Recently, SushiSwap (SUSHI 5.96%) launched its much-anticipated cryptocurrency routing system called Trident. In this video clip from "The Crypto Show" on Motley Fool Live, recorded on March 23, Fool.com contributors Jon Quast and Chris MacDonald outline how the tool works and what it means for investors. 

Jon Quast: If this is a cryptocurrency that you follow, you're probably aware that Trident was announced like a year ago, but has not launched until just this past week, I believe. But SushiSwap for those who don't know, it isn't a Coinbase (COIN -3.17%) where it's a company, a centralized entity. This is a decentralized way of switching from one cryptocurrency to another. There's a whole complex system of creating the needed liquidity to make sure that transactions go through. It's a lot like PancakeSwap for those familiar with that one but Chris, what do we need to know about Trident?

Chris MacDonald: That's a really good intro because I wrote an article in November saying Trident is just right around the corner. We're here in March, it's finally here. SushiSwap it's up on this news for sure, it's been moving in the right direction over the past week as well along with a lot of the other altcoins.

But like you mentioned, it's a decentralized exchange project. What makes SushiSwap interesting is that it's both a decentralized exchange, but it also provides liquidity pools as well. Maybe this is important to differentiate between the two for viewers.

For automated market-makers, which essentially are decentralized exchanges in the crypto world, they require liquidity to perform trades. Much like a stockbroker would hold your shares of stock and be able to trade them or allow short sellers to short them or what have you. Liquidity pools are needed to allow market-makers to operate in the crypto world.

SushiSwap has become interesting because it's become a popular token because for those who provide tokens to liquidity pools, they receive some pretty decent rewards. Similar to staking, you put up your tokens into these liquidity pools and you can think of them as giant piles of tokens that hundreds or thousands of investors will throw into a given pile and a given decentralized exchange will be able to lend those out. That's what SushiSwap's business model has been thus far.

Originally it was a fork of Uniswap (UNI 3.00%), which is the biggest decentralized exchange in the world. Those liquidity pool rewards seem like they're still going to be there. But what this Trident update does is it allows for the framework for other automated market-makers to be built on top of Trident.

The idea with this update is that they're trying to encourage the development of more automated market-makers with the hope that SushiSwap will be able to pick up more market share and grow relative to Uniswap. Really this is a supply and demand trade, I think, where investors are trying to determine the extent to which this will be successful, the extent to which Trident will become the gold standard that other automated market-makers will want to be built on top of and that will drive the demand for Sushi, which is SushiSwap's token in theory over time.

This is something that's still evolving and it just got launched, it's still in beta, so we'll see how this moves forward, but definitely, an interesting project to look out for sure.