Is SUI Overvalued?

TL, DR

• SUI token is integral to the functioning of the Sui blockchain, serving multiple critical roles that ensure the network’s security and governance.
• 8.4% of the total token supply will be released over the next year; this would amount to approximately $1.8 billion, representing around 30% of the current market capitalization.
• SUI is currently trading at 22% of Solana's FDV, this valuation seems reasonable, as Sui’s network metrics typically range between 10% and 20% of Solana’s levels.
• With rising network metrics and better overall crypto market sentiment, SUI could reach 30%-40% of Solana’s FDV, leading to a token price of $2.80 to $3.60.

What is Sui Blockchain?

The SUI token is the native cryptocurrency of the Sui blockchain, a highly scalable and low-latency platform designed to support decentralized applications (dApps). Sui was developed by Mysten Labs, a team led by former engineers from Facebook’s Diem project, and launched its mainnet in 2023. The Sui blockchain is built to offer fast and secure transactions while overcoming many of the scalability issues faced by other blockchains.

Sui utilizes an innovative DAG-based consensus mechanism (Narwhal and Bullshark), which allows for high throughput (over 125,000 transactions per second) with low latency. This enables Sui to process multiple transactions simultaneously, making it highly scalable and suitable for dApp developers.

Related Reading: What is Sui?

SUI Utility

The SUI token is integral to the functioning of the Sui blockchain, serving multiple critical roles that ensure the network’s efficiency, security, and governance.

Transaction Fees (Gas Fees):

One of the primary utilities of the SUI token is to pay for transaction fees on the network. These gas fees cover the cost of executing transactions and other operations, such as interacting with smart contracts or transferring assets.

Storage Fees and Data Management:

Beyond computation, Sui also charges for storage. Users pay storage fees upfront when writing data to the blockchain, and these fees are deposited into a storage fund rather than being distributed directly to validators. This fund helps to ensure that future validators are compensated for maintaining stored data, making storage sustainable in the long term. Furthermore, users can delete stored data to receive rebates on previously paid storage fees, contributing to the blockchain’s efficient use of resources.

Staking and Network Security:

The SUI token is crucial for securing the network through the Proof-of-Stake (PoS) consensus mechanism. Token holders can either become validators or delegate their tokens to validators, helping to maintain the network’s decentralization and security. In return, stakers and delegators earn rewards, providing them with an incentive to participate in maintaining the network’s integrity. Validator performance is closely monitored, and those who act responsibly are rewarded, while unresponsive validators are penalized.

Governance

SUI token holders play a vital role in the governance of the Sui blockchain. By holding SUI, they have the right to propose and vote on changes to the network protocol, including upgrades, parameter adjustments, and other important decisions. This decentralized governance model allows the community to steer the future development of the network, ensuring that it remains adaptable and aligned with the needs of its users.

SUI Tokenomics

Token Allocation

The total supply of SUI tokens is capped at 10 billion. This fixed supply is intended to provide stability and predictability within the ecosystem. At the mainnet launch, approximately 5% of the tokens were in circulation, with the remaining tokens being released according to a structured schedule to maintain network health and stability. The distribution of SUI tokens is as follows:

• 14.1% to investors who provided initial financial backing.
• 10.6% for community reserve, which funds various initiatives, including:
  • Delegation program: to bootstrap community-run validators
  • Grant program: for developers, community ambassadors, and other participates
  • Research and development
• 5.8% allocated to the Community Access Program for app testers and early community members
• 9.5% for stake subsidies
• 6.1% for early contributors
• 1.6% for Mysten Lab
• 52.2% are reserved for release in the future, after 2030.

Source: sui.io

SUI’s current circulating supply is 27.6%. By October 2025, the expected circulating supply will increase to approximately 36%. This means that 8.4% of the total token supply will be released over the span of one year. At the current valuation, this would amount to approximately $1.8 billion, representing around 30% of the current market capitalization.

SUI Staking

Staking is the act of committing SUI tokens to a validator, to help verify transactions and support consensus on the network. Stakers can now earn around 3.2% in SUI rewards.

According to data from stakingrewards.com, Sui has a notably high staking ratio of 77.5%, meaning that 7.75 billion tokens are currently staked. Interestingly, this figure exceeds the circulating supply of 2.76 billion SUI tokens. This is because a portion of locked and non-circulating SUI tokens is being staked by the Sui Foundation. The project has clarified that no staking rewards from the non-circulating supply will be sold, and all rewards earned by the Sui Foundation through staking are returned to the community through grants, awards, and partnership programs.

Price and Valuation Analysis

In recent months, the price of the SUI token has experienced significant growth. As of October 2024, SUI surged to new all-time highs, reaching around $2.16. This rise is driven by several factors. First, top DeFi protocols in the Sui ecosystem, such as Cetus, Navi, and Scallop, have seen a rapid increase in Total Value Locked (TVL). Second, Grayscale launched the SUI Trust Fund, offering a regulated option for institutional investors. Additionally, rumors suggest that several Asian funds are purchasing SUI tokens over-the-counter (OTC).

VC Funding Cost

Sui has completed two major funding rounds, raising a total of $336 million. The Series A round, announced on December 6, 2021, raised $36 million at a valuation of $1.8 billion, led by Andreessen Horowitz (a16z), with investors like Coinbase Ventures and Lightspeed Venture Partners. Series A investors were allocated 714 million SUI tokens, pricing each token at approximately $0.05. With the current SUI price, these investors have seen returns of over 40x.

The Series B round, announced on September 8, 2022, raised $300 million at a $2 billion valuation, led by FTX Ventures, with participation from Binance Labs and Jump Crypto. Following FTX’s bankruptcy, Mysten Labs repurchased FTX Ventures’ token stake. Series B investors were allocated 695 million SUI tokens, pricing each token at approximately $0.43. At current prices, these investors have seen returns of over 4.5x.

Both Series A and Series B investors began their token vesting schedules in May 2024, with a combined monthly unlock of approximately 40 million SUI tokens.

Current Valuation Compared to Solana

Sui and Solana are often compared because both are high-performance Layer-1 blockchains designed to scale and process a large number of transactions per second (TPS). Both aim to solve the scalability issues common in many blockchain networks, focusing on speed, efficiency, and low transaction costs.

SUI is currently trading at a fully diluted valuation (FDV) of $20 billion, which is approximately 22% of Solana’s FDV. This valuation seems reasonable, given Sui’s network metrics typically range between 10% and 20% of Solana’s levels.

However, most top protocols in the Sui ecosystem are DeFi-focused, and the relatively low stablecoin market cap is a limiting factor. This could change with the native launch of USDC on Sui in September 2024, as increased USDC liquidity through Circle’s Cross-Chain Transfer Protocol (CCTP) integration is expected to boost usability and ecosystem growth.

In the foreseeable future, with rising network metrics and better overall crypto market sentiment, SUI could reach 30%-40% of Solana’s FDV, leading to a token price of $2.80 to $3.60.