SushiSwap In-Depth Guide Part 2: SUSHI Token, xSUSHI (Staking), and Onsen (Liquidity Mining)

Alice: "Hello, Rabbit-senpai! The SushiSwap you taught me about the other day seems really deep! Today, I want to learn more about things like the SUSHI token used in SushiSwap, and this thing called xSUSHI. Also, I'm curious about Onsen. It's not a hot spring... right? (laughs)"

Rabbit-senpai: "Hey there, Alice! You're full of energy today, too! Heh, you've got a good eye. The world of SushiSwap has interesting discoveries the more you learn about it. Yes, the SUSHI token can be called the heart of SushiSwap, and xSUSHI is like a secret item that powers up that SUSHI even further. And Onsen... well, in a sense, it might be like a 'hot spring where rewards gush out'! Alright, let's go on an adventure to solve the mystery of these three things today! With this Rabbit-senpai on the job, any complex mechanism is a piece of cake!"

The Soul of SushiSwap! Everything About the Governance Token 'SUSHI'

Alice: "Yay! An adventure! First, what kind of things can you actually do with the SUSHI token? It's not like you can eat delicious sushi with it, right...?"

Rabbit-senpai: "Hahaha, unfortunately, it doesn't produce delicious sushi. But it's like having the 'right to decide the future' of the SushiSwap restaurant. The SUSHI token mainly has a role as a governance token."

Alice: "Governance...? That sounds a bit difficult..."

Rabbit-senpai: "It's okay, Alice. Simply put, it's the right to voice your opinion on SushiSwap's operational policies, like 'Wouldn't it be better to do this?', or to vote on proposals. For example, people who hold SUSHI tokens can participate in important decisions, such as whether to add new features or how to allocate transaction fees. It's like everyone deciding on the menu or interior of a restaurant together."

Alice: "Wow! So, if you have SUSHI tokens, you can get involved in running SushiSwap! It's like being a shareholder of the shop!"

Rabbit-senpai: "Yeah, that analogy is pretty spot on! The SUSHI token plays a very important role in ensuring that SushiSwap is not controlled by any one person or company, but is operated democratically by the entire community. This is called decentralized governance."

Alice: "Democratic... that sounds grand! How can you get your hands on those SUSHI tokens? And I wonder how many are issued?"

Rabbit-senpai: "Good question! When SushiSwap first started, SUSHI tokens were distributed at a tremendous rate as rewards to those who provided liquidity to specific pools. Imagine it like a new restaurant being generous for its grand opening. It was a strategy to get many people to use SushiSwap and liven up the place."

Rabbit-senpai: "Regarding the issuance volume, there was initially no limit, but after discussions in the community, proposals were made to adjust the pace of issuance and set an issuance cap. As of 2025, the issuance cap is set at 250 million SUSHI. And it is designed to be issued gradually toward that cap. By doing this, it's thought out to prevent the value of the token from dropping sharply while ensuring rewards reach those who contribute to SushiSwap in the long term."

Alice: "I see. So, are there any benefits to holding SUSHI tokens other than being able to participate in governance?"

Rabbit-senpai: "Of course, Alice. That's not the only appeal of the SUSHI token. There is a mechanism where a portion of the transaction fees generated on SushiSwap is returned in the form of SUSHI tokens to those who deposit them in a special place. That is deeply related to the xSUSHI I'll talk about next. Heh, it's getting more and more interesting, isn't it?"

Alice: "Yeah, yeah! Getting fees back is like bank interest, I'm happy! Tell me about xSUSHI quickly, Rabbit-senpai!"

A magic to grow and increase SUSHI? Unravel the secrets of 'xSUSHI'!

Rabbit-senpai: "Alright, here we go! Then, let's approach the mystery of xSUSHI. Alice, if you were to get your hands on SUSHI tokens, it might be a bit of a waste to just keep them in your wallet."

Alice: "Eh, really? Why?"

Senior Rabbit: "Actually, SushiSwap has a special place called the SushiBar, and if you deposit your SUSHI tokens there, you receive xSUSHI tokens in return. It might be a bit similar to depositing money in a bank and getting a passbook."

Alice: "SushiBar! That's a stylish name! So if I deposit SUSHI there, I get xSUSHI... I see. What are the benefits of holding that xSUSHI?"

Senior Rabbit: "That's the point! On SushiSwap, a small fee is charged every time a trade occurs, and 0.05% of those fees are collected in the SushiBar and distributed to those who hold xSUSHI! In other words, just by holding xSUSHI, the more SushiSwap thrives, the more you indirectly benefit from it."

Alice: "Wow! That's amazing! So just by depositing SUSHI and converting it to xSUSHI, my rewards can automatically increase!"

Senior Rabbit: "Exactly! And the mechanism for this distribution is also interesting. The fees collected in the SushiBar (which are often collected in the form of SUSHI tokens) are used to increase the value of xSUSHI. Specifically, think of it as the exchange rate when converting xSUSHI back to SUSHI gradually improving over time."

