Onsen plays a symbiotic role in Sushi and decentralized finance at large. Onsen is a liquidity provision reward system for tokens that are relatively new. This means that tokens on the Onsen menu are another potential source of yield farming for users. Tokens selected to be on the Onsen “menu” are given an allocation of SUSHI tokens per block to incentivize liquidity provision. The benefit to being on the Onsen menu is that the projects themselves aren’t forced to incentivize their communities to provide liquidity for their tokens, because Sushi does it for them. This eases the burden of impermanent loss, and decreases the price impact/slippage of individual purchases, making purchasing more cost efficient. Onsen also benefits the Sushi ecosystem in the sense that new tokens are often more desirable than established tokens. Thus, the volume is often quite higher than other tokens, and a percentage of the total volume on SushiSwap is allocated to every xSUSHI holder, which more than justifies incentivizing liquidity.
To receive SUSHI rewards, users should deposit the token received for providing liquidity (SLP token) into the Onsen menu. These rewards help bring new coins to the market, and new coins feed the trading volume on SushiSwap. Trading volume in turn increases the value of xSUSHI. Tokens are chosen to be on the Onsen menu based on the quality and demand of their products. If the quality and demand for tokens on the menu remains high, they can remain on the Onsen menu indefinitely, or be added to the permanent Sushi menu.