Robert Steinadler, a month ago

PancakeSwap (CAKE) is adjusting its inflation rate

PancakeSwap is the biggest and most popular decentralized protocol on BNB Chain. With a TVL of over $2 billion on BNB alone, it is one of the most essential dApps and the biggest decentralized exchanges available. PancakeSwap extended its services recently on Ethereum and Aptos, adding the biggest and one of the most promising smart contract platforms to its portfolio. Recently, a proposal has been made that has severe consequences for CAKE's tokenomics.

Why is the team behind CAKE looking forward to adjusting the token's inflation rate?

Let's reduce the rewards

The proposal is about reducing the rewards for stakes. Three options have been presented to the community for a vote. Reducing the rewards drastically is the first, and it is currently winning the race. The second option is to gradually reduce the rewards over a more extended period.

The voting process ends by tomorrow, and with over 69% of the votes, option 1 will win by a landslide. If this proposal comes into effect, then the emission rate of the CAKE Syrup Pool will be reduced immediately from 6.65 CAKE per block down to 3 CAKE per block. After that, for 5 consecutive months, the emission rate is further reduced by 0.5 CAKE per month.

There is also a good reason for this drastic approach. According to the team, the current inflation rate could be more sustainable for PancakeSwap, and staking rewards need to be reduced. The current inflation is way above 20%, and the target inflation rate is between 3-5%.

The downside of the proposal

Of course, the upside of the proposal is a positive long-term effect on CAKE's tokenomics. CAKE will improve by slowing down the dilution of the token supply. But this also had a negative short-term impact on the token and its price.

The price for CAKE dropped sharply by over 25% when stakes were exiting their positions. Accruing rewards was more important to many market participants than other benefits the token had to offer. It is noteworthy that this crash was not only caused by the proposal but also by fluctuations that hit the whole market and even Bitcoin.

Still, the exodus came unexpected because it was clear from the results of the first proposal in which direction PancakeSwap would be heading. Many stakers waited with their exit until the last minute. There was no hope that Option 2 could win the race, so they liquidated their positions.

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