PancakeSwap plans to reduce CAKE supply – what now?

• CAKE’s value increased by 21% due to the new proposal.
• A potential approval may put CAKE in pole position for a rally.

Decentralized exchange PancakeSwap [CAKE] has proposed to reduce the maximum supply of its native token from 750 million to 450 million.

According to the project, the move is necessary if the token wants to move from a high-inflation model to a more efficient one.

While the proposal would still undergo discussion, comments from the PancakeSwap forum showed that some members of the community were in support. The major reason for the backing is that the decrease in supply might trigger a jump in CAKE’s value.

Icing on the veCAKE

Furthermore, the proposal seemed to align with the launch of veCAKE.

A few weeks ago, PancakeSwap launched veCAKE, which stands for vote-escrowed CAKE. veCAKE is the non-tradable and non-transferrable version of CAKE.

During the deployment, PancakeSwap noted that the token would enable active participation in the project’s governance.

So, it is possible that veCAKE would be crucial in determining the outcome of the latest proposal. At press time, the total supply of CAKE was $236.71 million.

The result of the disclosure was a positive one for CAKE. As of this writing, the cryptocurrency’s value has increased by 21.16% in the last 24 hours.

The increase seemed like a much-needed one for CAKE holders. This was because, unlike its peers, CAKE’s 365-day performance was in the red. Should the proposal be approved, the tides may change for the cryptocurrency’s price action.

Source: CoinMarketCap

Another metric that could be affected by PancakeSwap’s proposal is the Total Value Locked (TVL). The TVL measures the total amount of assets locked in a protocol.

When the TVL increases, it means market players perceive a protocol to be trustworthy. If the TVL decreases, it implies otherwise.

The end of the struggle may be near

At press time, PancakeSwap’s TVL was $1.47 billion, representing a 4.49% increase in the last 30 days. When compared with other protocols, this was not an impressive increase.

But with veCAKE’s introduction and a possible supply reduction, PancakeSwap might experience an influx of users who aim to get better yield from the protocol.

Source: DefiLlama

AMBCrypto evaluated CAKE’s Market Value to Realized Value (MVRV) ratio. Using Santiment’s data, the 365-day MVRV ratio was -6.735%.

This means that if every CAKE holder who bought within the last year sold, they’d make an average loss of 6.735%. Therefore, it could be in the best interest of holders to refrain from selling.

If the token price continues to increase, then the MVRV ratio might flip positive. This would also allow holders to move into the unrealized profit zone.

How much are 1,10,100 CAKEs worth today?

Meanwhile, CAKE’s social dominance increased to 1.694%. The increase in social dominance implies that PancakeSwap has been getting some hype.

Source: Santiment

However, market players may need to be careful with buying CAKE in the short term. If the social dominance continues to increase, it could be a sign of a local top. Hence, buying CAKE at $2.68 might not be a good entry.