SushiSwap: The Liquidity Moved, and So Did the Keys

A Rival That Needed Its Rival

In August 2020, SushiSwap arrived with an unusual recruitment strategy: participants first supplied liquidity to Uniswap. They then deposited the liquidity-provider tokens they received into SushiSwap’s reward contract. The new exchange was using activity on its competitor to build its own opening crowd. Contemporary reporting called the strategy vampire mining.^[1][3]

A liquidity token is a receipt for a share of assets in a trading pool. Depositing that receipt in MasterChef earned SUSHI rewards; it did not immediately move the underlying assets out of Uniswap. A user could be counted in SushiSwap’s farming program while the assets behind that position still supported Uniswap trading. The receipt, the reward token and the pooled assets were three different things.^[1][2]

The Mechanism Hidden in the Receipt

The migration code supplied the second half of the plan. MasterChef approved a migrator to use its deposited liquidity tokens. The migrator redeemed those old pool shares, sent the underlying pair of assets to the corresponding new pool, and obtained replacement liquidity tokens. Once that happened, the assets supported SushiSwap’s own market. The migration changed where liquidity worked, not merely which website displayed it.^[1][2]

This was a vampire attack through incentives and a programmed migration, not evidence that SushiSwap had broken into Uniswap wallets. Participation began with users depositing their liquidity tokens. But permission to join a program did not make its administration irrelevant: in the historical MasterChef code, setMigrator was restricted by onlyOwner. The person controlling that role could choose the migration contract entrusted with those receipts.^[1][2]

The same contract also minted a separate development allocation to devaddr. That allocation was different from the liquidity tokens users deposited. An exchange could distribute its reward token widely while important administrative powers and development funds remained concentrated. Reading the token distribution alone would miss the second balance of power.^[1]

September 5: Two Kinds of Money Become One Headline

On September 5, Chef Nomi’s cash-out made that distinction urgent. The recorded transaction removed a liquidity position containing roughly 2.56 million SUSHI and 20,040 ETH, swapped the SUSHI for additional ETH, and sent approximately 38,011 ETH to the SushiSwap deployer address. It was not a transfer of every user’s farming deposit. The explorer’s dollar labels change with market prices; the historical token movements are the useful evidence here.^[4]

Nomi’s sale provoked anger among participants who understood the allocation as funding for development. The Defiant documented the controversy and allegations of an exit scam. Those accusations describe the community response; they are not a court finding. The immediate governance problem was concrete enough: the project’s public promise and the founder’s ability to dispose of its development allocation had come apart.^[3][4]

On September 6, contemporary reports recorded a transfer of control to Sam Bankman-Fried, then chief executive of FTX. He presented a plan to complete the migration and move toward community-selected multisignature control. At this point in the story, that was a handover to another identifiable decision-maker and a proposed next step, not proof that every privileged function had already become decentralized.^[5]

The Pools Move Before the Ether Returns

On September 9, the migration succeeded. The Defiant reported that more than $800 million in liquidity had moved from Uniswap to SushiSwap. That figure described assets supporting trading pools, valued at the time of the report. It was not revenue earned by SushiSwap, money paid to Nomi, or the amount involved in the development-fund cash-out.^[6]

On September 11, a separate Ethereum transaction sent exactly 38,000 ETH from the deployer address to the development-fund wallet. Nomi publicly apologized, as Decrypt reported. The return is independently visible on-chain. Its amount should not be silently rounded into the earlier roughly 38,011 ETH receipt, nor treated as a payout compensating every trader who lost money.^[7][8][4]

What Could Be Copied, and What Had to Be Earned

Uniswap introduced UNI on September 16, with governance rights and a retrospective distribution to eligible past participants. Its announcement documents that response in product terms. It does not establish that SushiSwap was the sole cause of the token’s creation. The rivalry had now acquired another dimension: both systems could use token ownership to organize participation.^[9]

SushiSwap’s opening weeks left two records. The contracts explain how a reward could recruit someone else’s liquidity; the transactions and handover explain why control of development funds and administrative functions still mattered. Moving deposits was technically possible. Making the rules credible to the people behind those deposits required more than copying an exchange.^{[1][2][4][5][8]}