Update (June 11 at 15:58): This article has been updated to clarify that the decentralized exchange will continue to operate under the SushiSwap brand, managed by Sushi Labs. In addition, Sushi clarified that its community will continue to play an active role in governance.
After months of heated debate, decentralized exchange SushiSwap has introduced a new business model to its ecosystem. Under the name of Sushi Labs, the new era integrates the decentralized autonomous organization (DAO) with a “council structure.”
On June 11, the protocol introduced Sushi Labs — an autonomous administrative, technical and operational company that will manage the Sushi ecosystem. First proposed in March, the revamp sought to respond “to market demands and user requirements,” including the protocol’s slower response to market changes due to “cumbersome governance.”
The new Labs model will operate under a council structure similar to that of the derivatives protocol Synthetix, which is formed by four councils: the Sushi High Kitchen, the Treasury Council, the Grants Council, and the Ambassador Council. High Kitchen — comprising six to eight members — is the central governing body for the protocol, which will oversee a multisig setup for transactions.
“Many attribute Sushi’s stagnated growth and AMM liquidity issues to LPs migrating to other DEXs and seeking better yield. However, with our newly established organizational structure, sufficient budget, and leveraging successful products like Route Processor, we have the tools to enhance liquidity on the Sushi DEX,” Jared Grey, now Sushi Labs’ managing director, wrote in a memo to the Sushi community.
Sushi Labs will take over the DAO’s multimillion-dollar budget, which comprises 25 million SushiSwap (SUSHI) tokens. Tokenholders will still have the power to decide on treasury allocations but will not be involved in operational details.
According to data from DefiLlama, Sushi generated $1.62 million in fees in May, with revenue of $270,500 during the month — a sharp decline compared to its performance during the previous bull cycle. In May 2021, Sushi revenue stood at $14.37 million after generating $86.24 million in fees.
Another change comes with a multitoken product suite. According to Sushi, it will help distribute product costs while granting more reward opportunities for tokenholders. “A multi-token ecosystem reduces the risk of Sushi token inflation and mitigates the financial strain of funding DAO initiatives when products are not profitable,” reads the statement.
In recent months, the new model has sparked debate and criticism for its centralized nature. Community members had previously accused the protocol of a hostile takeover with the proposal. “It appears that Sushi DAO is at the end of its journey,” said a Sushi’s member on its governance forum.
SushiSwap has been facing financial challenges since 2022, when Grey warned about a $30 million loss in liquidity provider incentives, prompting a revision in its tokenomics. In December 2022, the decentralized exchange also revealed that it had only 1.5 years of operational runway, leading to a renewed focus on diversifying its treasury and improving liquidity management.
Sushi’s revamped governance
In a statement to Cointelegraph, Sushi Labs clarified that its community will continue to be “integral to the new business model.” According to a spokesperson, the new structure will allow the community to actively participate in governance through its councils:
These councils ensure that community members can effectively manage resources and make strategic decisions. The DAO will continue to oversee governance, regulate the Treasury, and participate in council elections via SushiPowah.
Sushi said the election process will determine community participation in council discussions. “Community members will have the opportunity to vote for representatives who will then participate in council discussions and decision-making processes.” The protocol believes its new model gives the community a more structured and efficient governance framework.
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