Before I begin I want to write I hold 0 SUSHI bags and have no vested financial interest in this debate. I’ve simply observed something that I’d like to call out/talk about more about the space in general.

Last week Sushi announced the fact that they’re going to be redirecting fees that went to xSUSHI back to the treasury in order to fund development sustainably.

I'm Software 🦇🔊 @MatthewLilley

Sushi had a rough 12m to say the least, but things are moving in the right direction and great progress has been made. However, with the market shock and emissions ending next year, a short term solution is needed to ensure runway for the coming years.

forum.sushi.comREINSTATED: Increase Kanpai Treasury Allocation to 100%REINSTATED: Increase Kanpai Treasury Allocation to 100% I withdrew the original proposal to take into consideration the feedback from the community to help make it more focused and time-specific. Proposal Over the past two months as Head Chef, I’ve spent most of my time analyzing the operational…

Of course with this announcement we had the usual expected reaction: token holders crying about the fact they’re going to lose their 5-7% annualised yield. I mean I get why there’d be initial outrage but the thing that doesn’t make sense is no one wants to see the larger picture.

If you’re Sushi, you have a few facts at your disposal:

You’re currently earning millions of dollars per year in fees but being directed to shareholders

Your treasury only has 1.5 years of runway

You expect the bear market to last more than 1.5 years (an assumption, but very reasonable)

You have few remaining treasury tokens and selling them into a thin liquidity pool will cause reflexivity downwards

The most obvious thing to do to prevent the project from dying is to redirect your revenue to supporting your runway. The only other path is to hope to build while shareholders continue to extract their yield and you go out of business overnight in exactly 1.5 years from now.

For holders they’re thinking, “why should I own this token if it gives me 0 cashflows” — which is a fair enough answer tbh. But that leaves me to a bigger question, if all tokens have an expectation of profits being redirected from day 1 and public markets aren’t okay with revenue being directed to growth (or survival in this case) — then most tokens are screwed when it comes to managing investor expectations. This is because public markets are clearly saying “we expect profits even if that means you will die”. Grim.

On the other hand you have tokens that have 0 paths to profitability and investors are more than willing to buy it with the hope that it might earn revenue (not profit), one day.

What I’ve seen consistently across DeFi is that excess cashflow is allocated in very suboptimal ways. I’m not sure if there’s one correct answer but rather a project should have the flexibility to direct cashflow to where they see fit. MakerDAO suffers this problem as well. They buy their token at whatever the market price is which is terrible because:

When fee generation is at an all time high, the token price is the highest, which means the net % of supply burned is low

When fee generation is at an all time low, the token price is the lowest, which means the next % of supply burned is once again low

Ideally you want to be in a spot where the inverse happen (bank cash when fees high, buy back when token low).

Such is DeFi though.

Closing

For DeFi tokens/businesses to actually mature, both projects and investors are going to need to meet in the middle otherwise the incentive to launch/maintain tokens is going to go away and once again centralise a lot of opportunities in private markets compared to public.

Kerman Kohli

Sushi aims to redirect all fees to treasury