On December 6, Jared Grey, the new "chef" of Sushi, who had been in office for only two months, launched a new proposal in the governance forum. In the proposal, Jared disclosed to the outside world for the first time the current severe financial situation of Sushi and proposed a temporary self-rescue plan.
Jared pointed out that Sushi’s current financial deficit has affected the sustainability of the project. Although the annual expenditure budget has been cut from US$9 million to US$5 million since he took office, the treasury funds can only last about another year and a half.
Jared also mentioned that since the SUSHI tokens are almost fully circulated, and the Sushi treasury previously only had a small amount of transaction fee income from Kanpai in addition to the token unlocking income, it has not been able to diversify the assets in the treasury reserves (it can be understood that the treasury basically only has SUSHI), which further weakened Sushi's ability to resist risks.
Due to this situation, Jared suggested that Kanpai's current parameter ratio be increased from 10% to 100%, which means that the income that xSUSHI holders (i.e. SUSHI staking users) could have obtained through transaction fee deductions will drop from 90% to 0%, and this part of the funds will be completely transferred to the treasury as an operating reserve. However, Jared also mentioned that this is only a temporary measure, and another plan will be sought after the new token economic model is released in the future. However, considering that it will take some time for the new model to go through governance and execute circulation, it is expected that this plan will continue until the second or third quarter of 2023.
Proposal implementation logic
Jared's proposal involves some unique concepts in the Sushi system, such as xSUSHI, Kanpai, etc. To understand the implementation logic of the proposal, we must understand the specific meaning of these concepts.
Like most other DEXs, the sustainable income in the Sushi system comes from the fees collected from user trading behaviors. Currently, Sushi charges 0.3% of the fees for transactions on Sushiswap, of which 0.25% belongs to liquidity providers (LPs), and the other 0.05% is distributed to xSUSHI holders as system income.
The so-called xSUSHI is the governance token of the Sushi protocol. SUSHI holders can exchange xSUSHI for long-term SUSHI, bind their own interests to the development of the protocol, and obtain the right to vote in the future upgrades and changes of Sushi. As an incentive, xSUSHI holders can receive 0.05% of the transaction fee.
The concept of Kanpai was born from a governance proposal in June 2021. Its role is to extract a portion of the 0.05% income of xSUSHI to supplement the income of the Sushi Treasury and enrich the treasury asset category to cope with the bear market that may come at any time. Simply put, Kanpai is a parameter that represents the distribution ratio between the treasury and xSUSHI holders. The current parameter is 10%, which means that the treasury allocates 10% (0.005%) and xSUSHI holders allocate 90% (0.045%).
In this way, the content of Jared’s proposal is very clear. The purpose of this proposal is to change the current distribution plan of 0.045% transaction fee collection that flows to xSUSHI holders so that it flows entirely to the treasury, thereby increasing the treasury’s transaction fee collection ratio from 0.005% to 0.05%.
What does the community think?
As of the time of posting, although 69% of community members chose to support the proposal in the preliminary poll below the proposal post, judging from the discussion below, there are still a large number of community members who are skeptical about the proposal.
Looking through the comments from community members, we can see that the doubts are mainly focused on the following points:
First, can other alternatives be found? Because "depriving" xSUSHI will obviously weaken the investment value of SUSHI, which may cause a large-scale sell-off, leading to more negative results.
Second, did Sushi really need the $5 million? Was there a detailed account of the financial expenditure? Was Jared just trying to keep his salary?
Third, does Jared’s wording in the voting options (the opposing option is “I won’t use Kanpai to save the future of Sushi”) seem to be inciting the community?
Regarding these doubts, Jared responded to multiple messages and even posted dozens of tweets on Twitter to directly respond to the doubts.
Regarding the first question, Jared responded that this measure is the only way for Sushi to immediately replenish its treasury. Without more funds, it is questionable whether Sushi can survive.
Regarding the second question, Jared responded that Sushi has always been the target of headhunters. If Sushi cannot give workers reasonable salaries, it will be easy for competitors to poach them. In addition, Sushi is working with an external accounting firm to sort out and disclose financial accounts. As for the claim of personal profit, Jared said that when he took office as the "chef" of Sushi, he gave up the severance pay clause in the contract and donated the original $250,000 resignation budget to the treasury.
Regarding question three, Jared responded that the wording was just to highlight how serious the current situation is.
Is this kind of self-help feasible?
As things stand, Jared's proposal is facing considerable resistance.
Considering that xSUSHI holders whose book interests are damaged are the main body that decides whether the vote is passed, it is expected that a large number of community members will vote against the proposal after it officially enters the governance circulation. Whether the proposal can be promoted will largely depend on how Jared can persuade xSUSHI holders by combining long-term and short-term interests.
It should be noted that Jared himself has mentioned that the proposal is only a stopgap measure. In the future, the key for Sushi to get out of the quagmire is to come up with a more sustainable new economic model and explore more development paths to capture more value.
Regarding the new token economic model, Jared revealed last week that the first draft has been basically completed, but no details have been released to the outside world for the time being. Given that Sushi’s current financial situation has shown signs of exhaustion, it remains unknown whether the new model can fully improve the details and convince the community to agree under such hasty conditions.
In addition, since the SUSHI token is close to being fully released, there is not much room for maneuvering in the new token economic model. Therefore, it is not ruled out that Jared and his team will consider expanding the total supply of tokens (this is purely personal speculation, please don’t FUD). If so, will this cause greater panic and doubt? These are all unresolved issues.
The bear market is not easy, and not everyone can survive like AC. Jared faces challenges that are unimaginable for ordinary people.
