As 2020’s DeFi summer raged on, and dApps emerged out of nowhere for users to lock their funds in the hundreds of millions and billions, one made a memorable mark. Seemingly at the end of this, the then-acclaimed SushiSwap made its entry to roaring adoption. Now, it struggles.
It surfaced in August 2020 to dethrone Uniswap, the biggest automated market maker (AMM) decentralized exchange (DEX) from which it was forked. Since then, it has witnessed management changes rooted in controversies, issues with the US Securities and Exchange Commission (SEC), and a spiralling token price. Needless to say, SushiSwap has been in a limbo.
SushiSwap’s Turbocharged Rise
Once at the forefront of decentralization, exuding how breaking down top-down structures could revolutionize finance and tech, the fallen DEX is a case study for why checks and balances are needed. Because it’s not decentralization that drives such issues. It’s the lack of transparency and accountability.
Chef Nomi, the anonymous developer spearheading the inception of this project, orchestrated a viral launch through a tactic called a vampire attack. The target of this very attack? Uniswap. SushiSwap entered the scene by offering better incentives to LPs than Uniswap. The result was a massive switch to the new DEX on the block. LPs moved their liquidity to SushiSwap-related contracts. This is precisely what a vampire attack looks like, and SushiSwap drove the most successful one to date.
Uniswap saw over $1 billion drained from its pools. While this move has been criticized for unethically rounding up users, what SushiSwap promised to its to-be community seemed very fair. First things first: it offered the SUSHI token to LPs, which compensated their users better than its competitor, which offered no such token beyond a cut of the trading fees. But that was not it. It attracted developers by creating a fund that accumulated 10% of SUSHI emissions. Here’s where it took the stakes higher. SushiSwap ensured no tokens were allocated to VCs, allowing its community to call all the shots—true decentralization.
The hype was so real that the platform boasted a total value locked (TVL) of $1.3 billion in September 2020, merely a month since its inception.
The Beginning of the End?
One would believe the story to only incite more excitement. However, here’s where the community felt the first kicker.
Chef Nomi Rug Pulls, While SBF Saves the Protocol
Nomi, on September 5, decided to walk away with $14 million in ETH reserved for the dApp’s developer funds, claiming he deserved it. The crypto community believed that it had just witnessed an exit scam.
Things looked dire, absolutely. But hope was somewhat restored when the CEO of defunct exchange FTX—and now disgraced—Sam Bankman-Fried (SBF) temporarily took over the protocol. While an intervention like this would seem disastrous considering what happened with FTX, he did promise total transparency in SushiSwap’s operations and to introduce a democratic multisig-based governance.
1) A way forward for Sushi, and a way further back.
— SBF (@SBF_FTX) September 6, 2020
Right before handing control back to the community, he oversaw the safe migration of liquidity from Uniswap to SushiSwap. Essentially, SushiSwap kickstarted user acquisition by providing SUSHI tokens to LPs for depositing their funds within relevant pools on Uniswap. Using a smart contract function, these funds were to be transferred to SushiSwap at a later date. And that occurred when SBF stepped in.
The protocol definitely avoided an early death thanks to him. Still, it may not exist now if he were to become its permanent leader, considering the fate of the projects he led. Beyond the saving grace that he temporarily was, things continued to turn around, slightly. Nomi returned the funds he had withdrawn for himself, handed the admin control to SBF, and admitted to making a mistake. However, the damage was already done. There was a massive loss of trust in the protocol, and its TVL had dropped immensely due to the turbulence he had caused.
I have returned all the $14M worth of ETH back to the treasury. And I will let the community decide how much I deserve as the original creator of SushiSwap. In any currency (ETH/SUSHI/etc). With any lockup schedule you wish.https://t.co/QwFj5SeeuQ
— Chef Nomi #SushiSwap (@NomiChef) September 11, 2020
Another Chance to Stay Alive
With the control offered to SushiSwap’s community, the following year saw a new individual taking the lead, backed by SUSHI holders. The Sushi DAO elected 0xMaki, a co-founder and core contributor of the project, as one of nine multisig members. From there, he became the one to steer its future. It is important to note that he never received the title of Head Chef; he operated informally. Through his short-lived yet highly effective leadership, Maki took the dApp to new heights.
He stewarded SushiSwap, focusing on decentralized decision-making, into a burst of innovation, which in retrospect could not be sustainable due to the protocol’s continued hiccups. More about that later. Maki heavily pushed for multisig treasury governance and operational norms for the DAO. He also reshaped SushiSwap into more than a Uniswap fork. He repositioned the platform to be a full-scale DeFi suite. Beyond the existing DEX, the SushiSwap ecosystem witnessed additions like BentoBox—a vault for users to maximize yields, Kashi—a lending protocol, MISO—a token launchpad to fund emerging DEXs, and Shoyu—an NFT marketplace.
