Glassnode is warning SUSHI holders that the pre-programmed inflationary mechanism of the token could hurt regular holders. The inflammatory mechanism is meant to incentivize liquidity providers.
Sushiswap protocol is presently active and has attracted more than a billion worth of liquidity, but a Glassnode analyst stated that the SUSHI, which is its governance token, is still highly overvalued.
The analyst said each coin is valued at $0.31, as he explored the economics behind the value of SUSHI.
SUSHI is presently overvalued, says analyst
SUSHISWAP was established as a Uniswap fork last month, as it took the DeFi world by storm. But what received a massive interest was when the governance token known as SUSHI was introduced. It grew widely in popularity. This drew the attention of investors as it does not only receive fees when it provides liquidity like on Uniswap.
Investors also get 0.05% of the converted fees back to SUSHI and shared among holders of SUSHI.
The explosive start of SUSHI made it reach an all-time high of close to $12 and listed in a lot of cryptocurrency exchanges, including Binance.
But when one of its major developers sold off his tokens for about $14 million, it was followed by a lot of controversies. This affected the level of trust investors have on the token, which brought the price to around $1.2 last week.
But a few days later the funds were returned to the SUSHI treasury by the developer.
Investors should be cautious of their investment in SUSHI
Despite the heavy decrease in price within a short time, Liesl Eicholz, Glassnode analyst, said he thinks the SUSHI token is still overvalued, citing the inflation rate as the main reason.
However, he pointed out that inflation may not necessarily be the only reason, as the inflation rate does not mean a negative feature at all times. By default, inflation was integrated into the system as a way of incentivizing investors to provide active liquidity.
Even so, “anyone holding SUSHI without providing liquidity will be diluted,” he said.
He further reiterated that there is a strong correlation between the trading volume and SUSHI’s price. So, investors should be very cautious when buying SUSHI. They should have an understanding of the underlying risks behind the token mechanics. He has passed warnings to investors who are looking to hold SUSHI for both the short and long term, pointing out that the inflation rate means there is no proper direction where it is heading.