PancakeSwap Considers Capping Token’s Inflation

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By A D

Curently, the CAKE token has an inflation rate of 7.5% per annum. PancakeSwap has proposed to cap the CAKE token’s inflation rate between 3-5% per annum.

DeFi (Decentralised Finance) platform PancakeSwap has proposed to cap the CAKE token’s inflation rate between 3-5% per annum. CAKE token is the native token of the PancakeSwap platform. It is an ERC-20 tokn that operates on the Binance Smart Chain. Curently, the CAKE token has an inflation rate of 7.5% per annum. This means that the total supply of CAKE tokens increases by 7.5% each year, arguably leading to a potential dilution of existing token holders’ value.

At the time of writing, CAKE is trading at $3.45, down 1.89% in the last 24 hours. CAKE has a market cap of $638,700,122. The total supply is capped at 750,000,000, with a circulating supply of 185,136,313 CAKE coins.

If PancakeSwap were to go with the proposal, it would effectively make CAKE a deflationary token, as the total supply of tokens would increase at a slower rate than before. The proposal was first annouced by PancakeSwap’s lead developer, who argued that a lower inflation rate would benefit the platform’s long-term sustainability.

Crypto enthusiasts have questioned the impact of this possible move on CAKE’s price and the broader DeFi ecosystem. Supporters of the proposal argue that a lower inflation rate would make CAKE a more attractive investment for long-term holders, leading to increased demand and higher prices.

The case against this proposal argues that a lower inflation rate could lead to a decline in liquidity on the PancakeSwap platform, as users may be less incentivized to provide liquidity to various token pairs.This, in turn, could lead to higher trading fees, making PancakeSwap less competitive to other DEXs.

an image of coins being compared as inflationary or deflationary. pancakeswap wants to make its token deflationary
The choice between deflationary and inflationary tokens depends on various factors, such as risk tolerance, investment goals, and market conditions. Image Courtesy:Shipfinex

What does token inflation mean?

The common economic concept of inflation affects the value of cryptocurrencies too. Inflationary tokens are cryptocurrencies that have a fixed or variable supply that increases over time. The increase in total suply of tokens in circulation is believed to lead to dilution of the value of the existing tokens. These tokens are often known to incentivize users to hold onto their tokens, with rewards for doing so.

In contrast, deflationary tokens have a fixed or variable supply that decreases over time. The decrease in the total supply of circulating tokens is believed to lead to an increase inthe value of existing tokens. Balancing inflation and deflation in cryptocurrency systems depends on the needs and perspectives of stakeholders in the ecosystem. Both tokens have their advantages and drawbacks, the choice depends on various factors including the focus of the project, the user’s needs and the overall market conditions.

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