CAKE: Token of Decentralized Exchange PancakeSwap Drops 20%, Rewards Reduced
- CAKE plummeted in value last week due to proposed changes to staking rewards.
- The proposal has changed the token’s inflation rate drop from over 20% to around 4%.
- As the native token of one of BNB Chain’s most used protocols, the changes could have implications for its DeFi ecosystem.
CAKE, the native token of BNB Chain’s main decentralized exchange PancakeSwap, has plummeted by 20% over the course of last week. The cause? A major change to the way in which users of the protocol earn rewards for staking their tokens. A proposal has passed which reduces CAKE’s inflation rate to around 4%, as opposed to its previous inflation rate of over 20%. This means that stakers will receive considerably lesser rewards for staking the token.
The proposal however is technically beneficial for the ecosystem, as it slows down the speed at which the token’s emission occurs. Stakers, however, are finding it difficult to ignore the immediate impact on their returns. Voting on the proposal passed this week by a large majority. The implementation has also seen CAKE emission practically paused – with a 94% reduction in emission rate.
Why was the proposal introduced?
The main reason was flaws in the project’s underlying tokenomics. At its previous rate of emission, new funds were having to be introduced to the project very frequently for its price to even be maintained. By reducing emissions, the token’s future will be safeguarded at the expense of short term staking gains.
As for BNB Chain itself, largely due to PancakeSwap, it’s currently the third highest ranked blockchain by total value locked (TVL). Its TVL sits at roughly $4.62bn, with PancakeSwap making up almost half of the figure with a TVL of $2.08bn. CAKE is also one of the most widely held tokens among BNB Chain users. As such, further shifts in sentiment for the token and PancakeSwap could have implications for the chain itself.
(About CAKE)
CAKE is a cryptocurrency that serves as the native token of the PancakeSwap decentralized exchange, which is built on the Binance BNBChain. PancakeSwap is a popular automated market maker (AMM) that enables users to trade various cryptocurrencies without the need for a central authority. The CAKE token plays a crucial role in the PancakeSwap ecosystem, as it is used for a variety of purposes, including liquidity provision, governance, and fee payment. CAKE holders can stake their tokens in liquidity pools to earn rewards and participate in the governance of the platform through voting on proposals. As of April 2023, CAKE has a market capitalization of several billion dollars and is one of the most popular tokens on BNB Chain.