SUSHI may be on a precipice, but should this concern HODLers?

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In general, the DeFi market has remained resilient to recent major corrections. Indeed, DeFi tokens have been trading higher over the last week, returning to their respective early July levels.

However, SUSHI, one of the market’s most prominent DeFi tokens, has recently been on a downward spiral. While most tokens have had a positive week, SUSHI’s price has fallen by 2.5 percent in the same timeframe. But, before we get into the reasons, let’s take a look at the state of a few key metrics.

Retention v. New users 

In terms of user penetration, the project lags behind its DeFi counterparts. On a daily basis, approximately 1800 new users are added to the protocol. Since September of last year, the aforementioned metric has undoubtedly increased. The monthly count, on the other hand, tells a slightly different story.

Around 54,000 monthly users should be accounted for by 1800 daily users. However, as evidenced by the attached chart, the figure was only 42,000. This means that the hike is not consistent. In fact, the number of users (both old and new) has been declining in recent months.

Furthermore, whenever new users join the network, the price of SUSHI rises. SUSHI’s price has been declining as the number of active addresses has not increased.

Additionally, the protocol has not been able to retain its existing users for longer durations. The macro-level spurt in the number of new addresses is fine, but the inability to retain users might prove to be a hindrance in the long term.

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 Balance on Exchanges

SUSHI’s exchange balance has increased by 23% since the beginning of the year. This essentially means that HODLers have been selling their holdings. This is also clearly not a good sign.

It should be noted at this point that SUSHI tokens are awarded to liquidity providers during vesting periods. However, the vesting schedule was changed earlier this year in April. All exchanges witnessed an intensified uptick in their balances since the beginning of that phase. In fact, a recent Glassnode report highlighted,

“High percentage of vesting SUSHI rewards continue to be sent to exchanges over time, potentially increasing the sell-side pressure on the token through to October.”

Source: Glassnode

Nonetheless, roughly 40% of SUSHI’s total circulating supply was staked as SUSHI and HODLers profited from the staking rewards. The same article also discusses the token’s recent adoption. The remainder of the supply is held in wallets (37% ) or on centralised exchanges (23 percent ).

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Positive takeaways

Despite the unappealing state of the aforementioned metrics, SUSHI’s liquidity has remained strong since its inception in August of last year. According to Glassnode’s report, for every $1 of liquidity on either Ethereum or Polygon, SUSHI has seen $2 in trading volume on the respective chains. SushiSwap’s year-over-year growth and product momentum are also strong.

People in the community are well aware of SUSHI’s proclivity for taking risks. The protocol’s ecosystem-centric developments have the potential to lift the token out of its slump. When SUSHI pushed its way into the DeFi space last year, many expected it to be a footnote. However, SUSHI has managed its way up and keeping in mind its bold approach to innovation and experimentation, the token’s long-term prospects seem to be in safe hands.

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