After months of intense debate, SushiSwap, a leading decentralized exchange (DEX), has unveiled a transformative new business model under the banner of Sushi Labs. This transition aims to streamline the platform’s governance and operational efficiency by integrating the existing decentralized autonomous organization (DAO) with a more structured “council” system.
On June 11, SushiSwap formally introduced Sushi Labs — a newly established entity responsible for the administrative, technical, and operational management of the Sushi ecosystem. This shift was first proposed in March as a response to the market’s evolving needs and the protocol’s historically slow reaction to market dynamics, which had been hampered by cumbersome governance processes.
The Structure of Sushi Labs
The new operational model mirrors the council-based framework utilized by the derivatives protocol Synthetix. Sushi Labs will be managed by four distinct councils, each with specific roles and responsibilities:
- Sushi High Kitchen: This central governing body, comprising six to eight members, will oversee all major decisions and operations. They will manage a multisig (multiple signature) setup for transaction approvals.
- Treasury Council: Responsible for financial oversight, including budget allocation and treasury management.
- Grants Council: Focuses on funding and supporting community-driven projects and initiatives within the Sushi ecosystem.
- Ambassador Council: Handles external relations, partnerships, and community engagement.
Jared Grey, now the managing director of Sushi Labs, emphasized the importance of this restructuring in a recent memo to the Sushi community. He noted that the new organizational framework, combined with a substantial budget and successful products like the Route Processor, equips SushiSwap to address liquidity issues and stimulate growth.
Financial Management and Tokenholder Participation
Sushi Labs will manage the DAO’s significant budget, which includes 25 million SushiSwap (SUSHI) tokens. While tokenholders will retain the right to vote on treasury allocations, they will not be directly involved in the operational aspects of the protocol. This separation of powers is designed to enhance decision-making efficiency and strategic oversight.
Despite its potential, the new structure has sparked criticism among some community members, who argue that it moves away from the decentralized principles that initially defined the project. Concerns have been voiced about the potential for centralization and a perceived hostile takeover by the new governance framework.
SushiSwap has faced significant financial hurdles in recent years. Data from DefiLlama shows a stark contrast in the protocol’s revenue generation over time. In May 2021, during the previous bull market, SushiSwap generated $14.37 million in revenue from $86.24 million in fees. However, by May 2024, these numbers had plummeted to $270,500 in revenue from $1.62 million in fees.
| Month/Year | Revenue (USD) | Fees Generated (USD) |
|---|---|---|
| May 2021 | $14.37 million | $86.24 million |
| May 2024 | $270,500 | $1.62 million |
The decline in revenue and liquidity prompted a reevaluation of the protocol’s operational strategies. In December 2022, Grey highlighted a $30 million deficit in liquidity provider incentives, which necessitated a revision of the tokenomics and a renewed focus on diversifying the treasury and improving liquidity management.
SushiSwap’s new model also introduces a multi-token product suite. This approach is designed to distribute the costs associated with product development and provide more rewarding opportunities for tokenholders. According to SushiSwap, this strategy reduces the risk of SUSHI token inflation and alleviates the financial pressure on the DAO when certain products are not profitable.
Community Involvement and Governance
Despite the organizational changes, Sushi Labs reassures that community participation will remain a cornerstone of its governance. The newly formed councils will play a crucial role in enabling the community to manage resources and make strategic decisions effectively. Governance will continue to be overseen by the DAO, which will regulate the Treasury and participate in council elections via the SushiPowah voting system.
The election process for council representatives ensures that community members have a voice in the decision-making process. These representatives will engage in council discussions and contribute to shaping the future of the Sushi ecosystem. This structured approach aims to balance the need for efficient governance with the community’s desire for active involvement and influence.
As SushiSwap navigates this transition, the success of Sushi Labs will depend on its ability to address the challenges of decentralization and community engagement. The protocol’s shift towards a more structured governance model seeks to position it for sustainable growth and enhanced liquidity management. However, it remains to be seen how the community will adapt to and embrace these changes.
In the face of criticism and financial challenges, SushiSwap’s evolution into Sushi Labs represents a bold step towards revitalizing its ecosystem. The new council structure, combined with a diversified token strategy, could provide the framework needed to navigate the complexities of the decentralized finance landscape.
Featured image credit: Vitalina Nakonechna via Getty Images