Sushi’s ‘Smart Pools’ hope to boost LP efficiency

The DEX announced an integration with Steer Protocol, a liquidity manager focused on making LPing more efficient

November 9, 2023 12:02 pm

BeNeDak/Shutterstock modified by Blockworks

DeFi depends on liquidity providers (LPs), but LPs can face an uphill battle in generating yield. Steer Protocol announced on Thursday that it is integrating its so-called Smart Pools on Sushi to try and make liquidity provision more attractive.

Steer’s Smart Pools take some data off-chain and automate aspects of liquidity management to increase efficiency for LPs. The Smart Pool integration comes as Sushi weighs an overhaul of its tokenomics and its native SUSHI token gets swept up in a market rally.

LPs put capital in pools that automated market makers (AMMs) like Sushi use to create order depth for DeFi assets. Providing capital as an LP can be inefficient because of loss-versus-rebalancing (LVR) where an LP essentially faces arbitrage from AMM prices lagging behind centralized venues.

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Steer is an active liquidity management platform (ALM) that focuses on concentrated liquidity. LPs provide the platform with capital for a certain price range to increase their chances of the funds being used for a trade and earning fees.

The ALM moves some data off-chain to deal with LVR.

“From the arbitrage perspective, we can place liquidity, which looks like books that are on — let’s say a centralized exchange — which allows us to capture that price movement before it actually might happen on-chain,” Derek Barrera, the founder of Steer, said.

Since launching over the summer, Steer has become the ninth-largest liquidity management protocol by total value locked (TVL), according to DeFiLlama.

Sushi’s Steer integration comes soon after the protocol’s “Head Chef” Jared Grey proposed changes to Sushi’s tokenomics. He indicated that these are meant to incentivize LPs to lock their liquidity into the DEX for longer periods of time.

Under Sushi’s current tokenomics, an average of over $100 million has been paid out in emissions to LPs for every $300 million in total value locked (TVL) created, the proposal said.

The price of Sushi (SUSHI) jumped from around $0.55 in mid-October to $1.26 in early November, per Blockworks Research, and currently trades at $0.96 at the time of publication.

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