(Bloomberg) — SushiSwap, the decentralized cryptocurrency exchange that started with a scandal, is facing a crossroads as infighting among developers has investors seeking to reorganize the supposed autonomous organization.
Two large owners of Sushi tokens, which gives holders governance rights over how the protocol operates, submitted a proposal to restructure the project that may be considered for adoption as early as this week. The plan suggests establishing a more formalized entity to manage the effort, and checks and balances to ensure the proper spending of funds.
SushiSwap was supposed to be “a community-built open-source ecosystem,” in which users could trade directly with each other, without intermediaries, and make operational decisions. But it turned out to be largely controlled by a handful of mostly anonymous developers, who sometimes bypassed community votes and have been seeking to increase their compensation. The discord has led to the trading of accusations of extravagant spending and self-enrichment without community approval or oversight, and the quitting of the exchange’s chief technology officer Wednesday.
“It is physically impossible for every decision a DAO makes to go to a public vote,” Jeff Dorman, chief investment officer at crypto investment firm Arca, which is one of the sponsors of the restructuring proposal, said in an interview. “We are using Sushi as a microcosm for what all DAOs should look like in the future.”
SushiSwap’s start was a microcosm of why U.S. Securities and Exchange Commission Chair Gary Gensler has called the sector the Wild West of crypto. In August 2020, an anonymous entity going by Chef Nomi simply copied the computer code of a rival exchange called Uniswap and launched SushiSwap. Offering its own token, Sushi, the exchange quickly lured hundreds of millions in user funds with incentives. But within weeks Chef Nomi cashed out about $13 million of developer funds. Following an uproar, Chef Nomi returned the funds and handed all credentials to Sam Bankman-Fried, who runs the FTX crypto exchange, and his team, who took over SushiSwap and saved it from collapse. Bankman-Fried has not been involved in Sushi recently, he said in an email.
On Dec. 5, SushiSwap CTO Joseph Delong made a series of tweets to refute the “absurd defamation” about him, while also saying he would quit if his compensation is not increased. He left Wednesday, tweeting that he is “saddened that Sushi is so imperiled within and without. The chaos that is occurring now is unlikely to result in a resolution that will leave the DAO as much more of a shadow than it once was without a radical structural transformation.”
The recent turmoil at SushiSwap may be partly the result of the slump in the price of most DeFi tokens. While Sushi’s price has doubled since January, it’s down about 70% from an all-time high in March, according to data tracker CoinMarketCap.com. Sushi tokens jumped after Delong’s resignation, gaining about 15% to around $6.77, according to CoinMarketCap data.
Sushi’s core developers a didn’t respond to multiple requests for comment from Bloomberg. Delong didn’t return requests for comment.
“The infighting at SushiSwap demonstrates that decentralized organizations don’t always work any better than centralized organizations,” said Aaron Brown, a crypto investor who writes for Bloomberg Opinion. “The two basic problems with SushiSwap are too many opportunists in its initial creation and failure to align incentives carefully.”
(Updates with price jump for Sushi tokens.)
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