The largest decentralized exchange on the Binance Smart Chain, Pancakeswap, is preparing major changes for its CAKE token, which is the driving force for the entire exchange. It plans to significantly reduce inflation, which can help increase value.
One week ago, Pancakeswap developers came up with a poll asking the community to vote on reducing CAKE rewards for pools and LP farms. The community was given a choice of several options, with the winner having to have at least 50% of the vote, an absolute majority. The options ranged from a 0% reduction – no change, to a 44% reduction in rewards from 9 CAKE to 5 CAKE per block.
Over 90% of users voted for this option.
44% reward reduction
The mentioned reduction of remuneration from 9 CAKE to 5 CAKE in one block means a significant 44% reduction of remuneration for pools and farms. Regarding the total effective production of CAKE per block according to whitepaper, this value is at the level of approximately 19 CAKE. However, the July Pancakeswap report reports effective CAKE production at only around 17 CAKE per block, thanks to the deregistration of a 10% reduction in new token creation.
After this reduction, less than a month later, the above-mentioned one was voted on. In practice, this means that the production of new tokens will fall from 19 to 13 in less than 2 months, which represents a reduction in inflation of more than 30%. Thus, 501,200 CAKE will no longer be generated daily, but approximately 343,300. However, the sum after the reduction still means annual inflation in tens of percent, which may slightly hamper price growth. On the other hand, thanks to farming and pools, it is possible to eliminate this inflation and even profit, regardless of the development of the price of the token itself.
In the case of the CAKE pool, at current prices and rewards when depositing $ 1,000, the annual return is approximately $ 960, thanks to the auto-compound feature. However, you have a choice of different pools or LP farms. Note, however, that the most recently voted reduction, which will take effect in the coming days, will significantly reduce remuneration.
Does CAKE have a chance for new highs?
CAKE reached its ATH at about $ 45 in early May, when several cryptocurrencies reached their highs and the bullrun peaked. Over the following months, its value fell by about 80%, when for a short time it found itself below the price of $ 10 apiece. This area of around $ 10 has been hit up to 3 times in recent months, always being redeemed quickly. At the time of writing, CAKE is trading above $ 20, which is + 100% of the local minimum.
Currently, this token awaits a relatively long and difficult journey, where the biggest obstacle will be the area between 20 and 25 USD, where the price often reacted and there were high volumes, so it is a strong resistance. However, if the cryptocurrency market takes a second breath, even with the support of the latest events, it is possible that CAKE will get through this level, with only a few zones standing in the way of the new ATH. However, a number of factors that cannot be predicted need to be taken into account. Always consider all the risks yourself and decide only afterwards.