Discussion Proposal for CAKE Tokenomics v2.5

We are proposing to target a low annual inflation rate of 3 - 5% for CAKE, transitioning to a CAKE staking model characterized by:

• low staking inflation,
• real yield drawn from PancakeSwap’s protocol revenues, and
• product benefits favoring longer-term CAKE stakers.

This is a significant and important change for PancakeSwap, and we would like to discuss this change in the following manner:

1️⃣ This discussion proposal is posted

2️⃣ For the next week, we will engage with community feedback through: voting results for this proposal; this Feedback Form; and also through our social channels

3️⃣ Once we there is consensus around a few main choices, we will present a “decision proposal” (ETA: Week of 24 April 2023)

4️⃣ If there is more than 50% support for one option, we will enact that option.

Background

Last year, the PancakeSwap community voted to cap CAKE at 750 million, recognizing the maturing DeFi environment, and avoiding over-inflation of CAKE.

In the past year, we’ve introduced many new products and accelerated our multichain expansion to increase CAKE burn, and gradually lowered Syrup Pool emissions to minimize inflation.

We have continued to reward our most loyal CAKE holders who stake with us by providing the highest rate of CAKE rewards.

We believe it is time to take this model to the next level and supercharge CAKE towards a deflationary model based on real yield and CAKE burn.

Importantly, as the name of this proposal suggests – “discussion proposal” – we kindly seek suggestions and feedback from the community on this initiative.

Real Yield Model

Moving forward, our loyal CAKE holders should continue to be rewarded for their support, directly benefiting from the growth of the PancakeSwap protocol, while ensuring that their CAKE are not subject to high inflation.

We propose the following changes:

1️⃣ Staking Allocation to target approx. 0.35 – 1 CAKE/block instead of 6.65 CAKE/block

2️⃣ Revenue Sharing: CAKE stakers to be allocated 5% of trading fees from PancakeSwap v3 0.01% and 0.05% fee tiers monthly. Longer Stakers = Bigger Share of Revenue.

Note: 0.01% and 0.05% fee tiers are currently 80-90% of PancakeSwap v3 volumes

3️⃣ Increased CAKE emission weighting towards longer-term stakers

4️⃣ Increased CAKE Benefits: Longer CAKE stakers will be allocated more benefits across products, with longer stakers receiving higher levels of benefits – examples include:

*️⃣ bCAKE will be extended to key v3 farms to reward stakers who are contributing to our DEX execution *️⃣ Discounted fees on product usage or weighted returns on Simple Staking integration, Position Manager and other products

What will not change:

• % of trading fees allocated to buyback-and-burn, which means that trading fees provide additional value return to CAKE stakers
• % from other products allocated to token burn – more info here
• Rewarding most loyal CAKE stakers with the largest share of emissions and protocol fees

Emissions Scenario Analysis

Based on the voting options, we have mapped out their impact on our journey to ultrasound CAKE, on Syrup Pool APRs, and CAKE Inflation %:

We recommend 0.35 - 1 CAKE/block for the Syrup Pool because:

• CAKE will become low inflation immediately, benefitting existing CAKE holders and stakers
• Loyal CAKE stakers will receive the largest share of protocol revenue, aligned with PancakeSwap’s growth as a Top 3 DEX
• CAKE has strong utilities other than staking rewards –more details here
• Competitor DEXs offer 0 - 2% staking APR to manage inflation, with much lower utility and token burning than CAKE

We do not recommend 2 CAKE/block or higher for the Syrup Pool because:

• As we capture more markets, it is increasingly difficult to offset CAKE inflation with buyback-and-burn; the law of diminishing returns applies
• A >2 CAKE/block emission rate remains highly inflationary to existing CAKE holders and stakers

If the community prefers higher inflation on Syrup Pool emissions, we will propose various schedules to gradually target lower Syrup Pool emissions based on feedback over the coming week.

CAKE burn mechanism

The most significant driver of CAKE burn comes from trading fees, and the subsequent CAKE buyback-and-burn. As more users use PancakeSwap, transaction fees generated will increase CAKE burn. This deflationary mechanism incentivizes users to hold onto CAKE. These create a virtuous cycle that benefits all stakeholders in the PancakeSwap ecosystem.

We will continue to create more value for our users and help drive the long-term success of the CAKE token, with our Q2 roadmap outlining our plan to introduce three new products and expand to other chains to further increase CAKE burn.

PancakeSwap v3’s Growth and CAKE Revenue Sharing

Data from our Coingecko friends, extracted 18 Apr 2023

Data from our DefiLlama friends, extracted 18 Apr 2023

Less than two weeks after launch, PancakeSwap v3 has already surpassed the trading volume of PancakeSwap v2 on BNB Chain. On Ethereum, PancakeSwap v3 is now one of the top 10 DEXs by trading volume.

Total multi-chain volumes have also increased significantly, contributing more fees to CAKE burn.

Feedback and Decision Proposal

We value your input and feedback on this proposal. Please share your thoughts with us so that we can incorporate community feedback before posting a decision proposal. The vote on this proposal serves only as feedback on the community’s wishes and is not the final decision.

Please do share your feedback with us by voting, voicing your opinions in our social channels, and/or giving feedback via this Feedback Form.

The formal proposal date is expected in around a week (ETA: Week of 24 April 2023).