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SushiSwap has been in the news lately owing to a proposal submitted by developer OxMaki.SushiSwap, a decentralised exchange, plans to raise $60 million from venture capitalists by selling discounted tokens. In no time, the situation had devolved into a contentious dispute, with members of the community expressing their displeasure.
According to OxMaki’s proposal, a 20 percent to 30 percent discount would be given on tokens that would be locked up for an 18-month vesting period. Pantera Capital, DeFiance, Blockchain Capital, Coinfund, Spartan, and Lightspeed Venture Partners are among the “confirmed strategic investors list.” According to the suggestion,
“SushiSwap has been a DeFi Community darling since inception and at this juncture we feel that it’s ready to welcome established crypto funds and cement SushiSwap as a household DeFi blue chip.”
The above-mentioned proposal has yet to be submitted to a governance vote. However, according to a 15 July poll conducted by the developer, 62 percent of voters were negative, while 38 percent were favourable.
Attracting VCs to invest in SUSHI’s protocol, on the other hand, may be eroding the fundamental concept of decentralisation. Is the SUSHI ecology, however, likely to be impacted if the proposal passes? Would it have a significant impact on the price of the token? Would it be able to recover from its worst-case situation if it did? To comprehend what will happen next, it is necessary to first grasp the current status of the token.
Isn’t SUSHI already undervalued?
The 74th largest cryptocurrency on the market was trading at $6.69 at press time, down 2% in the last week. It would not be unfair to say that SUSHI is already undervalued at this point. The MVRV (market-value-to-realized-value) ratio, which was still below zero at the time of writing, backed up the assertion.
When this statistic has a negative value, it means that investors are losing more money in the market than typical. The fair value of SUSHI was far more than its press time price level, according to a figure of -21.90 percent. The MVRV was, in fact, at its lowest level since December of last year, as shown in the chart.
The token’s price is already ‘discounted,’ thus adding a further 30% discount would be pointless for SUSHI.
At this stage, it should be noted that crypto-asset management firm Arca holds 7.51% of the xSUSHI circulating supply. Acknowledging the undervalued state of SUSHI, the firm’s CIO Jeff Dorman opined,
“Since we strongly believe that Sushi is already trading at a significant discount to fair value, we also won’t require further discounts. In fact, we will pay above current trading levels.”
Additionally, Lightening Investments’ Amy Wu also went on to claim,
“We took in the feedback from the community already and removing the discount. On top of that we’re also extending the lockup/vesting period.”
Well, looking at the non-covetous interest of these VCs, it can be deduced that their funds do have the potential to provide value to SUSHI’s ecosystem.
When compared to the token’s May levels, the number of whale transactions (>100k) is currently comparatively low, as shown in the graphic. In actuality, OxMaki’s proposal stated that the minimum investment ticket size would be $250,000. If the anticipated 21 venture capitalists enter SUSHI’s domain, this statistic may rise.
However, given the crypto’s current undervalued position, there is no certainty that this move will have a favourable impact on the token’s price.
At the time of writing, the token’s Stock to Flow ratio has reached an all-time high. This indicates that fresh supply entering the market is relatively small in comparison to total supply. The high ratio indicates that SUSHI has the potential to hold its value over time, and that the artificial scarcity generated when VCs purchase extra tokens may result in a price increase.
If the aforementioned scenario plays out, SUSHI’s undervalued status may become obsolete.
When institutional investors reach their profit targets, they often book profits and depart the market. As a result, the real effects of the discount offer will only become apparent once the lock-up period has ended and the so-called “strong hands” have sold their holdings.
Unsurprisingly, VCs like DeFiance have already started selling their holdings to buy back SUSHI at cheaper levels. However, SUSHI’s price has managed to shield itself from such recent dumps. This ultimately indicated that SUSHI is a long-term vibrant project and is here to stay.