Decentralized exchange (DEX) PancakeSwap has recently put forth a proposal to reduce the maximum supply of its native ecosystem token, CAKE, in an effort to align it more closely with the current circulating supply. The developers aim to decrease the token supply from 750 million to 450 million, bringing it in line with the existing circulating supply of 388 million.
The Reduction Proposal
In an official announcement made on December 28, PancakeSwap unveiled a voting proposal for the token supply reduction. The voting process will last for a period of 24 hours, and if approved, the reduction will take effect on January 4, 2024. The developers emphasize that this reduction is intended to complement CAKE’s consistent deflation and accelerate its progression towards ultrasound CAKE.
“The reduction aims to complement CAKE’s consistent deflation and accelerate its journey towards ultrasound CAKE.”
When CAKE was first introduced in September 2020, it had a net emission rate of 40 tokens per block, resulting in an annual inflation rate of approximately 80%. However, since then, the emission rate has gradually declined. CAKE tokens are earned by users as staking rewards.
In April 2021, token-holders approved a proposal to adjust CAKE Syrup Pool emissions, reducing them from 6.65 CAKE per block to 3.0 CAKE per block. This reduction was implemented over a five-month period, with emissions decreasing by 0.5 CAKE per block each month. Combined with a token burn mechanism, this adjustment made CAKE tokens deflationary on a net basis.
“The reduction aims to complement CAKE’s consistent deflation and accelerate its journey towards ultrasound CAKE.”
The PancakeSwap development team, after nearly three years of development, now possesses more accurate estimations of the incentives required to achieve growth targets. They view the reduction in total supply as a crucial step towards achieving ultrasound CAKE and signaling a departure from a hyperinflationary tokenomics model.
PancakeSwap’s Popularity and Recent Developments
PancakeSwap currently holds a prominent position as one of the most popular DEXs in the cryptocurrency landscape. It boasts a total value locked (TVL) of $1.64 billion and is projected to generate $191 million in annualized protocol revenue.
Recently, PancakeSwap introduced a new voting system called “Gauges” along with the launch of the “veCAKE” vote-escrowed system. These systems enable users to vote on governance proposals and determine CAKE emissions allocations. The previous “syrup pool” reward system, which allowed CakeDAO members to stake CAKE for an additional share of the exchange’s fees, has been phased out. Instead, additional fees will now be exclusively distributed to users holding veCAKE.
“Participation in PancakeSwap’s DAO governance now relies on veCAKE, a new vote-escrowed system distinct from vCAKE.”
Under the new system, CAKE holders gain the ability to vote on additional rewards for specific pools every two weeks. However, to participate in voting, users must lock their CAKE tokens in a smart contract for a predefined period. The longer the lock-up period, the greater the voting power.
