Sushiswap's treasury is in crisis, how can it cast a spell to save itself?

Author: Azuma, Odaily

On December 6, Jared Grey, the new "chef" of Sushi who has been in office for only two months, initiated a new proposal on the governance forum. In this proposal, Jared revealed for the first time the current severe financial situation of Sushi and proposed a temporary self-rescue plan.

Jared pointed out that the current financial deficit of Sushi has affected the project's sustainability. Although the annual expenditure budget has been reduced from $9 million to $5 million since his appointment, even so, the treasury funds can only last for about another year and a half.

Jared also mentioned that since the SUSHI token is close to full circulation, and the Sushi treasury has only received a small portion of transaction fee revenue through Kanpai apart from token unlock income, it has not been able to diversify the asset reserves of the treasury (which can be understood as the treasury basically only holding SUSHI), further weakening Sushi's risk resistance capability.

Due to this situation, Jared suggested raising the current parameter ratio of Kanpai from 10% to 100%, which means that the income that xSUSHI holders (i.e., SUSHI stakers) could originally receive from transaction fee revenue would drop from 90% to 0%, and this portion of funds would be fully transferred to the treasury as operational reserves. However, Jared also mentioned that this is only a temporary measure, and after the release of a new token economic model in the future, another solution will be sought. However, considering that it will take some time for the new model to go through governance and execution, it is expected that this plan will last until the second or third quarter of 2023.

Proposal Implementation Logic

Jared's proposal involves some unique concepts within the Sushi system, such as xSUSHI and Kanpai. To understand the implementation logic of this proposal, one must grasp the specific meanings of these concepts.

Like most other DEXs, the sustainable income of the Sushi system comes from transaction fees extracted from user trading behavior. Currently, Sushi charges a 0.3% fee on transactions on Sushiswap, of which 0.25% goes to liquidity providers (LPs), and the remaining 0.05% is distributed as system income to xSUSHI holders.

xSUSHI refers to the governance token of the Sushi protocol, where SUSHI holders can exchange their long-term staked SUSHI for xSUSHI, binding their interests to the development of the protocol, thereby gaining voting rights to participate in future upgrades and changes of Sushi. As an incentive, xSUSHI holders can earn 0.05% of the transaction fee revenue.

The concept of Kanpai was born from a governance proposal in June 2021, Kanpai: Bear Market Protection with Treasury Revenue, which aims to extract a portion from the 0.05% income of xSUSHI to supplement the treasury's income and enrich the asset categories of the treasury to cope with the impending bear market. In simple terms, Kanpai is a parameter that represents the distribution ratio between the treasury and xSUSHI holders. Currently, this parameter is set at 10%, meaning the treasury receives 10% (0.005%), and xSUSHI holders receive 90% (0.045%).

Thus, the content of Jared's proposal becomes clear. The purpose of this proposal is to change the current distribution plan of the 0.045% transaction fee revenue flowing to xSUSHI holders, making it flow entirely to the treasury, thereby increasing the treasury's transaction fee revenue from 0.005% to 0.05%.

What Does the Community Think?

As of the publication of this article, although 69% of community members chose to support the proposal in the preliminary poll below the proposal post, there are still many community members expressing skepticism about the proposal in the discussions below.

Looking through the comments from community members, the doubts mainly focus on the following points:

• First, is it possible to find other alternative solutions? Because "depriving" xSUSHI will obviously weaken the investment value of SUSHI, which may lead to large-scale sell-offs, resulting in more negative outcomes.

• Second, does Sushi really need $5 million in expenditure? Are there detailed financial accounts? Is Jared just trying to secure his salary?

• Third, does Jared's wording on the voting options (the opposing option is "I won't use Kanpai to save Sushi's future") have the potential to incite the community?

In response to these doubts, Jared addressed several comments and even posted dozens of tweets on Twitter to directly respond to the concerns.

• Regarding the first doubt, Jared responded that this measure is the only way for Sushi to immediately replenish funds for the treasury, and without more funds, it is questionable whether Sushi can survive.

• Regarding the second doubt, Jared stated that Sushi has always been a target for headhunters, and if Sushi cannot offer reasonable salaries to workers, it is easy to be poached by competitors. Additionally, Sushi is working with an external accounting firm to organize and publicly disclose financial accounts. As for the claim of personal profit, Jared stated that he gave up the severance clause in his contract when he took office as Sushi's "chef" and donated the original $250,000 severance budget entirely to the treasury.

• Regarding the third doubt, Jared responded that the wording was only meant to highlight how severe the current situation is.

Will This Self-Rescue Work?

Currently, Jared's proposal is facing considerable resistance.

Considering that xSUSHI holders, whose financial interests are affected, are the main decision-makers on whether to pass the vote, once this proposal formally enters governance circulation, it is expected that a significant portion of community members will vote against it. Whether this proposal can continue to advance will largely depend on how Jared can persuade xSUSHI holders by balancing long-term and short-term interests.

It is worth noting that Jared himself has mentioned that this proposal is only a stopgap measure. The key to Sushi being able to emerge from the quagmire in the future still lies in presenting a more sustainable new economic model and exploring more development paths to capture more value.

Regarding the new token economic model, Jared revealed last week that the draft has been basically completed, but no details have been released externally yet. Given that Sushi's financial situation shows signs of depletion, whether the new model can fully refine the details and persuade the community to agree under such rushed conditions remains uncertain.

Moreover, since the SUSHI token is close to full release, there is not much operational space left for a new token economic model. Therefore, it cannot be ruled out that Jared and his team may consider expanding the total supply of tokens (this is purely personal speculation, do not FUD). If so, would this lead to greater panic and skepticism? These are all unresolved questions.

The bear market is tough, and not everyone can survive like AC; the challenges facing Jared are unimaginable to ordinary people.