Original author: Alex Liu, Foresight News
On April 8, PancakeSwap announced its CAKE Token Economics 3.0 proposal on X, which aims to completely reconstruct the issuance, inflation mechanism and governance model of CAKE tokens.
Since its release, the proposal has attracted widespread attention and heated discussions in the market and community. From the background and specific content of the proposal to the impact on the interests of all parties, to the core controversial points and the diverse views of the community, the development of the event is full of complexity and drama.
Causes and consequences of the incident
On March 19, an industry insider said on X that the current veCAKE lock-up mechanism of PancakeSwap’s token CAKE is too complicated, which not only increases the threshold for user participation, but also deviates from the balance between long-term governance rights and short-term incentives. In his comments on the X platform, Zhao Changpeng, co-founder of Binance, agreed that “PancakeSwap should adopt a buyback and destruction model instead of the ve-token model” and said that “many ‘models’ now are too roundabout, and destruction is the most direct.” He also @ PancakeSwap official.
After the imperial edict, in just less than 20 days, PancakeSwap proposed a new token economics proposal to replace the VE solution that had been implemented for many years.
Specific content of the proposal
The Token Economics 3.0 proposal mainly includes the following core aspects:
First, the proposal suggests achieving an annual deflation target of about 4%, and the total supply of CAKE is expected to decrease by 20% by 2030. To this end, PancakeSwap plans to adjust the daily emission from approximately 40,000 CAKE to 22,500. This adjustment is intended to further enhance the scarcity and long-term value of CAKE by reducing the supply of new coins.
Secondly, the proposal explicitly proposes to cancel the existing CAKE pledge, veCAKE, Gauge Voting and revenue sharing mechanisms. The original intention of this move is to simplify the governance process, so that CAKE tokens can truly belong to the holders, and avoid marginalization of some users due to multiple lock-ups and complex distribution mechanisms. Supporters believe that this can reduce governance costs and improve the transparency and operational efficiency of the entire system.
At the same time, in order to compensate for the possible incentive fault caused by the adjustment, the proposal also plans to introduce a new repurchase and destruction mechanism. By regularly using part of the transaction fees and other income to repurchase CAKE and destroy it, the deflation effect can be further achieved, thereby providing long-term support for the token price.
Impact on key stakeholders
For some core participants and long-term supporters in the ecosystem, this proposal is undoubtedly devastating. In particular, Cakepie, as the main beneficiary of the veCAKE mechanism, has locked up more than 10 million CAKE in the past few years and obtained stable governance rights and dividend income through this mechanism. If the proposal is passed, Cakepie DAO may face the following impacts:
The cancellation of veCAKE and related revenue sharing mechanisms means that the governance model that Cakepie DAO has long built will be broken, and its core asset CKP, which has long relied on the dividends and governance benefits of this mechanism, will lose its value. (The relationship between CKP and CAKE is similar to that between PNP and PENDLE. Recommended reading: Rereading the Penpie protocol mechanism, the impact of theft should not be exaggerated )
CKP token value plummets after PancakeSwap’s proposal
Core disputes over on-chain operations
The controversy of the proposal is not only reflected in the adjustment of the economic model, but also in the anomalies in the on-chain operation and governance process. According to multi-party on-chain data monitoring, before and after the formal discussion of the proposal, multiple large addresses associated with Binance or PancakeSwap suddenly locked a large number of CAKE tokens (25 million, accounting for nearly 50% of the total CAKE locked amount). These addresses can be unlocked immediately after the proposal is completed, thereby using low-cost operations to quickly regain governance rights and reconfigure incentive mechanisms.
This vote and withdraw operation mode has aroused widespread doubts in the community. Critics believe that this phenomenon will make the governance process unfair, and a few whales and centralized addresses can manipulate the direction of the entire proposal through short-term behavior, harming the interests of the majority of retail investors. At the same time, some people pointed out that this kind of operation behavior is a microcosm of the on-chain coup that frequently occurs in the current crypto market, showing the loopholes and risks of decentralized governance in actual operation.
Community differences and authoritative voices
In the heated discussion triggered by this proposal, different groups have different voices. Cakepie DAO launched a strong protest on social media, accusing the reform of betraying the original intention of long-term incentives and ecological co-construction, and proposed an alternative plan that includes partial adjustments rather than the complete cancellation of veCAKE. The DAO believes that the governance rights and dividend mechanism formed by long-term lock-ups are the key to promoting the sustainable development of PancakeSwap. Once cancelled, the loss will not only be reflected in economic benefits, but will also cause a fatal blow to the trust foundation of the entire ecosystem.
At the same time, some industry experts have expressed different views on the proposal. For example, the founder of Curve said that although decentralized governance needs to be continuously optimized, the interests and incentive structure of early contributors should be fully respected. Simply canceling mature mechanisms is extremely risky and may lead to the collapse of the long-term value system in the ecosystem. At the same time, he called this proposal a governance attack and suggested not to make the veGovernance contract upgradeable.
Event progress and follow-up developments
On April 16, PancakeSwap official members revealed that they were in close communication with Cakepie DAO and were willing to provide $1.5 million to compensate CKP holders. The post received applause from Zhao Changpeng. However, even after the plunge, CKPs FDV still exceeded $10 million, and its circulating market value of $4 million was also higher than the $1.5 million compensation amount.
The proposal voting has been officially launched, and the supporters have already won more than 70% of the votes. Even if Cakepie DAO and retail investors do not support the proposal, they seem unable to compete with the latest whales who hold 50% of the voting rights. Zhao Changpeng once said two years ago that letting the masses vote is different from letting capital vote. But this time, he seems to have stood on the side of capital and became the one who, with his capital advantage, can decide the life and death of community projects with one sentence.
Summarize
In general, PancakeSwaps Token Economics 3.0 proposal is highly controversial, but it also reflects the profound contradictions and transformation needs of the current DeFi ecosystem in terms of governance mechanisms. How to strike a balance between simplifying mechanisms, reducing complexity, and maintaining long-term incentives has become a difficult problem that the entire blockchain industry needs to solve urgently.
