PancakeSwap’s “head chef” declared that the BSC-based DEX is retaining the deflationary tokenomics for its native CAKE token. The announcement comes as other DEXs are trying new incentives for staking their native assets.
The leading DEX on Binance Smart Chain is making a return amid a general DeFi recovery, and it shared that it will retain CAKE as a deflationary token to retain its value. The DEX decided against using CAKE as an incentive token, instead renewing its tokenomics based on regular burns and deflation.
CAKE has a 1-2% annual burn rate and a negative net growth in the past 12 months. PancakeSwap also has regular weekly burns, which give a glimpse into the activity and fees generated on several PancakeSwap markets, including predictions and NFTs.
🔥 8,587,275 $CAKE just burned – that’s $34M!
💰 AMM V2: 108k CAKE ($425k) -41%
💰 AMM V3: 151k CAKE ($592k) -31%
🔮 Prediction: 45k CAKE ($176k) -9%
🎟️ Lottery: 28k CAKE ($111k) +14%
🔒 NFT: 0.2k CAKE ($0.6k) +133%% change from last week is in CAKE
🔥🔥🔥 Proof of burn:… pic.twitter.com/KErvnV7JRi
— PancakeSwap (@PancakeSwap) December 9, 2024
Over time, this has proven sustainable for the token, which has enjoyed a general level of stability. CAKE has now returned to levels not seen since 2022, rallying to $3.50 once again. However, the exchange will not alter its tokenomics to boost CAKE deliberately at the price of inflation.
PancakeSwap retains deflationary CAKE tokenomics
Other DEXs have started airdropping or minting more tokens as rewards, in a model similar to play-to-earn games. Over time, this leads to oversupply and token dilution. The latest DEX to launch tokenized incentives is Meteora, which announced that it will give incentives to the top 100 holders of its M3M3 token.
DEXs have adopted this model, also known as ve(3,3), to facilitate more buying and incite competition to become reward-yielding holders. Some protocols, such as Solidity, took years to lock up tokens and pay out the incentives, while additionally adding voting power to the tokens. However, even this approach would go against the CAKE deflationary policy.
The PancakeSwap team mentioned it is aware of the ve(3,3) model and believes some DEXs can align their incentives. However, in the case of CAKE, it would lead to overproduction of tokens and long-term inflation.
CAKE remains a community-owned token, where the team receives incentives from DEX operations. Newer DEX tokens have been more suitable for starting out with staking and incentives.
CAKE is a relatively conservative token, with a market cap of $1B and a fully diluted value of $1.57B. The DEX also has $2.1B in total value locked, suggesting CAKE is undervalued. The token’s supply is capped at 450M, further increasing scarcity and keeping the asset at a predictable price level.
Adoption is already extensive for CAKE tokens, with 1.78M wallets already holding the asset as a basis for trading or staking. The exchange also has a mechanism of VeCAKE voting. Liquidity providers do not receive CAKE but are instead rewarded with a share of the trading fees.
CAKE may be due for a comeback
The big question about CAKE incentives is whether the token will return to previous highs.
Others have used the model of rewarding top stakers to create a drive for acquiring more DEX tokens. In CAKE’s case, there is no competitive staking mechanism, except for the asset’s native staking which rewards all wallets, regardless of size.
CAKE had a recent 100% rally, but there are still expectations for more significant surges. CAKE and the PancakeSwap DEX have somewhat become relics since the 2022 market crash, but there are real expectations of a return for the project.
The primary engine for CAKE’s boost will be the PancakeSwap V4 launch. The event is scheduled for December, with no specific date announced yet. The new V4 will be different from generic DEXs and will create more specific trading conditions and restrictions.
Similar to Uniswap V4, this new addition will expand the use cases for targeted liquidity and emulating order books. V4 will also introduce new approaches to the trading curve, which would be more suitable for swapping between stablecoins.
PancakeSwap has already established itself as a multi-chain DEX and recently joined the top 10 daily fee producers. PancakeSwap brings in more than $2.3M in daily fees, almost matching Pump.fun’s revenue. The DEX also added its native meme token launchpad, SpringBoard.
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