While Sushi may not have the world’s most powerful exchange, it does have crypto’s most vibrant community. That’s driven its success in spite of its vulnerabilities.   &nbsp;&nbsp;

Strong communities compensate for other weaknesses

Though little thought seems to have gone into it, Sushi succeeded in landing on a meme and emoji-friendly brand. More consumer-facing companies should consider how their offering channels current forms of expression.

Modern brand building must consider mimetic power

Though global in scale, crypto nevertheless has power centers. In particular, North America and Asia represent the sector’s two poles; those with universal ambitions must be sure they’re taking into account both userbases.

Crypto is a multipolar market.

To unseat an incumbent in the crypto world, find ways to liberate power or wealth. Holding too tightly to either presents an avenue of attack for insurgents

Crypto follows different paths for disruption

The decentralized exchange is an anomaly.

crypto

Cryptocurrency

technologyandthefuture

Technology & The Future

startup

Startups

The decentralized exchange is an anomaly.

If you only have 2 minutes to spare, here’s what investors, operators, and founders can learn from Sushi’s story.

<ul><li>Strong communities compensate for other weaknesses . While Sushi may not have the world’s most powerful exchange, it does have crypto’s most vibrant community. That’s driven its success in spite of its vulnerabilities.   </li><li>Crypto follows different paths for disruption . To unseat an incumbent in the crypto world, find ways to liberate power or wealth. Holding too tightly to either presents an avenue of attack for insurgents.  </li><li>Modern brand building must consider mimetic power . Though little thought seems to have gone into it, Sushi succeeded in landing on a meme and emoji-friendly brand. More consumer-facing companies should consider how their offering channels current forms of expression.  </li><li>Crypto is a multipolar market. Though global in scale, crypto nevertheless has power centers. In particular, North America and Asia represent the sector’s two poles; those with universal ambitions must be sure they’re taking into account both userbases.  </li> </ul>

Chef Nomi was in the wind. And he’d taken the money with him.

Just ten days after founding Sushiswap (aka Sushi), the decentralized exchange’s pseudonymous founder pulled out $14 million worth of Ethereum and disappeared.

What followed was the crescendo of 2020’s crypto bull-run and in particular, the torrid months known as “DeFi Summer.” Part manhunt, part trial by media, and part murder, the demise of Chef Nomi proved the beginning for something much more consequential: a truly decentralized organization, with a stronger community than any of its peers. That Sushi has succeeded not in spite of, but because of its chaotic origins illuminates what matters when it comes to empire-building in the crypto economy.

In today’s briefing, we’ll unfurl the full saga, before alighting on Sushi’s current scale, and future plans. We’ll touch on:

<ul><li>The mark. Uniswap’s remarkable innovation, and critical vulnerabilities.  </li><li>The plan . How and why Sushi was founded. </li><li>The heist . Chef Nomi’s ingenious maneuver to bring liquidity to the new exchange.  </li><li>The murder . A founder on the lam, and how DAOs mete out justice.  </li><li>The aftermath . The establishment of a headless organization.  </li><li>The future . Where does Sushi go from here?  </li> </ul>

Subscribe to make sure you receive our next email. You'll be joining a community of over 41,000 investors that receive private weekly briefings designed to help you think better, and capitalize on change.

It started with disappointment:

In early July of 2017, a young mechanical engineer named Hayden Adams was fired from his role at Siemens. It was his first job since graduating from Stony Brook and must have seemed like a safe place to kick off a budding technical career.

Suddenly unemployed, Adams <a dir="ltr" href="https://uniswap.org/blog/uniswap-history/">sent </a>the text above to Karl Floersch, a friend embedded in the Ethereum ecosystem. Floersch responded:

Adams’ reaction illustrated the young man’s inexperience:

Floersch assured him it didn’t matter; Adams could learn whatever he needed to make a dent. Even he must have been surprised by the success of Adams’ first project.

Fifteen months after sending that dejected text to Floersch, Adams launched Uniswap, a decentralized, automated token exchange built on Ethereum. Simply reaching that point represented a feat of endurance and ingenuity; Adams had learned to program in multiple languages and forfeited a salary to turn what started as a hobbyist project into a full-featured decentralized exchange (DEX).

The significance of Adams’ innovation should not be underestimated. In creating Uniswap, he and the team succeeded in solving a bête noire of the crypto world: running an exchange without an order book. While the details are eye-glazing for all but the most fastidious of students, the upshot was that Uniswap was able to attract liquidity without centralization. No one had managed this before, at least not with the same elegance.

So, how did Uniswap do it?

It depends on who you ask. Some have suggested that Uniswap was a fork, with its v1 borrowing from rival project, Bancor. Adams has vociferously denied that claim:

Perhaps only those present at Unicorn HQ on day one know the truth of the matter.

