SushiSwap is a decentralized exchange (DEX) that was launched during the DeFi summer of August 2020. As a DEX, SushiSwap enables users to exchange cryptocurrencies without the need for a third party, giving them complete control over their tokens, anonymity, and the ability to purchase and exchange tokens not available on centralized exchanges like Binance or Coinbase.

A DEX is a platform that allows users to exchange cryptocurrencies without the need for intermediaries like a centralized exchange. SushiSwap is one such platform that operates on the Ethereum blockchain and utilizes an automated market-making (AMM) system.

SushiSwap is a decentralized exchange (DEX) that operates as an automatic market maker (AMM) and allows users to trade cryptocurrencies without the need for a middleman. Holding your assets in your own wallets and using DEXs like SushiSwap offers greater control over your tokens and eliminates the need to rely on a custodian. While centralized exchanges (CEXs) match buy and sell orders through an orderbook, DEXs use an AMM to facilitate trading. By swapping assets in countless combinations, users can trade tokens that may not be available on CEXs. DEXs like SushiSwap offer greater anonymity, complete control of your tokens, and the ability to trade a wider variety of assets.

But how is this done on a DEX?  Without a centralized market maker routing orders, a DEX has to find another way to allow users to trade their assets. It’s not efficient to have everyone on standby to wait until two people happen to want to make a trade that compliments the other, orders could take weeks to fill. What’s the solution?

Liquidity pools

Decentralized exchanges (DEXs) cater to two kinds of users: those seeking to swap tokens and those seeking to make money. The latter group provides liquidity by depositing their tokens in the liquidity pools and receives rewards based on the trading fees paid by the former group. Traders leverage the liquidity pools to exchange similar tokens of equivalent USD value, such as 1000 SUSHI for 1 ETH. It’s important to note that SUSHI charges a 0.3% fee for transactions executed in its liquidity pools. The quantity of SUSHI awarded to liquidity providers varies based on the asset pair they are offering liquidity for, with higher returns offered for more volatile pairs.

To properly understand liquidity pools, check out our article here!