With things already in motion, Sushiswap underwent an active cross-chain rollout. It saw placements on leading blockchains with massive DeFi user bases, like Avalanche, BNB Chain, Polygon, and more. Things kept moving ahead, as Maki also spearheaded partnerships and integrations with popular dApps and their ecosystems, including Yearn, Curve, and Aave, among others.
SushiSwap had now taken a new trajectory, one that showcased immense promise and potential. It even witnessed a tremendous rise in TVL through this time, going over $4 billion, indicating a boost in user confidence and an optimistic outlook toward the project’s future. Maki was also known to express his excitement for Ethereum’s budding layer 2 ecosystem, positioning the protocol’s growth with the blockchain’s move into a new era of scalability.
Nevertheless, it seems that SushiSwap could not catch a break, as not everything was perfect behind the scenes. In fact, it was anything but.
Another Chance, Squandered
Maki announced that he was resigning from his leadership role due to its strenuousness getting in the way of his physical and mental health and relationships. The community guessed that things had gone awry behind the scenes among the core team.
Reports later emerged to state that he was, in fact, forced out by the protocol’s insiders, spearheaded by the then CTO Joseph Delong. Based on on-chain analysis, Maki was voted out by the core team due to internal conflicts. 91% of the group voted to have him out. However, he remained on board as an advisor—his three-year contract with the protocol prevented him from being fully ousted.
Furthermore, the same reports indicated that the disagreements between Maki and the rest of the inner circle occurred due to alleged corrupt practices that the team was involved in. While he is not accused of anything, the clique apparently spent thousands of dollars on business dinners, was not transparent about expenses, siphoned away treasury funds, and misallocated token bonuses. With him vacating the leadership role, it took over a year for the next leader to be appointed.
More Leadership Troubles
This time, it was more formal, as Jared Grey was elected as the Head Chef in September 2022. However, his appointment did not come without its controversies. Posts on X and blogs elsewhere made their way to highlight Grey’s role in a previous project, ALQO (LibertyCoin), to accuse him of fraudulent behavior. Grey denied these allegations, called them defamatory, and defended himself by saying that another member of the team was responsible. Still, the SushiSwap community was called out for not conducting the needed due diligence before it elected its Head Chef.
Today has been interesting. Let me be clear: the accusations towards me are 100% untrue. FYI, in 2019, my business partner stole funds from our community while I was busy raising funds to launch the Bitfineon exchange. /1
— Jared Grey (@jaredgrey) October 11, 2022
Those wary about Grey’s position due to his not-so-appealing past would have been right, as multiple red flags began popping up not too long into his tenure. He suggested budget restructuring and increased contributor salaries, while not maintaining the needed levels of transparency in his proposals. Moreover, the amplified compensation he fronted was not justified; it was not based on clear KPIs, leaving many to feel that this move put himself and core contributors above the rest of the community. Essentially, the community critiqued the platform and its governance to have taken a centralized form—a criticism that had been voiced against previous leadership groups as well.
The SEC Intervenes; Grey Mismanages Treasury
SushiSwap’s real issues would be highlighted in March 2023 when Grey announced that the US Securities and Exchange Commission (SEC) had served him and the protocol with a subpoena. While he advanced the idea of a $3 million legal defense fund to help DAO members, it was specified that the treasury fund had been nearly depleted at the time, with about $5 million being spent in less than a year. No transparency existed to show how this value was burned through, but it was most likely due to inflated salaries and “strategic efforts” that were never explained.
Still, the SEC subpoena did more than just showcase a glaring issue with how centralization and unethical behavior were the norm in how the core team functioned under Grey. It was a time during which the regulatory body was going after DeFi projects, with structures like DAOs being a target. While no legal action was taken beyond this, it resulted in contributors stepping away from the project in fear of personal legal issues, as DAOs like these are not incorporated entities and thus can’t protect individuals.
Cybercriminals Try Their Hand at Sinking SushiSwap
Less than a month after the SEC stepped in, the platform suffered a hack that resulted in about $3.3 million—1,800 ETH at the time—from users. A bug in the newly introduced RouterProcessor2 contract allowed cybercriminals to skirt past its ability to differentiate between safe and malicious contracts. This allowed them to set up pools that attacked user wallets—the hackers drained wallets that interacted with their pools. Nevertheless, a bug bounty program was commissioned by SushiSwap, and about $750,000, or 885 ETH then, was recovered through white hat operations.
The Fallout and Falloff
This negative string of incidents pushed SushiSwap from its initial prominence to a state of uncertainty. It is August 2025, and SUSHI’s price hovers below $1 and its TVL is slightly above $260 million. In 2021, each token was worth over $20, and users collectively locked over $7 billion in the platform. Products that were launched in its heyday, like the vault platform BentoBox, lending protocol Kashi, and the token launchpad MISO, were officially decommissioned. Shoyu, the NFT marketplace, was silently halted with no formal announcements.
