n a significant move, the developers of decentralized exchange (DEX) PancakeSwap have recently introduced a proposal to reduce the supply of their native ecosystem token, CAKE.
The proposal aims to decrease the maximum supply of CAKE from 750 million tokens to 450 million tokens, aligning it more closely with the current circulating supply of 388 million tokens. This reduction is designed to complement CAKE's deflationary nature and accelerate its journey towards becoming an ultrasound CAKE.
Background of CAKE Token Supply
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, over time, the emission rate has been gradually declining. CAKE tokens are earned by users as staking rewards.
In April 2021, token-holders approved a proposal to adjust CAKE Syrup Pool emissions. This resulted in a reduction from 6.65 CAKE per block to 3.0 CAKE per block over a five-month period. Alongside a token burn mechanism, this adjustment made CAKE tokens deflationary on a net basis.
The Proposal and Voting Process
PancakeSwap has officially announced the voting proposal for the reduction of the CAKE token supply. The voting period will last for 24 hours, and if approved, the reduction will take effect on January 4, 2024. The developers emphasize that this reduction is a critical step towards achieving ultrasound CAKE and transitioning away from a hyperinflationary tokenomics model.
PancakeSwap's Popularity and Revenue
PancakeSwap is currently one of the most popular decentralized exchanges in the cryptocurrency landscape. It boasts a significant total value locked (TVL) of $1.64 billion and is projected to generate $191 million in annualized protocol revenue.
Introduction of New Voting System
The proposal to reduce the CAKE token supply comes after PancakeSwap introduced a new voting system called "Gauges" last month. This system allows users to vote on governance proposals and determine CAKE emissions allocations. Additionally, PancakeSwap has phased out its "syrup pool" reward system and replaced it with a new vote-escrowed system called "veCAKE." This allows users to stake CAKE and participate in governance voting.