tl;dr reduce or eliminate $SUSHI rewards for stablecoin pairs and increase/add rewards for “blue chip” DeFi token pairs.
The ultimate driver for the value of $SUSHI is trading volume, so pool rewards should incentivize volume as efficiently as possible.
Currently, SushiSwap’s stablecoin pairs ETH/USDC, ETH/USDT, and ETH/DAI have higher reward multiples than almost all other pools, but they are underperforming on trading volume.
Three of the top five top pools by liquidity are stablecoin pairs:
But only one of the top five pools by Volume is a stablecoin pair:
In other words, these pools have a lot of TVL but this liquidity is mostly dead weight that isn’t actually driving trading volume and accruing value to $SUSHI holders.
The relative underperformance of eth-stablecoin pools has only increased in the last few days since Uniswap announced token rewards for these same pairs. Uniswap’s ETH/USDC, ETH/USDT, and ETH/DAI are far more liquid, due to aggressive, concentrated $UNI rewards.
A big portion of trading volume for AMMs come from aggregators like 1inch and Matcha, which route orders to wherever they can get the best fill with the least slippage. Trades with these stablecoins are much more likely to be routed through Uniswap due to the mega liquidity there, and this is unlikely to change anytime soon.
The good news: while SushiSwap may be unable to compete right now with stablecoin pairs, it is showing stronger traction with alts. It has higher volume than Uniswap for YFI, LEND, SNX, COMP, YAMv2, and other DeFi coins.
The proposal is to double down on what’s working while removing resources from what isn’t, in order to optimize trading volume and increase value accrual for $SUSHI holders:
- slash or eliminate $SUSHI rewards for ETH/USDC, ETH/USDT, and ETH/DAI
- increase rewards for DeFi token pairs
- add a few new high potential DeFi token pairs to the menu like ETH/WNXM and ETH/SWRV. For instance, on Uniswap SWRV has six million dollars of daily volume with only 1 million dollars of liquidity. That is high bang-for-the-buck volume that SushiSwap could capture.
By optimizing incentives, SushiSwap can have the best APYs in the world and highest trading volume for “blue chip” DeFi tokens like LEND, SNX, and WNXM. This will likely be a booming, growing market in the months and years ahead.
By shifting rewards away from stablecoin pools, TVL may take a temporary hit, but liquidity will be more efficient and volume should increase, and that’s the bottom line for accruing value to $SUSHI holders.