Testing a hypothesis…
Background
Well, I picked a wild month to write about Sushi. With the highly contentious Uniswap vote to approve the DeFi Education Fund and send them 1m UNI tokens as context, the conversation that’s happened around Sushi’s proposed treasury diversification was a breath of fresh air. Mainly, I found it refreshing that stakeholders from all sides contributed to the conversation in a meaningful way, and that shenanigans were roundly called out as such. I also think that it was an example of why these governance tokens have value. On the one hand, a16z and their proxies shoved through a proposal that almost zero unaffiliated members of the Uniswap community supported in its final form, and immediately proved those who voted against it were right to be concerned. On the other, Sushi’s proposal has morphed and changed over the last three weeks and has gone from something that was highly beneficial to the firms that were providing liquidity and diversification to one that’s beneficial to those firms and the protocol in which they are investing.
Along the way, the venture capital industry (or at least crypto-native vc, which may be its own animal) was held to account for the smoke and mirrors with which it sometimes justifies its participation and bargaining power. The whole thread is worth taking the time to read, but there are some cringeworthy hand-wavy notes from prominent firms that were roundly beat up in the comments that followed. There was also alleged bad behavior (the lead investor of the original proposal never explained why they were selling tokens in the market while the conversation was ongoing, which leads one to believe that they thought it’d pass without discussion and they’d get longer lower).
The raise hasn’t been brought to a vote yet, and it’s out of scope for me to talk about the most recently-proposed structure here (though I think it’s pretty fair!). The valuable takeaway for me though was that this governance stuff matters. The distribution of these tokens and the way that they can bring about material changes to the protocol’s financial wellbeing, both in the form of treasury management and token value accrual, is important.
Investment
I spent July digging into the documentation, pestering Maka in the Discord server, watching the Phantom Troupe thread and the Trident announcement. The project’s ambition is massive — they want to do EVERYTHING. The Trident release will essentially be Balancer, Uni v3, and Paraswap, built over a pooled liquidity layer called BentoBox. Their lending platform is already using BentoBox in production and I’m excited to watch them pull off this next release.
From their docs:
Sushi is a community-driven organization built to solve what might be called the “liquidity problem.” One could define this problem as the inability of disparate forms of liquidity to connect with markets in a decentralized way, and vice versa. While other solutions provide incrementally progressive advances toward solving the problem of liquidity, Sushi’s progress is intended to create a broader range of network effects. Rather than limiting itself to a single solution, Sushi intertwines many decentralized markets and instruments.
Though I love the Sushi for many reasons, my instinct says that they’re trying to do too much, and that the composable nature of decentralized financial primitives will reward those protocols who do one thing well. It’s worth noting that I don’t have a clearly defined reason for this instinct, and I could be totally missing the mark; I will certainly continue to collect evidence and if it turns out I’m wrong… I’ll have missed out. That said, I’m not going to put Sushi in the Pineapple Street Allocators book (though I did buy a little earlier in the month when it dipped, and it’s taken a lot of effort not to fomo in at various points during this treasury debate).
Notes
One of my instincts about protocol specialization is around governance. If you have a million business lines, how can token holders be expected to stay current on what they need to know in order to make decisions in the best interest of the protocol? However, in Sushi, those settings are not subject of token holder votes. There is a multi-sig (a remnant of a sordid past) that is called upon to vote on operational issues and contract deployments. So I admit that as one potential knock on my “a mile wide and an inch deep” argument in this case.
