PancakeSwap, one of the leading decentralized exchanges (DEX) on the Binance Smart Chain (BSC), has successfully passed the CAKE Tokenomics v2.5 Decision Proposal, aimed at making their native token, CAKE, scarcer. The move is in line with PancakeSwap’s efforts to create a deflationary economy and reduce the inflation rates of CAKE, which currently stands at 21%.
The proposal aimed to transform the tokenomics model of CAKE, with a primary focus on low staking inflation where real yield is from the protocol’s revenues. It also looked at adjusting its product to favor longer-term CAKE stakers.
The v2.5 tokenomics proposal reduces token incentives given to traders and stakers by more than 68%, which is a significant shift towards a deflationary economy. The proposal was based on feedback from the PancakeSwap community.
Pancakeswap
PancakeSwap had laid out three viable options for its community to vote on to make CAKE “emission neutral.” However, the first option, which allowed for an aggressive reduction of CAKE, was favored, considering the outcome of the vote. As per the proposal, PancakeSwap will cut the CAKE Syrup Pool emissions from 6.65 CAKE per block to 3 CAKE per block with immediate effect.
The DEX will also reduce CAKE emissions further by 0.5 CAKE per block for five months. This proposal targets PancakeSwap emissions at 0.35 CAKE per block in six months.
This move will lead to a 94% reduction in CAKE emission rates, that is, the token rewards earned by stakers on the platform. Many PancakeSwap community members hope this level will considerably drop CAKE’s annual inflation rate from the current 21% to between 3% and 5%. This will create a more favorable environment for long-term stakers, and the protocol’s revenues will be the primary driver of yields.
This move is not surprising as PancakeSwap is the latest in a long line of crypto projects working hard to make their native tokens deflationary in order to reach better prices in the future, driven by the idea of scarcity economics.
The proposed drop in staking rewards has already resulted in an exodus of stakers. This is despite the fact that the lower inflation rate will enhance tokenomics by reducing the dilution of its supply. The amount staked has also decreased from just over 1 billion CAKE to about 677 million CAKE after the PancakeSwap team suggested the tokenomics modification.
At the time of publication, CAKE is down 5.87% over the past month, per data from CoinMarketCap, making it one of the weakest cryptocurrencies in the market. It is currently trading at $2.71.
PancakeSwap expects to implement the winning option by the end of June. It remains to be seen how the PancakeSwap community will react to these changes in the coming weeks.
In conclusion, PancakeSwap’s decision to pass the CAKE Tokenomics v2.5 Decision Proposal is in line with their efforts to create a deflationary economy and reduce the inflation rates of CAKE. This will benefit long-term stakers, and the protocol’s revenues will be the primary driver of yields. However, the proposed drop in staking rewards has already led to an exodus of stakers, which might impact the PancakeSwap ecosystem in the coming months.
