SushiSwap, one of the top DEXs on Binance Smart Chain, has created bad debt through its now-abandoned DeFi lending project, Kashi. 

Debt on Kashi Lending is still a problem, recent research by Defi Llama revealed. The protocol will not affect SushiSwap in any way, since it was abandoned. But the still-working smart contracts on Kashi Lending have been accruing bad debt, based on their predetermined interest rates. 

The permissionless lending protocol now carries a reported $100M in debt, which may never be repaid. DeFi Llama noted the current bad debt situation will not affect new traders, but may have destroyed the collateral posted by protocol users. The presence of bad debt may mean lenders see a high-level balance on their loans, but they cannot discontinue the loan or gain any of the interest, since the platform has lost all its users. 

since sushi abandoned kashi 1.5 years ago, the bad debt on it has been growing due to interest

left alone, this has grown from 600k to 100M now

— 0xngmi (@0xngmi) August 7, 2024

At its peak, Kashi Lending held more than $40M in value locked, which fell to under $100K currently. Kashi Lending unwound its value, yet a handful of users forgot their loans or could not recoup them on time. 

Additionally, the borrowers with bad debt also posted collaterals, but never received them. The collateral cannot be withdrawn even after the protocol is no longer operational, since it hinges on repaying the bad debt with the interest. At one point, Kashi Lending proposed up to 60% APY on USDT lending. 

Kashi Lending, however, was truly permissionless and there were no rules on charging exorbitant interest rates. The lending protocol was launched during the peak bull market days of 2021, when the rush to gain yield led to the creation of many farms. Without warning, some of the lenders and borrowers lost access to their yield farming vaults. 

Currently, the farms and former loans or balances may be visible and have an on-chain record, but none of the funds can be moved. Deposits and withdrawals are also not accessible through any interface by SushiSwap.

The problem of Kashi Lending arrives at a time when DeFi protocols are trying to revive this type of yield generation, though with more conservative rules. Kashi was fully peer-to-peer, with the ability to set exorbitant lending prices, sustainable only during a bull market. But SushiSwap announced the sunsetting of Kashi Lending due to other factors, such as the inability to control the protocol. 

SushiSwap still suffers from low volumes

SushiSwap is ranked 11th based on value locked. During the initial wave of DEXs launch, the market tried to compete with UniSwap and PancakeSwap. Problems with an initial rug pull by the protocol’s founder Chef Nomi led to a hit on the reputation of the still-growing DEX. 

The project’s founder sold all SUSHI on September 5, 2020, then aimed to appease the SushiSwap community by claiming he would offer technical assistance on the project. The DEX only continued its existence after Chef Nomi returned the 38K Ethereum (ETH) drained from the pool. From late 2020, SushiSwap’s ownership and future development were given over to the then-savior of the DEX, none other than Sam Bankman-Fried, CEO of the failed FTX exchange.

SushiSwap still managed to recover and continue its main activity as a decentralized market. The DEX spreads through 36 total blockchains, grabbing even niche L2 protocols. With that metric, SushiSwap surpassed even Uniswap, which is present on 22 networks. The Ethereum version remains the most active, with $4.4M in daily trading volumes. 

The DEX has responded to the recent trend of meme tokens, and recently listed the newest star, NEIRO.

The SUSHI native token may also face price pressures. A recent on-chain observation revealed an insider wallet sent SUSHI tokens to Binance. The SUSHI tokens are valued at $2.18M and may weigh down the asset. 

SUSHI only has $12M in total daily volumes, with relatively low depth even on the biggest markets. SUSHI currently trades at $0.58, close to its 2021 lows of $0.52. The coin has faced selling pressure from earlier investors, including the FTX exchange. 

In 2024, SUSHI aims for a bounce and is seen as a risky bet with the potential for a price bounce. The DEX still reports 3.2K daily active users, a fraction of the nearly 80K users on Uniswap V3.

Cryptopolitan reporting by Hristina Vasileva