observation: the DeFi has long thought that token pricing and governance should be linked.
Thus, the Meiji Restoration is an evolution that aims to separate these two elements. It proposes a new, honest and sound DAO and new mechanisms to ensure the “economic success of the SUSHI token”.
The dao meiji: the new governance of sushiswap
As a first step, this proposal seeks to reform the DAO that currently controls the SushiSwap protocol.
This new DAO will take advantage of its past mistakes to propose a new and more efficient formula. This will be based on the premise that token-based governance has repeatedly shown its weaknesses.
In addition to governance attacks, these protocols are inevitably controlled by the largest holders of the governance token. This is a major problem for a governance that wants to be decentralized.
In the first instance, the Meiji DAO would be a fully on-chain organization. This implies that the Sushi protocol and its governance will be able to run without permission and without the approval of a centralized organization.
“The fact that the Meiji DAO is based on smart contracts also allows for many exciting new possibilities, such as the ability for Sushi to sign smart contracts with other DAOs, own cash and take out loans from organizations like Aave.”
In a second phase, the Meiji DAO would transition from a voting system where 1 SUSHI equals 1 vote, to a vested-escrow voting system. This model, notably operated by Curve Finance or Balancer, proposes to users to block their tokens in order to participate in the governance. It also reduces the influence of whales during votes.
Restructuring of the sushi token
The second major change in this proposal introduces a modification of the Sushi token and its issuance mechanisms.
Thus, as we have just seen, the protocol would move to a “vested-escrow” voting model. In addition, Sushi would incorporate the principle of Gauges used by Curve Finance.
“Gauges seek to solve a fundamental problem at the moment: the lack of commitment of governance token holders. […] Gauges ensure that value flows to entities that are aligned with the long-term success of the protocol.”
In practice, the protocol would end the xSushi program, which allowed the staking of its Sushi tokens in exchange for new tokens issued by the protocol. Indeed, this system generated a selling pressure on the token, judged as not very sustainable for the ecosystem.
Osushi and gauges
“This is similar to veCRV in the Curve ecosystem, however we will use the name oSUSHI instead of veSUSHI. To receive oSushi, you must lock in your SUSHI for a period of one month to 4 years. The longer the period and the more SUSHI you deposit, the more oSUSHI you receive. However, all of your SUSHI will be locked into the contract until the end of the lock-in period you choose.”
Note that oSUSHI are not transferable tokens, and it will not be possible to buy or sell them. They will be specific to each user who has deposited SUSHI tokens in the dedicated module.
oSUSHI holders will be asked to vote for the weights of each of the gauges. In practice, this means that they will decide on the weight of each pool in the protocol. The higher the weight of a pool, the more SUSHI will be issued to the cash providers of that pool, as well as the fees collected by the protocol.
Obviously, this vote will also be motivated. In fact, the bribe contract will reward voters with additional SUSHI tokens.
A proposal acclaimed by the community
So far, this proposal has met with a positive response from the community. As a result, the pre-vote is currently leaning in favor of “yes”.
This preliminary vote will allow the proposal to evolve in a community way, until its final vote via the governance module.
On its side, the protocol developer team also seems enthusiastic about the idea of this restructuring. JiroOno, a software engineer at Sushi, said even so he wanted to do more research on the proposal.
“I want to do a little more research for this proposal. Overall, I really like the direction and I think it is a good way to make the incentives sustainable. However, I want to verify that there is enough incentive for people to be involved in governance via this new model.”
This restructuring could take place in the Sushi 2.0 roadmap. Indeed, the developers have been working for several months on a new version of the protocol.