The introduction of PancakeSwap’s new proposal triggered a 21% spike in CAKE within a few hours on Thursday.
The PancakeSwap community is proposing a reduction in the overall supply cap of its native token, CAKE. A newly unveiled proposal discussion on December 21st advocates for decreasing the total supply limit of the asset from 750 million to 450 million.
Given CAKE’s consistent deflation over the past few months and its intensified focus on advancing towards ultrasound CAKE, this proposal aims to establish a maximum cap of 450 million for the token. The current circulating supply is around 388 million.
The “Kitchen” team, responsible for managing the PancakeSwap platform, said it is confident that this lowered cap will be adequate to capture market share across all chains and sustain the veCAKE model.
Rationale for Adjustment
PancakeSwap community explained that there are several strong reasons for implementing this adjustment.
The proposal stated that when PancakeSwap was launched in 2021, the initial token supply was set to provide ample incentives for bootstrapping the ecosystem. With nearly three years of development, the team now possesses more accurate estimations of the incentives needed to achieve its growth targets.
Additionally, the total supply serves as a crucial metric in understanding the impact of token burns and future emissions. Reducing this number is important to achieve ultrasound CAKE and signal PancakeSwap’s shift away from a hyperinflationary tokenomics model.
Furthermore, PancakeSwap deemed the new cap of 450 million CAKE to be reasonable to implement, ensuring ample supply for future expansion, such as gaining market share on Ethereum, and Ethereum Layer 2s, and pursuing new initiatives like position managers.
Following the new proposal, CAKE shot up from $2.22 to $2.70, marking a 21% surge within hours on Thursday. The price has since stabilized near $2.52.
Token Burn
The latest development came a few days after PancakeSwap announced the burn of over nine million of its native CAKE tokens. The move – which is aimed at slashing the circulating supply – destroyed more than $19 million worth of the CAKE tokens.
As of December 5th, 2023, PancakeSwap successfully burned 0.089% of the total CAKE supply for November 2023. This represented the third consecutive month of decreasing CAKE total supply, amounting to a cumulative net mint reduction of -712,667 CAKE over September, October, and November 2023.