What’s undisputed is that Adams successfully incentivized external parties to offer trading depth. “Liquidity providers” (LPs) deposit tokens into a pool and are rewarded as a result. For example, if I added ETH and USDT to the ETH-USDT pool, I could earn “liquidity tokens” by doing so, proportional to my contribution. (This is not the same thing as a governance token, which we’ll discuss in a moment.)

There’s further complexity in how “Automated Market Makers” (AMMs) like Uniswap manage the process, but this captures the salient points.

Uniswap’s novelty and early success did not go unnoticed by the capital class. Paradigm <a dir="ltr" href="https://www.yahoo.com/now/paradigm-backs-decentralized-exchange-protocol-184824051.html">led </a>a $1.8 million seed round into the project in 2019. By the next summer, Adams announced further capitalization with a16z leading an $11 million investment. By that point, Adams’ creation boasted roughly $130 million in Total Value Locked (TVL), a reflection of the amount secured via smart contracts. (Though not directly analogous, one way to think of TVL is as “assets under management.”)

While the interest of leading VCs validated Uniswap’s initial traction and long-term vision, it also created a vulnerability.

It’s here that we should talk about the particular patterns of disruption in the blockchain world. Specifically, there seem to be two axial rules that govern the sector and offer openings to insurgents:

<ol><li>The Law of Fluid Power. Crypto operates antithetically to extant power structures, seeing traditional hierarchies as unearned and illegitimate. This can relate to long-surviving institutions like the traditional financial system or newer companies like Coinbase. In both cases, power is perceived to have been captured by a central entity that seeks to codify and strengthen its grip. Crypto wants power to be perfectly fluid, accruing to contributors according to their value to the community. In this respect, it’s not only about decentralization — a perfect distribution of power is often not desirable — but relative merit within a decentralized structure.  </li><li>The Law of Fluid Wealth . Similarly, the crypto world is skeptical of rent-seeking entities. Organizations that do not provide continuous value and effort, earning under the same rules as every other participant, are often considered compromised. Crypto wants wealth to be fluid, rewarding sustained value creation. Radically, crypto considers users to be essential parts of the value creation rather than consumers of it.  </li> </ol>

This final point is best captured by a16z partner, Chris Dixon, in this Twitter thread:

Dixon articulates how web3 — the term used to describe a crypto-native internet — can win by redistributing take rates. Rather than keeping this fee as a centralized entity would, decentralizers often give it back to users, in recognition of their value.

Uniswap capitalized on this second law in rising to prominence. Coinbase, Binance, and other centralized exchanges not only served as the focal point for much of the crypto market but skimmed fees. While Uniswap also takes a fee, it passes it down to LPs, rewarding their contribution.

Though an upgrade, Uniswap soon learned that relative inattention to the Law of Fluid Power presented an issue.

By taking venture money, Uniswap effectively allowed for some of its platform’s power to be captured by interlopers. Much of this may have been simply a matter of perception — funds like Paradigm are renowned for adding tangible value to projects. Head of Research Dan Robinson was an earlier helper of Uniswap.

But to certain external parties, Uniswap suddenly appeared allied with the establishment. And while some ire may have been over-egged, the financing decision did carry a tangible impact. LPs that had helped get the exchange off the ground by seeding different markets risked their share of rewards being diluted by these much larger firms pouring money into the AMM.

Perhaps a greater violation of Law 1 was Uniswap’s governance structure. While the project did give LPs a way to earn, it did not give them a way to vote . There was no “UNI” token that offered the community a mechanism to voice their opinions and chart a path forward. Power was cloistered, captured by a select few.

That presented an avenue for attack, noticed by more than one commentator. On August 23, 2020, Director of Researcher at <a dir="ltr" href="https://www.theblockcrypto.com/">The Block </a>, Larry Cermak tweeted the following:

Cermak posed an intriguing question: what would happen if someone took the power of Uniswap’s AMM, but added a token? What if the community owned 90% of the project and could determine its future?

Perhaps without realizing it, Cermak had outlined an ambush. One lurker was listening closely.

Little was known about the person that referred to themselves as Chef Nomi.

Borrowing their pseudonym from Warcraft -inspired game, Hearthstone , Nomi appeared on Twitter just one day after Cermak’s tweet:

Even this initial iteration showed an appreciation of modern branding. Nomi chose a playful, endearing name that succeeded in being distinct, mimetically alluring, and extensible. That Sushi’s name has stuck and informed the nomenclature of all subsequent product launches speaks to that fact. (Aside: I wonder how commonly branding agencies consider emoji availability during their consultation process.)

