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The price of SUSHI, the native token of decentralized exchange SushiSwap, is down 45% from February 2023, when prices peaked at $1.63, the highest level in six months.
SushiSwap token redesign
This reduction comes despite the successful implementation of a proposal to change the tokenomics of SUSHI, making SUSHI, the governance token, more deflationary.
The proposal was first made in December 2022 by Chef Jeremy Gray and was voted on and agreed upon by the community earlier this year.
The proposal was accepted by a majority vote and will aim to reduce the supply of SUSHI over the years. At the same time, it will increase the reward for liquidity providers and also encourage users to stake SUSHI for longer.
Gray argued that this implementation would promote decentralization, making the protocol “more equitable governance with a sustainable economy”. In the end, by redesigning the SUSHI tokenomics, the goal will be to keep annual inflation between 1% and 3%.
The latest data from MoneyPrinter shows that SUSHI has an annual inflation rate of 1.23%, which is in line with the redesign of the SushiSwap tokenomics. If anything, this inflation rate is lower than that of Bitcoin, which has an annual issuance of 1.82%. SUSHI inflation is also lower than Cardano, which has an annual issuance of 1.79%.
While analysts expect low inflation to support prices in the long term, SUSHI’s performance in the first half of 2023 was disappointing. SUSHI is down 45% from its 2023 highs and 99% from its 2021 peaks when the token changed hands at around $22.
Winter is to blame, hackers and regulators
Although the markets have recovered, some, including SUSHI, may still be recovering from the effects of the cryptocurrency winter.
Last year, Bitcoin, the largest coin by market capitalization, crashed by more than 70% after peaking at over $69,000 in November 2021. The collapse of BTC took the altcoin market with it, causing the more volatile assets to fall even further, negatively impacting SUSHI.
For example, SUSHI is at a 2022 low near $0.89, retesting a critical multi-month support level.
SushiSwap Price May 17 | Source: SUSHIUSDT on Binance, TradingView
Prices are also capped as investor confidence suffered after the SushiSwap exploit on the RouterProcessor2 contract in early April 2023. As a result, the hackers received 3.3 million dollars. While the vulnerability has since been patched, the reputational damage associated with the vulnerability has eroded investor confidence.
It remains to be seen how SushiSwap will handle potential new regulations, especially in the United States. Some politicians have taken a negative stance towards cryptocurrencies, causing users in the country to be hesitant to use DeFi protocols due to possible legal implications.