by Emma Newbery | Published on Aug. 1, 2021
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You can earn interest on your SUSHI tokens if you're ready to enter the world of decentralized finance.
SUSHI is a governance token that's used on the SushiSwap decentralized exchange (DEX). Before we talk more about the token, let's look at what SushiSwap does.
To understand SUSHI, we first need to come to grips with decentralized exchanges and how they work. Without wanting to overwhelm you with technical terms, it would be good to know the answers to these three questions:
Jargon over! It may feel like a lot to get your head around, but if you're buying SUSHI, this will help you get the most out of your investment.
If you're considering buying SUSHI, you need to be comfortable with volatility and risk. All cryptocurrencies are risky investments, but smaller coins like SUSHI are even more unpredictable. They are extremely volatile, which means you may see huge gains, but you also need to be ready for huge potential losses. Here are a few other factors to bear in mind.
One of the attractive features of SUSHI and other DEX tokens is that you can make them work for you. For example, investors can stake SUSHI -- at the time of writing the APR is 3.46%, but it varies from day to day. Staking ties up your coins and in return you get paid a percentage of the transaction fees.
More experienced investors might want to add liquidity to the liquidity pools, but this carries more risk. If one coin in the pair dramatically outperforms the other, it can lead to something called impermanent loss. The investor might not be able to realize the same profits from the price increase as they would if they'd simply held the coin.
SUSHI is not the only DEX token on the market, and it is hard to see which one (if any) will come out on top. Each DEX offers different features, different ways to earn interest, and different interest rates. That said, just as there are several centralized cryptocurrency exchanges, there's no reason to think there's only room for one DEX.
Before you buy any DEX token you need to decide if you plan to go further into the world of decentralized finance (DeFi) by staking or adding liquidity. If that's your plan, then spend some time exploring the different exchanges to decide which one suits you. That's the best place to start -- and the best token to buy first.
DeFi is one area of cryptocurrency that has authorities around the world worried. The concern is that they are providing banking services without the consumer protections and regulations that exist for banks.
For example, if the SushiSwap platform failed or was hacked, your SUSHI tokens could suddenly be worth nothing. If that money had been in a bank account, you'd be protected by FDIC insurance.
In Europe, the Basel Committee on Banking Supervision has proposed that DeFi tokens be treated as high-risk investments. If the proposals are implemented, they would require any financial institutions holding these tokens for clients to hold enough capital to completely cover losses if the asset lost all its value. So for every $100 of SUSHI, an exchange would have to have $100 in traditional money.
It isn't clear how regulation will unfold, but if authorities clamp down on decentralized exchanges, that's sure to have an impact on SUSHI's price.
SushiSwap is a popular decentralized exchange, and the SUSHI token has performed well since its launch. If you're considering buying it, it would be good to pay attention to similar tokens in the DeFi space and read up on possible regulatory changes. A solid understanding of decentralized finance will help you to get the most out of the token.
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.
To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2021. Check out the list here and get started on your crypto journey, today.
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Emma Newbery owns Sushi and Ethereum.