Alice: "The exchange rate improves...? What do you mean by that?"

Rabbit-senpai: "For example, let's say you first deposit 100 SUSHI and receive 100 xSUSHI in return, right? As time passes and a lot of fees collect in the SushiBar, when you go to convert those 100 xSUSHI back into SUSHI, there is a possibility that you will get back more SUSHI than you deposited, like 101 SUSHI or 102 SUSHI. This is the mechanism by which the value of xSUSHI effectively increases relative to SUSHI. So, even if the number of xSUSHI you hold doesn't change, the amount of xSUSHI that represents SUSHI will increase."

Alice: "Wow! That's like a magic piggy bank! You put money in, and before you know it, the contents have grown!"

Rabbit-senpai: "Haha, that's a good analogy, Alice. It's exactly like that. This xSUSHI mechanism serves as an incentive for those who hold SUSHI tokens for the long term. It's not just about holding them; it's about contributing to the growth of SushiSwap and sharing in the fruits of that labor. And of course, if you hold xSUSHI, you also have the right to participate in SushiSwap governance, just like with SUSHI tokens."

Alice: "I see! So xSUSHI isn't just a deposit receipt, it's like a magic seed that grows SUSHI! I definitely want to get my hands on some!"

Rabbit-senpai: "That's the spirit, Alice! However, keep in mind that all investments come with risks. If SushiSwap itself loses popularity or if any issues arise, the value of SUSHI and xSUSHI could be affected, so you must keep that in mind. Now, let's look at another source of rewards, Onsen!"

Treasure beyond the steam? The liquidity mining "Onsen" program

Alice: "Onsen! It's finally here! Is it really a hot spring? Or does it have some other special meaning?"

Rabbit-senpai: "Haha, you really do love hot springs, Alice. Unfortunately, SushiSwap's Onsen doesn't have a bathtub. But, since this is also a place where rewards 'spring up,' maybe the name isn't entirely wrong!"

Alice: "Rewards springing up...? What on earth does that mean?"

Rabbit-senpai: "The Onsen program is, simply put, a type of liquidity mining. Do you remember when I mentioned earlier that 'liquidity,' where many coins are gathered in a pool, is important for swapping coins on a DEX?"

Alice: "Yes! I remember! If liquidity is low, you might not be able to get the coins you want, or you might end up buying them at a very high price."

Rabbit-senpai: "Exactly! You have a wonderful memory, Alice. Since SushiSwap is also a DEX, it needs a lot of liquidity. That's why, in the Onsen program, people who deposit LP tokens for specific currency pairs (like an ETH and USDT pair, for example) are rewarded with SUSHI tokens (or sometimes tokens from other partner projects)."

Alice: "Deposit LP tokens...? You mean you take the tokens that prove you provided liquidity and deposit them again?"

Rabbit-senpai: "That's right! When you provide liquidity, you get LP tokens, right? By depositing those LP tokens into a specific 'hot spring'—or rather, a 'farm'—in Onsen, you receive additional rewards. Think of it like a restaurant giving a special bonus to the suppliers (liquidity providers) who deliver ingredients to attract more customers."

Alice: "Wow! That means it's twice as good! You get the liquidity provision fees, and on top of that, you get Onsen rewards in SUSHI tokens!"

Rabbit-senpai: "Exactly! That's why many people are motivated to actively provide liquidity. Which currency pairs get high rewards in the Onsen program changes based on the decisions of the SushiSwap management team and the community. They often choose token pairs from new and promising projects, or pairs that they particularly want to attract liquidity for."

Alice: "So, if I find a pair with high rewards and deposit my LP tokens, I might be able to get a lot of SUSHI!"

Rabbit-senpai: "That's how it works. However, there are some points to be aware of here too. First, the reward rate (called APY or APR) is always fluctuating. Since many people flock to popular pairs, your individual share might decrease. And most importantly, there is the risk of impermanent loss."

Alice: "Ugh... it's here, impermanent loss...! That's the loss that might occur if the price ratio of the deposited coins changes, right?"

Rabbit-senpai: "That's right, Alice. Even if you can get high rewards in Onsen, if the price of the currency pair you deposited fluctuates significantly and impermanent loss occurs, you could end up losing money. That's why, when participating in the Onsen program, you need to weigh the potential rewards against the risk of impermanent loss and think about it very carefully."

Alice: "Hmm, I guess there's a catch to every good deal... But it seems interesting to try it once you understand the risks!"

Rabbit-senpai: "That's true. The SushiSwap Onsen program played a huge role in gathering liquidity for new project tokens in the early days. By the way, these days, similar liquidity mining programs are often operated under the name 'Farms', but the name 'Onsen' really captures SushiSwap's unique worldview and is very familiar to long-time users."

Alice: "Farms…so they're fields! From hot springs to fields, that's kind of interesting. I feel like I really understand the SUSHI token, xSUSHI, and Onsen now! Thank you, Rabbit-senpai!"

