PancakeSwap (CAKE) Plummets 24% Amidst Debate Over Reduced Staking Rewards

PancakeSwap (CAKE) token holders have been on a roller coaster ride as stakers brace for reduced rewards. The community is debating a change in the token’s economic model.

Over the past week, governance token, CAKE, has suffered a continuous downward trend, dropping by 24%. Though the proposed change appears favorable to PancakeSwap, the heated debate has impacted the token’s value. 

PancakeSwap is a decentralized exchange (DEX) built natively on the Binance Smart Chain (BSC). It allows users to trade cryptocurrencies, provide liquidity on trading pools, and earn rewards in the form of CAKE tokens.

Though the DEX has gained popularity recently due to its low fees, fast transactions, and innovative features, the economic proposal has brought uncertainty to its investors. According to the proposal, the developers will reduce CAKE’s inflation rate from above 20% to 3-5%.

This move is aimed at improving PancakeSwap’s “long-term health.” However, at the same time, it will lower the amount of tokens stakers can earn, leading to a decline in staking rewards. Voting for the proposal began on April 26 and is scheduled to conclude tomorrow, April 28th. 

The community has already given a thumbs up to the “aggressive reduction” of staking rewards, which would reduce more than half the number of tokens emitted.

Notably, Staking rewards are a vital component of any cryptocurrency. They incentivize token holders to keep their tokens in a platform or wallet rather than sell them on the market. Staking rewards are similar to interest earned on savings in a bank account.

PancakeSwap’s staking rewards have been a significant selling point for the project, ranging from 50% to 200% per annum, depending on the trading pool. The proposed change has sparked a debate within the community, with some arguing that reduced staking rewards will drive investors away from the project, leading to a decline in demand.

Although the proposed change aims to enhance tokenomics by reducing the dilution of CAKE’s supply, it has led to an exodus of stakers. As a result, the token’s price has dropped concurrently with the amount of CAKE unstaked, as seen in the chart below. 

Meanwhile, the tokenomics change proposed by the team on April 19 has also significantly reduced staking activity. The amount of CAKE staked fell from 1.007 billion to 677.851 million CAKE as of April 27. 

The PancakeSwap (CAKE) token has experienced a sharp decline of over 24% in the past week following the proposed proposal to reduce the token’s inflation rate. CAKE has dropped by 24% in the past seven days, from a high of $3.43 on April 20 to a low of $27.57 on April 27. 

The token’s market cap has also dropped from a high of $636 million to a low of $506 million over the same period. The sudden drop in CAKE’s price reflects the crypto community’s perception of the proposed change. If passed, the proposed change will significantly affect the project’s stakes earnings and likely reduce the token’s demand.

Featured image from iStock, Chart from TradingView