SushiSwap Unveils ‘Labs’ and Multitoken Ecosystem

After several months of intense discussions, the decentralized exchange SushiSwap has unveiled a revamped brand and business model for its ecosystem. Rebranded as Sushi Labs, this new phase shifts away from the decentralized autonomous organization (DAO) structure to a “council structure.”

On June 11, the protocol launched Sushi Labs, an independent administrative, technical, and operational entity designed to oversee the Sushi ecosystem. First presented in March, this overhaul aims to better meet “market demands and user requirements,” addressing the protocol’s previously slow adaptation to market changes caused by “cumbersome governance.”

Under the new model, Sushi Labs will adopt a council structure similar to that of the derivatives protocol Synthetix. This involves four councils: the Sushi High Kitchen, the Treasury Council, the Grants Council, and the Ambassador Council. The High Kitchen, consisting of six to eight members, will serve as the main governing body of the protocol, managing a multisig setup for transactions.

Jared Grey, now the managing director of Sushi Labs, highlighted the motivations behind this shift in a community memo. Grey attributed the protocol’s stagnated growth and liquidity issues to liquidity providers (LPs) moving to other decentralized exchanges (DEXs) for better returns. He believes that the new organizational framework, combined with a sufficient budget and successful products like the Route Processor, will improve liquidity on the Sushi DEX.

Sushi Labs will control the DAO’s substantial budget of 25 million SushiSwap (SUSHI) tokens. While tokenholders will retain the right to decide on treasury allocations, they will not be involved in the day-to-day operational details. According to data from DefiLlama, Sushi generated $1.62 million in fees and had revenue of $270,500 in May. This marks a significant drop from its performance during the last bull market when, in May 2021, Sushi recorded revenue of $14.37 million and generated $86.24 million in fees.

Another significant addition is a multitoken product suite, which Sushi claims will help distribute product costs and offer more rewards for tokenholders. This multitoken ecosystem aims to reduce the risk of Sushi token inflation and alleviate the financial pressures of funding DAO initiatives when products are not profitable.

Despite these changes, the new model has ignited debate and attracted criticism for its more centralized nature. Some community members had previously accused the protocol of orchestrating a hostile takeover through this proposal. “It appears that Sushi DAO is at the end of its journey,” commented one member on SushiSwap’s governance forum.

SushiSwap has been grappling with financial difficulties since 2022. During that year, Jared Grey warned of a $30 million shortfall in liquidity provider incentives, which prompted a revision in the exchange’s tokenomics. In December 2022, SushiSwap revealed that it only had 1.5 years of operational runway left, leading to a renewed focus on diversifying its treasury and enhancing liquidity management.

SushiSwap’s transformation into Sushi Labs signifies a substantial shift in governance and operational strategy. Time will tell whether these changes will adequately address the challenges the protocol faces and help it regain its former prominence in the decentralized exchange space. Despite controversies, the new council structure, combined with a strategic financial and product roadmap, offers hope for a revitalized Sushi ecosystem.