Rabbit-senpai: "You're very welcome, Alice! The SushiSwap ecosystem is built on these elements intricately intertwined. You can participate in governance, earn rewards through staking, or aim for further rewards by providing liquidity... the charm lies in the many ways you can get involved. Now, let's wrap up today's adventure here and take a little break."

Rabbit-senpai's Quick Break Column: The SUSHI Scandal and the Strange Fate of Chef Nomi

Now, let me tell you a rather interesting—or rather, at the time, quite nerve-wracking—story. Back when SushiSwap was just born, between the summer and autumn of 2020, there was a truly dramatic event.

One of the founders of SushiSwap, an anonymous developer named "Chef Nomi", one day suddenly moved a massive amount of SUSHI tokens that had been pooled as development funds (said to be worth about 1.4 billion yen at the time!) into their own personal wallet and even converted some of it into Ethereum!

Alice: "Whaaat!? Isn't that just like being a thief!"

Rabbit-senpai: "Now, now, calm down, Alice. At the time, the community was in an uproar. There was fierce criticism, calling it a 'scam' and a 'betrayal.' The price of the SUSHI token also plummeted. However, the story doesn't end there. After receiving a lot of criticism and pressure, Chef Nomi returned the entire amount of converted Ethereum to the development fund pool a few days later! And then, they temporarily transferred the project control of SushiSwap to Sam Bankman-Fried (known as SBF), who was the CEO of the major exchange FTX at the time."

Alice: "Eh!? They returned it? And transferred authority to someone else...? That's like a rollercoaster!"

Rabbit-senpai: "Exactly. Chef Nomi later apologized and admitted that their actions were wrong. This series of events is still talked about today as an incident that highlighted the immaturity of governance in the early days of DeFi projects, the risks of anonymous developers, and the power of the community. In the end, SushiSwap was rebuilt under community leadership and has overcome many difficulties to reach where it is today. You could even say that the founder's dramatic actions actually accelerated the decentralization of the project. Heh, the world of DeFi is full of not just technology but human drama, so I never get bored of it!"

Alice: "Wow... so that's what happened. It sounds like a movie..."

Rabbit-senpai: "Right? That's why it's a case that clearly shows how important project transparency, a reliable team, and a solid governance structure are. Well, with the eyes of a seasoned veteran like Rabbit-senpai, I can spot suspicious projects! Just kidding!"

Summary

Alice: "Today's adventure was super educational! I learned that the SUSHI token is an important key to deciding the future of SushiSwap, that depositing it in the SushiBar to get xSUSHI might be profitable as SushiSwap grows, and that providing liquidity in Onsen (it's called Farms now, right!) gives you a chance to get even more SUSHI rewards! But I also have to carefully consider the risk of impermanent loss. It felt like participating in the management of a restaurant called SushiSwap or using a great membership service, and it was exciting! The story about Chef Nomi was nerve-wracking, but I felt that the power of the community is amazing."

Rabbit-senpai: "Indeed, Alice, your learning today is perfect! That's right, SushiSwap isn't just a place to exchange coins, but a living ecosystem that everyone involved builds together. Getting involved in various ways while fully understanding the risks is one of the real thrills of DeFi. Now, is it finally time for the appearance of SushiSwap's secret weapon next? Hehehe, look forward to it!"

Next Episode Preview

Alice: "Eh, a secret weapon!? What could it be, I'm super curious! Rabbit-senpai, tell me quickly!" Rabbit-senpai: "Oops, that's still a secret, Alice. Next time, I plan to talk about how SushiSwap also helps new projects get launched into the world, and an even larger-scale story about how SushiSwap acts as a bridge connecting various blockchains! The hints are 'MISO soup' and 'cross-chain'... maybe? Look forward to the next installment of Alice and Rabbit-senpai's Cryptocurrency Wonderland Adventure!"

☕ Adventure Tips Corner ☕

Alice: "Rabbit-senpai! Today's story was super interesting too! Somehow, reading this article made me want to try buying cryptocurrency!"

Rabbit-senpai: "Oops, Alice, I understand that feeling well. But impatience is forbidden. This adventure log is just a 'map' to understand how the Wonderland works. It's not a 'treasure map'."

Alice: "Not a treasure map...?"

Rabbit-senpai: "Exactly. This is by no means intended to be investment advice telling you to 'buy coins here.' Investing is something you do based on your own careful study, using money you can afford to lose, and at your own judgment and risk. If you get that wrong, you'll end up lost in Wonderland. I really need you to promise me you'll follow that rule."

Alice: "Yes, I understand! At my own risk, right! But, I also got a little worried thinking, what if the information in this article is wrong?"

Rabbit-senpai: "You've noticed a good point, Alice. This Rabbit-senpai is trying his best to provide the most accurate information possible, but in this world, things change at the speed of light. Information might become outdated, or there might be misunderstandings. So, if any of our readers notice, 'Huh? This information might be a bit off,' it would be a huge help if you could kindly let me know. I want to grow this adventure log into something even more wonderful together with everyone!"

Alice: "So it's an adventure log that we all create together! That sounds wonderful!"