Analyzing SushiSwap’s Fall From Grace
SushiSwap is now a shadow of its former self—something that could have been avoided if the right steps were taken since its inception. However, knowing what went wrong and where can prevent such occurrences from repeating in the DeFi landscape.
Lack of Accountability Due to Anonymity
SushiSwap’s initial setback, driven single-handedly by Nomi, was only possible because of the anonymity with which he operated. The lack of connection to an identity in the real world enabled him to walk away with $14 million without any consequences. Knowing fully well that he would not face any legal pressure allowed him to cause reputational damage to the project. All this despite him returning the funds that he planned on walking away with.
Opacity in Decision-Making
Although promoted as fully decentralized, boasting a DAO and bottom-up decision-making approach, key leadership teams acted in the dark for their own benefit. Whether it was how the rest of the team put themselves ahead of the community when Maki tried to emphasize decentralization or Grey leading such behavior during his tenure, the community was kept out of the loop or asked to vote on vague DAO proposals. This created a climate in which core teams spent lavishly, drained treasury funds, and ensured they pocketed funds at the expense of SUSHI holders and project participants.
DAOs Do Not Offer Legal Checks
In an ideal world where decentralization thrived, DAOs would be an impressive replacement for corporate governance. However, SushiSwap’s decline showed that it was nowhere close to perfect. Behind the smokescreen of decentralization lay deception. When everything was said and done, the community did not have any legal recourse. It was even worse for contributors who wanted to make a meaningful impact—the SEC interference put them at personal risk.
Cluttered Offerings
What started as a bang with the platform becoming a leader in a very short period, the platform’s roadmap constantly evolved without focus. Too many offerings without clear execution were an issue—the introduction of products in bids to blindly round up the whole DeFi ecosystem backfired. BentoBox, MISO, Kashi, and Shoyu seemed great on paper, but drained too many resources. In the end, they all failed, leaving users disappointed and a big dent in the project’s treasury.
Lessons for the Crypto Ecosystem
SushiSwap’s failure is not something to fear; it’s something the entire ecosystem can learn from.
Decentralization Needs Checks, Too
Not everything that shines is gold. The saying applies to everything decentralized as well. To ensure projects remain decentralized through and through, transparency must remain a crucial aspect, multisig safeguards must be incorporated, and third-party audits must be conducted to vet the code and ensure that everything is as advertised. All of this must occur from the get-go to keep everything trustless.
DAO Governance Must Grow Beyond Decentralization
While DAOs are presented as a better way for governance, especially when compared with centralized governance frameworks, that may not be the whole truth. What most of these on-chain bodies lack is the maturity and operational rigor of established corporate structures. Until DAOs make it a point to adopt governance standards that match or go beyond what centralized entities now adhere to, they risk becoming dysfunctional and opaque. Building robust governance infrastructures is an imperative.
Product Vision Takes Priority
Projects that make it over the long term introduce new offerings only after they are proven to be a great market fit and their functionalities are ironed out. It is not a race to round up the markets with different implementations. Projects must innovate based on core user needs and aim for niches that will stand the test of time, not hype.
Project Hype Does Not Indicate Health
Just because a project’s token is soaring does not mean it is healthy and immune to a bad foundation. The key indicator for a protocol’s health is the trust showcased by its user base, TVL, and unique active wallets (UAW). Aiming to achieve increasing metrics along these aspects invariably aligns projects with fostering transparency and decentralization. Users return and stick to reliable projects; going off hype-driven cycles marked by token frenzies is a recipe for disaster.
Compliance Is Needed, Even on the Blockchain
Being advertised as decentralized and implemented on blockchain networks does not exempt protocols from being ignored by the law. While the SEC is known to be overly strict with Web3 projects, meeting compliance requirements should be a priority. Even projects doing everything right may get pushed off their tracks if they ignore legal necessities—it is not just shady projects that are under the radar.
Decentralization is Key, But Not Everything
SushiSwap’s downfall illustrates how everything can go wrong, even after second chances. True decentralization can only exist alongside transparency and accountability. If it is only fronted, entire projects can capsize in a matter of months, and well-meaning contributors can get into legal trouble.
DeFi, being the wild west it is, has always been at a crossroads. For it to truly break out and onboard the next billion users, projects and their leaders must take the onus to deliver a trustless experience, with checks and balances that aim to protect all stakeholders. What happened with SushiSwap does not mean DeFi and the broader crypto ecosystem must face such issues repeatedly. It is a testament to what can go wrong, what projects must focus on building, and what participants should look out for.
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