In brief
- SushiSwap is one of the most popular decentralized exchanges on Ethereum.
- The Avalanche blockchain is building up its DeFi offerings.
- A SushiSwap DEX is coming to Avalanche.
Just about anyone who has used the Ethereum blockchain in the last few months is familiar with the complaint: Due to high demand for decentralized finance (DeFi) products, the network has become too congested. As a result, transaction fees are spiking.
But Ethereum is where most of the products are. What good is a faster, cheaper blockchain if you can’t do as much on it?
It’s against this background that Avalanche is welcoming decentralized exchange (DEX) SushiSwap to its network. The developers at Ava Labs think that bringing the largest decentralized exchange by total value locked on Ethereum can help Avalanche grow its DeFi offerings and compete against Ethereum. (TVL measures in dollar terms how much cryptocurrency users have put in the platform’s smart contracts. In other words, it’s a rough measure of how popular a DeFi protocol is.)
Earlier this year, developers launched a bridge to Ethereum, meaning DeFi assets such as Chainlink, Aave, and Wrapped Bitcoin are already on the network. This is the natural next step.
Decentralized finance is the catch-all term for blockchain-based financial products without the middleman. It encompasses things such as loans, interest-bearing accounts, and derivatives trading that occur on a distributed network.
Decentralized exchanges are one type of DeFi product; they enable people to trade different types of cryptocurrencies. Unlike a centralized exchange such as Coinbase or Binance, decentralized exchanges don’t take custody of users’ coins. Instead, they use smart contracts to facilitate peer-to-peer trading. They prioritize (at least, theoretically) security and privacy above ease of use.
But to get on a DEX such as SushiSwap and start trading tokens, users typically first need Ether, the common currency of DeFi protocols built atop the Ethereum blockchain. Now, they’ll be using the AVAX token for their fees and transactions. That could be a boost for the liquidity of the network and the value of the AVAX token.
“Avalanche offers a complementary ecosystem for DeFi users who have been priced out of the current applications because of high gas fees,” Ava Labs President John Wu told Decrypt via email. “That will lead users to explore apps on Avalanche, and pursue yield opportunities within the growing DeFi ecosystem on it.”
However, he suggested the intent isn’t to bleed off users from Ethereum but to tap into new user segments. “Ethereum and Avalanche can together turn DeFi from a niche community to a legitimate competitor with the world of traditional financial services,” he said.
The creation of SushiSwap on Avalanche is certainly a step toward that. SushiSwap began as a clone of Uniswap but has since evolved and grown to surpass the decentralized exchange in terms of total value locked into the platform.
Users aren’t necessarily swapping Ethereum for Avalanche yet; the new DEX doesn’t have a launch date.