SushiGuard in a Nutshell:
SushiGuard is an implementation of Manifold’s OpenMEV. The Sushi team and Manifold have worked together to adapt OpenMEV to meet the needs of Sushi. These needs include:
- Protecting swappers from lost value due to MEV-bots.
- Improving the gas efficiency of transactions.
- Capturing value within the protocol that would otherwise be lost to external arbitrageurs.
- Integration within Trident.
The proposal that is currently up for Snapshot is to formally establish SushiGuard as part of Sushi and establish payment to Manifold Finance for services rendered. The monthly revenue expected to be generated by implementing SushiGuard is between $420k and $1.84m. The proposal can be found here and the Snapshot vote is life until July 18th, 2022 so go vote with your SUSHIPOWAH right now! Or maybe read some of this, and then go vote... But go vote!
What is SushiGuard?
SushiGuard is MEV protection, gas-efficient routing, and a revenue generator via arbitrage – in the form of back running.
SushiGuard prevents MEV-bots from extracting value from swappers via front running. What is front running? Front running is putting an order ahead of known transactions in a block to take advantage of the change in price that will subsequently occur from these transactions. This allows the front runner to drive the other users to pay a premium which the front runner can then capitalize on by sandwiching. What’s Sandwiching? Sandwiching is front running combined with back running – increasing the cost to you – then capitalizing on the extra costs you’ve just paid when they back run.
SushiGuard prevents these attacks by bundling transactions and thus maintaining a transaction order. By doing this, SushiGuard is also able to capture back-running opportunities that would otherwise be available to external bots. These back-running opportunities do not negatively impact the price that the user pays since they occur after. So SushiGuard simultaneously stops external sources from forcing unwanted transactions into a block and claims any back-running opportunities for the benefit of the treasury. Nice.
How SushiGuard Generates Revenue:
First, we must understand arbitrage. Arbitrage can be understood as the act of keeping token values roughly equivalent across all relevant liquidity pools (LPs) throughout DeFi. Arbitrage bots are set up to pay attention to variations in the value of tokens. When there is an imbalance in a token’s value between pools, bots act to restore the balance. Why would they do this? It results in a net-gain of tokens for the bot – or more specifically, its owner. Arbitrageurs buy low and sell high. This balances token-values within LPs across DeFi.
When Sushi users make trades in Sushi LPs it can alter the balance of the pair with respect to other LPs in DeFi, such as Uniswap. Instead of having this price imbalance be arbitraged by some unknown aristocrat – sipping cocktails on a yacht while running a network of bots – these profits are collected by SushiGuard and distributed equally between Manifold and Sushi’s Treasury.
SushiGuard Provides Transparency:
When SushiGuard successfully captures value from arbitrage it emits an event on-chain. This means it is possible to see how much revenue any swap generates for the protocol.
SushiGuard Utilizes Sushi’s Liquidity:
SushiGuard uses Kashi and Bentobox as well as Aave to carry out its arbitraging. When Kashi and Bentobox are used it benefits the liquidity providers of the given pools within Sushi. This use of Sushi’s own liquidity means more fee generation for Sushi’s liquidity providers. Good deal. 🥂
Integration with Trident:
SushiGuard was built to allow it to be a fully integrated part of Trident. As Trident’s features continue to roll out, SushiGuard will continue to function as expected. Part of the value of sharing revenue with Manifold is that they are an active cooperator in the extended Sushi-ecosystem. As such their interests are aligned with Sushi users/stakers to extend the functionality – when necessary – with any additional infrastructure roll-outs that occur.
Wait… What’s in It for Me, the Sushi User!?
Sushi and Manifold provide a service to users of their protocols. In theory, this means it is beneficial to provide value to their users where possible. Sushi benefits from incentivizing people to use its platform. More users mean more liquidity means more swapping means more revenue means better. SushiGuard will help Sushi’s continued growth. This growth means supplying services that users want to use – which implies value to users. As a DAO Sushi’s team is, ideally, working to meet the community’s needs by building what the community will make use of.
Because of this, Sushi and Manifold are looking for ways to utilize the revenue generated from SushiGuard to help incentivize the platform users. This means you and me – the humble Swappers! The team is looking for the best approaches to provide value to users with this revenue. Ideas that are being considered are:
- Gas rebates.
- Incentivized Onsen pools.
- Treasury reserves for continued growth (devs, partnerships, marketing… use your imagination).
- Don't hesitate to suggest any good ideas. The team and community are interested!
SushiGuard has been audited by the third-party auditor, yAcademy. The audit can be found here.
Bringing It All Together:
SushiGuard is stated to offer a constant stream of revenue for Sushi, the ability to incentivize Sushi users, transaction protection from MEV, and lower overall gas expenses. If you have concerns with any of these benefits or see some reason not to ape in, make your objections heard on the forum!
As of now, Snapshot has 2.8 million SUSHIPOWAH in favor. Be sure to participate. The Sushi DAO needs its community’s voice to be heard whether it is for or against any proposal sent to vote!