While few noticed that first tweet, it didn’t take long for Nomi to attract attention. Two days later on August 26, Nomi officially announced the creation of Sushiswap. In a thread and Medium post, he outlined how Sushi differed from the project it had forked. That set in motion a series of events that occurred in such rapid succession, it’s worth previewing them:

In its opening post, Sushi noted that while Uniswap distributed its 0.3% in trading fees to LPs, this only applied to active providers. That meant that if you stopped providing ETH and USDT to, you ceased receiving rewards.

Sushi suggested such an arrangement was unfair since it failed to recognize the LPs that had gotten a project off-the-ground. To remedy that, Sushi took a 0.25% fee which it passed to LPs, with a further 0.05% given to holders of its token: SUSHI. Critically, SUSHI not only delivered continuous earnings — something Uniswap didn’t — but offered governance rights. From day one, the community would have the power to inform the project’s direction. Nomi had found the flaw in Uniswap’s power structure and exploited it. But he wasn’t done yet.

It takes a special mix of boldness and shamelessness to so blithely copy an existing product. While that can prove a superpower, as mentioned in our discussion of <a dir="ltr" href="https://www.readthegeneralist.com/briefing/rocket">Rocket Internet </a>, Nomi illustrated a particularly ruthless streak in the method that brought liquidity to Sushi.

Alternately called a “vampire attack” or “zombie mining,” Sushi’s attainment of liquidity relied on siphoning it from Uniswap; a heist in slow motion. Sushi managed this by offering rewards to Uniswap LPs. In exchange for providing their liquidity to 12 Sushi pools on Uniswap, LPs earned SUSHI (the token), with 2x the rewards for providing liquidity to the ETH-SUSHI market. Nomi outlined that after 15 days, this liquidity would move off Uniswap’s platform and onto Sushi’s own exchange.

Confused? Don’t worry.

This is convoluted stuff, particularly to those of us trying to wrap our heads around this movement. To try and make sense of it, here’s my best attempt at an Ocean’s Eleven -style walkthrough montage.

Our target: The Uniswap Hotel and Casino (TUHC)

As everyone knows, TUHC is one of the most attractive venues on The Strip, known for its good vibes and unusual gambling products. Everyone also knows that the magic behind TUHC’s operation is their “How to Run a Casino” playbook. The bad news? It’s locked in a vault. The good news? TUHC shares the passcode online for everyone to see!

After snagging the passcode, all we have to do is walk up the vault, type it in, and grab the playbook. Once we have that, we’ll know how to run our casino, Saloon of Ultimate Sushi (SUS).

Now comes the hard part: we have to convince TUHC’s bookies to come with us. Without them, we won’t have the money to offer the same kind of wild gambling as TUHC. So how do we do that?

First, we tell them to try it out. They don’t have to go anywhere yet — they can start by offering gambling pools insideTUHC. Think of it as our mini-casino within a casino. By switching allegiances, the bookies can earn more, even if they decide to stop backstopping bets. They can walk away, and still get paid.

Pretty good deal, right? But it gets even better.

We don’t want to just offer gambling within TUHC — we want to run our own place and turn SUS into the biggest casino on The Strip. By joining our gambling pools, when we open SUS in 15 days, they won’t just be bookies but actual shareholders. They’ll get to decide how the casino operates and help define its future.

And who knows what we’ll build together once we have our casino set up! A pool, a theater, a bank? We’re making a multiplex, and they’ll be getting in on the ground floor.

Sound like a plan?

This may not pass muster as a Hollywood treatment but there’s no doubting that Sushi’s vampire attack was high drama — not least because it worked.

Just three days after launch, Sushi had bled Uniswap of 53% of its liquidity; two days after that, it had reached 68%. Cermak <a dir="ltr" href="https://twitter.com/lawmaster/status/1300298831138041859">tweeted </a>“I’d be getting a little uneasy if I was Uniswap.”

Publicly at least, Hayden Adams was unfazed. On September 1, he posted a thread that began with an impassioned <a dir="ltr" href="https://twitter.com/haydenzadams/status/1300764559154835456">rebuke </a>of Sushi:

Though a large number of Sushi’s LPs did have significant holdings, Adams’ criticism didn’t tabulate with what was happening behind the scenes. Since opening up on August 26, Sushi’s Discord channel had attracted a steady flow of dedicated supporters, many from Asian markets. One entrant was “0xMaki,” an adherent that within minutes of joining the chat established himself as “General Manager.”

The same day that Adams expressed his skepticism of the Sushi project, it rose to the top of Defi Pulse’s rankings. In less than a week, it had become the largest project in the ecosystem by TVL.

Nomi’s heist seemed to have worked, attracting liquidity and galvanizing a movement that was gathering speed at breakneck pace. Sushi was the toast of the crypto world and all that was left was to complete the overture, migrating liquidity away from Uniswap. Everything was in hand. And then it fell apart.

We have Freud to thank for the concept of the “founding murder.” In Totem and Taboo , the Austrian argued that culture solidifies in the aftermath of a symbolic parricide, father slain by the sons. That serves to release Oedipal anima and free the offspring.

