The price of SUSHI, the native token of SushiSwap, a decentralized exchange, is down 45% from February 2023, when prices peaked at $1.63, the highest level in six months.
SushiSwap Token Redesign
This reduction is despite the successful implementation of a proposal to redesign the tokenomics of SUSHI, which makes SUSHI, a management token, more deflationary.
The proposal was first made in December 2022 by Chief Chef Jeremy Gray and was voted on and approved by the community earlier this year.
The proposal was passed with a majority vote and will seek to reduce the supply of SUSHI for several years. At the same time, it will increase the rewards for liquidity providers while encouraging users to stake SUSHI for a longer time.
Gray argued that this implementation would promote decentralization while creating a protocol with “more equitable management of the sustainable economy.” Finally, by redesigning the tokenomics of SUSHI, the goal is to keep the annual inflation between 1% to 3%.
The latest data from MoneyPrinter shows that SUSHI’s annual inflation is at 1.23%, which is in line with SushiSwap’s tokenomics redesign. If anything, this inflation rate is lower than Bitcoin, which has an annual issuance rate of 1.82%. The inflation of SUSHI is also lower than Cardano, with an annual emission of 1.79%.
While analysts expect low inflation to support prices in the high imagination, SUSHI’s performance in the first half of 2023 is dire. SUSHI is down 45% from its 2023 high and 99% from its 2021 peak when the token changed hands at around $22.
Blame Winter, Hacks, And Regulators
While markets are recovering, others, including SUSHI, may still be recovering from the effects of the crypto winter.
Last year, Bitcoin, the largest coin by market cap, crashed more than 70% after peaking at more than $69,000 in November 2021. BTC’s collapse dragged the altcoin market with it, forcing faster assets that are even lower, affecting SUSHI.
As an illustration, SUSHI is trending to 2022 lows around $0.89, retesting a critical multi-month support level.
Prices were also capped as investor confidence took a hit after exploiting SushiSwap’s RouterProcessor2 contract in early April 2023. Hackers made off with $3.3 million. Even after the flaw has been patched, the reputational damage associated with the vulnerability undermines investor confidence.
It remains to be seen how SushiSwap will navigate potential new regulations, especially those coming from the United States. Some policymakers have taken a negative stance towards cryptocurrency, causing users in the country to hesitate to participate in DeFi protocols due to potential legal consequences.
Feature Image From Canva, Chart From TradingView
