Tutorial: Earning yield on Sushiswap

Overview

Sushiswap is a decentralised exchange where users can exchange and borrow tokens and earn yield through staking, providing liquidity or lending.

Although Sushi was built on Ethereum, it now has cross-chain support for a number of different blockchains. Below is a list of the blockchains that are currently supported on Sushiswap.

Sushiswap operates as an automatic market maker (AMM), which is basically a method of facilitating trading without the need for a middleman to carry out the trade. Instead, automatic, permissionless trading on Sushi is powered by liquidity pools.

For a more in-depth overview of how all of this works, click here to read our simply explained article on Sushiswap.

This tutorial will go over how to provide liquidity, stake and lend on Sushi. Click here for a separate tutorial that goes through how to connect up your wallet, as well as how to swap and borrow on the platform.

 

Tutorial

Providing Liquidity 

As mentioned, SUSHI’s markets are powered by liquidity pools. Briefly, a liquidity pool is made up of a crowdsourced pool of tokens locked in a smart contract. Users can supply funds to one of Sushi’s pools and earn trading fees in return.

An important risk to consider when supplying liquidity is impermanent loss. This is a phenomenon whereby liquidity providers can end up with less value than what could have been realised by simply holding onto the staked assets (e.g. in a crypto wallet).

It is essential to have a good understanding of impermanent loss prior to providing assets to a liquidity pool.

Before continuing with this tutorial, we highly recommend reading our pro article, which provides a more detailed explanation and practical example of impermanent loss.

First, head to https://www.sushi.com and click ‘enter app’.

Next, click the ‘farm’ tab followed by ‘all farms’. Also, make sure that your wallet is set to the network you want to use to provide liquidity. 

Here you can see the type of rewards earned with each liquidity pool as well as the APR or annual rate of return ( this is the liquidity provider and staking return rate added together, click the ‘i’ icon, to get a breakdown). You also have the Total Value Locked (TVL), i.e. the current total value of tokens within each pool. Generally, the bigger the TVL, the less risk involved. 

It’s really important that you do your own research and weigh the risks involved before proceeding. 

To provide liquidity, you can either click on a pool from this page or select the ‘pool’ tab followed by ‘add’ at the top of your screen. The steps are pretty much the same for both ways.

Liquidity providers (LPs) are required to provide trading pairs in a set ratio. Therefore, when you enter the amount of one token you want to supply, the corresponding amount of the other token you will need to supply will be displayed.

When you click on the settings gear icon, the following pop up screen will appear.

Here you can set a specific slippage tolerance. Because we’re using a decentralised exchange that is influenced by supply and demand, the price of the swap can vary slightly from the time you begin the transaction to the time it is processed. The slippage tolerance is used to represent the level of price fluctuation you are ok with. Uniswap will auto-generate a slippage tolerance rate for you, and most people tend to stick with that.

There’s also the option to enable ‘expert mode’. If you turn this on, you won’t have to confirm transactions with your MetaMask wallet.

Once you click ‘approve’, you will be prompted to confirm the transaction with your wallet. You will have to pay a gas (transaction) fee, which will vary depending on the network you’re using.

In the above example, 0.25% of all trading fees for this pair are distributed to LPs. This percentage will vary depending on the asset combination you are providing liquidity for. The more volatile the pair, the higher the rewards. In addition, the amount you receive will be in proportion to your share of the pool.

LPs are also distributed Sushi Liquidity Provider tokens or SLPs in proportion to their share. These tokens act as a receipt of ownership, but users can also stake these tokens to earn additional yield, which we will go over in the following section. 

Rewards can be claimed by withdrawing your liquidity, which you can do at any time. Simply select the ‘pool’ tab followed by ‘browse’ at the top of your screen. The following page will list all of your current liquidity positions. Click ‘manage’ followed by ‘remove’ beside the position you want to withdraw. 

Note: your SLPs tokens must be unstaked before you can withdraw your liquidity.

Staking 

Briefly, staking involves locking up a portion of your assets to help validate transactions and support a blockchain network’s security in exchange for rewards.

If you’re not already familiar with the concept of staking, then have a read of our guide here for a simple overview.

 

SLP tokens

To stake your SLP tokens, click the ‘farms’ tab followed by ‘your farms’. When you click on the position for the SLP tokens that you want to stake, the following pop-up screen should appear. Select the ‘stake’ tab.

Next, you’ll need to specify the amount of SLP tokens you would like to stake. Your current token balance will be displayed on this screen. Click ‘approve’ and confirm the transaction with your wallet. You will have to pay a gas (transaction) fee, which again will vary depending on the network you’re using.

Once your SLP tokens are staked, you will begin to earn SUSHI tokens, Sushiswap’s native token. You can also stake these SUSHI tokens to earn additional yield, which we’ll go through next.

You can unstake your SLP tokens and harvest rewards at any time. To do this, navigate back to farms > your farms. Click on the pool you want to withdraw from, and the option to unstake will be available in the pop-up screen that follows.

 

SUSHI tokens 

Note that it is only possible to stake SUSHI tokens on Sushiswap using the Ethereum network. Select the ‘explore’ tab followed by ‘xSUSHI’.

0.05% of all trading fees across Sushiswap are distributed to SUSHI stakers in the form of additional SUSHI tokens. The amount you receive will be in proportion to the amount you stake. The most recent annual rate of returns will be displayed, but keep in mind that this is subject to fluctuation.

SUSHI stakers also receive xSUSHI tokens. Two of the main use-cases of these tokens are 1. Voting rights on proposals to the Sushiswap protocol and 2. Providing collateral to borrow other assets (which we go over in the last section of this tutorial).

Simply enter the amount of your SUSHI tokens you would like to stake. Next, click ‘approve’ and confirm the transaction with your wallet. 

You can unstake at any time by clicking on the ‘unstake’ tab on the same page. When you do this, you will receive all the originally deposited SUSHI and any additional that you earned from swap fees. 

Note: you will not be able to withdraw your SUSHI stake if you’re using your xSUSHI as collateral.

 

Lending

Lending is another way users can earn yield on Sushiswap. By lending, you are depositing your assets into a pool where they will be lent out to borrowers. Lenders will earn interest on a pro-rata basis, which is just another way of saying that the amount each lender receives will be in proportion to their share of the pool.

Note that unlike providing liquidity, lending does not expose you to the risk of impermanent loss. Also, at the time of writing this tutorial, lending is not currently available on every chain supported by Sushi (e.g. Moonbeam).

To start, click on the ‘lending’ tab followed by ‘lend’.

You can use the search bar on this page to look for the money market of the asset you want to deposit. As always, it’s a good idea to do your own research into these markets before making any investments.

You have two asset icons displayed for each market. The icon on the left will be the asset you are lending out, and the icon to the right is the asset that borrowers will provide as collateral. The ‘borrowed’ value represents the percentage of the pool currently being lent out. 

Once you click on a market, you’ll be brought to a page that looks like this.

The ‘supply APR’ value represents the interest rate you can expect to earn. Simply enter the amount of your asset that you want to deposit, click ‘approve’ and confirm the transaction in your wallet (and pay the associated gas fees).

You can withdraw your assets and claim your rewards at any time by clicking on the ‘withdraw’ tab on the same page.

 

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

Comment and share if you found this tutorial useful! For more on decentralised exchanges, check out our Uniswap article and tutorial.