SushiSwap’s Infrastructure Overhaul: What to Expect in 2025?

In March 2024, SushiSwap stirred up a heated debate within its community with the introduction of a proposal titled: Evolving Sushi – Burū no Shinka.

At its core, the plan sought to establish Sushi Labs as an autonomous administrative, technical, and operational company that would manage the Sushi ecosystem.

“This proposal aims to significantly evolve Sushi by adopting a Labs model, thereby restructuring our current organization to enhance operational efficiency and accelerate protocol development,” the proposal read.

The proposal further claimed that it expects Sushi Labs, backed by the Sushi decentralized autonomous organization (DAO), to boost innovation and expand its DeFi products, increasing the “value and utility of the Sushi ecosystem for all Sushi holders.”

Techopedia explores Sushi’s proposed new governance model, along with the potential benefits and criticisms raised by the community and what to expect in 2025 and beyond.

Table of Contents Table of Contents

1. Key Takeaways
2. SushiSwap Reworks Governance System to Become More Agile
3. What Changes with Sushi Labs?
4. Sushi Labs Sparks Centralization Concerns
5. SushiSwap's Declining Revenue
6. The Bottom Line
7. FAQs
8. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. SushiSwap Reworks Governance System to Become More Agile
3. What Changes with Sushi Labs?
Show Full Guide
4. Sushi Labs Sparks Centralization Concerns
5. SushiSwap's Declining Revenue
6. The Bottom Line
7. FAQs
8. References

SushiSwap Reworks Governance System to Become More Agile

SushiSwap claimed the proposal aims to address the challenges posed by the constantly evolving decentralized finance (DeFi) landscape, where user expectations and a growing market complexity mean treading carefully.

The project describes its current governance system as too rigid, leading to slow development and difficulties in responding quickly to market changes.

This slow pace, according to the team, has also affected the platform’s ability to secure funding for new projects and has created obstacles in attracting and retaining top talent.

For this reason, Sushi said it aims to rework its governance model. Notably, the proposed shift to a “Labs model” is a strategy already adopted by other successful projects, including the derivatives protocol Synthetix.

Nevertheless, the SushiSwap community completed a vote on the proposal on April 10, with more than 62% of voters supporting the exchange’s proposal to transition to a Labs model. The voting period started on April 3 and continued for 7 days.

On June 11, SushiSwap officially unveiled Sushi Labs, which the project called a “new chapter for continued innovation and growth”. But large governance changes take time to reveal themselves, and we explore what this means in the coming years.

What Changes with Sushi Labs?

The new Labs model fundamentally changes the project’s governance system. As of now, Sushi Labs operates under a council structure formed by four councils, which include the Sushi High Kitchen, the Treasury Council, the Grants Council, and the Ambassador Council.

High Kitchen, comprising six to eight members, is the central governing body for the protocol, which will oversee a multisig setup for transactions.

Jared Grey, the former Head Chef and now Managing Director of Sushi Labs, said in a memo that the new organizational structure, budget, and use of products like Route Processor would help enhance liquidity on the Sushi DEX. He said:

“Many attribute Sushi’s stagnated growth and AMM liquidity issues to LPs migrating to other DEXs and seeking better yield.

“However, with our newly established organizational structure, sufficient budget, and leveraging successful products like Route Processor, we have the tools to enhance liquidity on the Sushi DEX, boosting key metrics such as volume and yield for stakeholders.”

In December 2024, Gray pictured how the next few years would look:

https://t.co/OH5AtkgRn6

— Jared Grey (@jaredgrey) December 8, 2024

Sushi Labs will manage the DAO’s large budget, which includes 25 million SushiSwap (SUSHI) crypto tokens.

While tokenholders will still have a say in how treasury funds are allocated, they will no longer be involved in day-to-day operational decisions.

Other SushiSwap news included the introduction of a multitoken product system. This approach spreads out the costs of running products and offers more reward opportunities for tokenholders.

According to Sushi, it also helps prevent SUSHI token inflation and reduces the financial pressure of funding DAO projects when certain products aren’t profitable.

“By implementing a multi-token approach, we can distribute the costs of various products and drive growth in high-growth verticals, such as perps,” Grey said.

“While Sushi Labs focuses on product development and core strategy, the DAO Treasury Council will manage the native token balance, AMM proceeds from Sushi.com, and airdrops from the multi-product and token ecosystem.”

Sushi Labs Sparks Centralization Concerns

It is worth noting that SushiSwap’s shift to Sushi Labs didn’t come without any controversy. Prior to the proposal’s approval, several community members expressed their opposition to the plan on Sushi’s governance forum.

“I think it would be important to have a sizable amount of all revenues, airdrops included, going directly the the DAO treasury. This would not interfere with hiring, firing, or other operations […] Treasury should not be ignored,” noted community member Nick Rishwain in the proposal’s thread.

Rishwain suggested a split of revenues between treasury and operations. “Ops does not have to negotiate this. They do have the power to force the vote through. I’d like to see them be willing to discuss it further,” he added.

Another member of the SushiSwap community, Naïm Boubziz, claimed on X that the move was a hostile takeover. According to Boubziz, the core development team created new wallets prior to the vote in order to increase their voting power.

They have added the same amount of liquidity in SUSHI-ETH few hours ago to vote for themselves.

16 hours ago : add liquidity, create snapshot, remove liquidity.

Jared's plan :
🟢Kill the community
🟢Kill the DAO
🟢Get 100% of the treasury

— Naïm Boubziz (@BrutalTrade) April 3, 2024

However, Grey responded to the allegations of voting power manipulation. “After consulting our legal counsel, I directed the operations team to execute the YAY vote with the OP’s wallet and its holdings due to the threat of a hostile takeover,” he said on X.

Grey also noted that the Labs model will help Sushi recover lost market share. He added:

“Much of the current product development roadmap’s limitations and delays stem from the DAO’s outsized ambition, unrealistic expectations, and budget constraints endorsed through snapshot votes from when Sushi’s resources were multitudes greater.”

There are no lies. After consulting our legal counsel, I directed the operations team to execute the YAY vote with the OPs wallet and its holdings due to the threat of a hostile takeover. You're sharing screenshots of statements made by team members from chats where you are not…

— Jared Grey (@jaredgrey) April 8, 2024

SushiSwap’s Declining Revenue

The proposal came amid SushiSwap’s declining revenue and financial constraints, which trace back to 2022 when Grey warned about a $30 million loss in liquidity provider incentives, prompting a revision to the SushiSwap crypto tokenomics.

In December 2022, the decentralized exchange also revealed that it had only 1.5 years of operational runway, leading to a renewed focus on diversifying its treasury and improving liquidity management.

According to DefiLlama data, the DEX generated $11.65 million in fees and $1.5 million in revenue in March 2023, compared to $1.11 million in fees and around $185k in revenue last month.

The Bottom Line

SushiSwap was arguably facing a gradual death over the past years, losing market share to rivals and facing declining revenue. In a bid to turn the tide, the project decided to adopt a Labs model, restructuring its organization to enhance operational efficiency.

However, it remains to be seen if the change sparks a renewed interest in the project and helps it regain its lost market share.

Ideally, this new structure sets the project up for a somewhat decentralized yet focused path ahead, and perhaps the best metric for success will be tracking the generated fees in DefiLlama.

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