René Girard embroidered Freud's concept. Rather than founding murders following an Oedipal construction, Girard believed such a killing could occur regardless of relationships between parties and came from the desire for groups to choose and punish a scapegoat. In an excellent piece on the subject, Alex Danco <a dir="ltr" href="https://alexdanco.com/2019/09/18/the-founding-murder-and-the-final-boss/">describes </a>the phenomenon:

The effect of the scapegoat bearing society’s sins is renewed unity and camaraderie; death begets vitality; violence precedes peace; to build Rome, one must first kill Remus.

It would give far too much credit to Sushi’s architect to imagine any of these thoughts visited him the night of September 4. Looking at the Discord, Chef Nomi seemed absorbed with the task of migration, answering a few questions, responding curtly when he did.

From the beginning, Sushi had carved out a “dev fund.” This sub-entity was allocated 10% of the project’s tokens as recompense for the effort of its developers. The idea was that those that brought Sushi to life and improved it would be rewarded. That included Chef Nomi. But while many converts to the platform knew of the fund, few appeared to foresee any issues. Nomi himself had proactively quelled concerns about absconding with funds, noting in the Discord that he was “a good guy”:

A couple of lines later he reiterated his position saying, “But seriously though. People that came here yesterday know how committed I am.”

The events of September 5 proved the emptiness of those words. The day before the planned migration, Nomi withdrew half of the dev fund’s SUSHI, selling it for 380,000 ETH. That amounted to roughly $14 million.

Nomi’s move was quickly branded as an “exit scam,” the practice of taking investor funds and disappearing with them. The Chef didn’t disappear though. Instead, he tried to fight his corner, justifying the decision by suggesting the withdrawal would give him more focus:

It made little difference. Crypto’s most powerful figures balked at the move, with Sam Bankman-Fried (SBF) tweeting “Chef Nomi sucks.” Worse, the community that had so organically formed around the project revolted, furious at the betrayal.

As with everything else related to Sushi, the fallout happened at a startling pace. The day after his escapade, amidst community pressure, Chef Nomi handed over the keys to the project to SBF. As the FTX CEO noted in <a dir="ltr" href="https://www.readthegeneralist.com/briefing/ftx-1">Part One </a>of our trilogy, it was a “time of need type of thing.” It was a critical decision. At a time when Sushi was all at sea, threatening to fully implode, SBF proved a safe pair of hands with the authority and respect to protect the project and usher it forward.

That stewardship was brought to a formal conclusion less than a week later. On September 9, Sushi finally migrated off of Uniswap, becoming its own exchange. The next day, SBF announced he had transferred the AMM’s keys over to a selection of new “chefs,” responsible for guiding the community going forward. That included Cermak, Robert Leshner of Compound, Matthew Graham of Sino Global, and the still pseudonymous 0xMaki.

And then, on September 11, the tale took a final surprising turn: Chef Nomi repented.

He also offered more than his contrition, returning all 380,000 ETH to the project.

It was a move appreciated by the Sushi community, recovering some degree of respect for its founder. But it didn’t matter — Chef Nomi had been murdered. Metaphorically, functionally, he had ceased to exist in the context of Sushi.

On September 12, he sent his last message in the Discord.

Referring to Nomi, one commenter wrote: “He’s gone xD.”

Another responded: “He’s still here. Been posting in the engineering channels. See #backend-dev.”

A moment later, the man himself appeared.

“In backend channel its me.”

That was the last he was heard of.

It is a year to the day that Nomi vanished. That Sushi is still here at all is remarkable, a testament to the power of a “founding murder” to vitalize a community, a budding culture.

(Of course, as one commentator noted, it’s unlikely that Nomi is really gone. Rather he “lives among us, lurking in our Discords…it’s just that in a pseudonymous and decentralized protocol, nobody knows who he is.”)

In its first twelve months of operations, Sushi has succeeded, on many fronts. In particular, it has accrued the following:

<ul><li>Large community . Sushi boasts roughly <a dir="ltr" href="https://decrypt.co/76963/uniswaps-growth-pushes-defi-3-million-total-users">200,000 </a>users.  </li><li>Dedicated leadership . 0xMaki has stepped into the breach alongside Joseph Delong.  </li><li>Extensive product suite . Sushi spans lending, decentralized apps, and more.  </li><li>Considerable traction . Volume has grown, most recently sitting at $12 billion per week. </li> </ul>

Despite that success, Sushi appears to be undervalued. Let’s take stock of where the project is today.

Sushi and the Founding Murder

Strong communities compensate for other weaknesses

Modern brand building must consider mimetic power

Crypto is a multipolar market.

Crypto follows different paths for disruption

Decebal Dobrica's ideas are part of this journey:

Related collections

Similar ideas