Uniswap, Sushi and the Battle For Decentralized Trading

Decentralized trading is the next feather in the cap for cryptocurrency. In fact, it’s the one aspect of cryptocurrency that the cryptocurrency community has rallied behind the most and it’s finally coming to fruition.

Anyway, this article will cover the different aspects of the race between Uniswap and SushiSwap for market share as the largest decentralized trading exchange. We will also offer our opinion on who will win the battle for decentralized cryptocurrency trading.

What is Uniswap?

Uniswap is a decentralized exchange that is also the number one decentralized exchange. It was started by a grant from the Ethereum Foundation, so it has some trust to it.  

Uniswap works a little differently than a typical exchange that relies on an order book, though. First, Uniswap uses a bonded curve. Basically, you deposit a cryptocurrency, usually Ether, DAI, or stablecoins, on the exchange against an ERC-20 token (usually). You can then withdraw that ERC-20 token in exchange for the Ether or stablecoin you deposited. 

It’s all decentralized and anyone can place any ERC-20 token on the platform. 

And when we say decentralized, we mean it’s decentralized. There isn’t a central owner because the exchange is nothing more than a protocol. Granted, it does have developers that maintain the program, so there is some centralization to it. 

Is Uniswap a scam?

No, Uniswap is a legitimate protocol with backing from Ethereum. However, the danger with Uniswap is that anyone can put any ERC-20 token on the exchange. 

This leads to something called “rug pulling.” Rug pulling is creating a junk ERC-20 token, making it look legitimate, promoting it on Telegram, and placing it on Uniswap for customers to add liquidity.

The liquidity is then pulled when the creators cash out the useless token for Ether or stablecoins. Investors are left with a lot of a useless, junk ERC-20 tokens. 

What is SushiSwap?

SushiSwap is a clone/fork of Uniswap that was created in August 2020. 

The difference with SushiSwap is that it gained nearly $500 million in liquidity less than a week after its launch. That is highly unusual for a clone/fork of a decentralized protocol, but SushiSwap did a great job of taking liquidity from Uniswap due to Uniswap’s plan to cancel UNI rewards for liquidity miners. 

Is SushiSwap a scam?

SushiSwap is a cloned version of Uniswap created by anonymous developers – that typically throws up red flags for a scam. 

However, SushiSwap has not scammed users. 

That’s always a good sign, but it does not mean SushiSwap is not a scam. It could still be a scam.

We advise taking caution with any yield farming platform. Especially those with anonymous developers. 

Who will win: SushiSwap or Uniswap?

This is based on our opinion and trends in cryptocurrency. SushiSwap appeared a few months ago and is an anonymous exchange. We already mentioned this, but it’s worth repeating. 

Anonymous exchanges that quickly appear and garner a lot of attention are highly suspect. We’re not saying that SushiSwap is a scam. Just give it time to see what the future holds. 

Will people even be talking about SushiSwap in a year?

Who knows?

Uniswap, on the other hand, had legitimate backing when it was formed. This greatly reduces the odds of there being any backdoor protocol in place that allows a major hacking event or something similar. 

With all this information, we believe that Uniswap will win the current battle for decentralized trading. SushiSwap will likely not amount to much. It will be a flash in the pan of decentralized trading. 

The founder of Uniswap, Hayden Adams, said as much in a series of tweets posted five days after the launch of SushiSwap.

What is decentralized cryptocurrency trading?

Decentralized cryptocurrency trading is trading that does not rely on any centralized exchange. This means that there is no middleman – all decentralized trading platforms are essentially automatic protocols. 

The price is set organically by the liquidity, there are no fees, and no 3rd party can interfere with a transaction. 

Perhaps the most interesting feature of decentralization is there are no KYC laws. You can purchase cryptocurrency anonymously. Unfortunately, you cannot purchase cryptocurrency with fiat on a decentralized exchange.

The Two Things Yield Farmers Care About

Yield farmers, which is mostly what decentralized exchanges revolve around, only care about these two things:

Rewards

First, yield farmers care about the rewards that the exchange offers for yield farming. As mentioned previously, Uniswap offered UNI tokens as a reward for staking on the exchange. 

The rewards were cut and Uniswap customers jumped ship to other exchanges that offered rewards.

There is not much loyalty when it comes to exchanges. But there is a way for an exchange to have some loyalty, which brings us to our next point.

Safety

This is another concern of those using decentralized exchanges for cryptocurrency – how safe is the exchange?

It is common for decentralized exchanges to appear, collect some deposits, and then disappear with the cryptocurrency. 

Remember, the exchange is decentralized and often anonymous. No one knows who owns the cryptocurrency or the owners of the exchange. 

These scams have happened hundreds of times. 

So, when an exchange comes along that has a name attached to it and receives investments from the Ethereum Foundation and other venture capital firms, people will stay a little more loyal to it.

What is decentralized cryptocurrency trading?

Decentralized cryptocurrency trading is trading that does not rely on any centralized exchange. This means that there is no middleman – all decentralized trading platforms are essentially automatic protocols. 

The price is set organically by the liquidity, there are no fees, and no 3rd party can interfere with a transaction. 

Perhaps the most interesting feature of decentralization is there are no KYC laws. You can purchase cryptocurrency anonymously. Unfortunately, you cannot purchase cryptocurrency with fiat on a decentralized exchange.

Why is decentralization so important for exchanges?

As you can imagine, decentralized cryptocurrency exchanges were one of the long-term plans of cryptocurrency. 

A way to anonymously transfer currency with no intermediary? 

Yes, that’s exactly what cryptocurrency intended to be from the start.

Traditional cryptocurrency exchanges are great for getting people into cryptocurrency, but they are still essentially a financial instrument that plugs directly into other aspects of the financial industry. 

That’s just not what cryptocurrency is supposed to be about.

In short, decentralized cryptocurrency exchanges are the future. And that is why the race to become the largest decentralized exchange is ramping up so fast.

Final Verdict on Uniswap and Sushiswap and the Battle for Decentralized Trading

Uniswap and SushiSwap are both decentralized exchanges offering the same service – staking on ERC-20 tokens. 

SushiSwap is the newcomer while Uniswap is the established exchange with plenty of credibility. Of course, Uniswap is currently facing a little dilemma due to removing the UNI token reward for staking, but it’s just that – a little dilemma. 

SushiSwap might look good at the moment. However, time will tell if SushiSwap has what it takes to overcome Uniswap.