The ultimate guide to PancakeSwap’s veCAKE (2024)

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Introduction about CAKE and its tokenomics

1 — The main role of CAKE in PancakeSwap
2 — Two things everyone should know about CAKE tokenomics

Breaking down veCAKE

1 —What is veCAKE?
2 —What are my rewards and the benefits of staking CAKE?
3 — Your CAKE, Your Voice: What does this change?
4 — How does the Gauge System work?
5 — How does veCAKE boost yield? What are vote incentives or bribes?

Understanding the CAKE yield aggregator protocols

1 — What are these new meta-governance projects (Cakepie and Stake Dao)?
2 — What do these protocols do?3 — How do these projects benefit the PancakeSwap ecosystem?
4 — Which protocol should I choose?

ATTENTION: Nothing written here is investment or financial advice. I do not recommend anything to anyone. Do Your Own Research. Neither I nor PancakeSwap, nor any protocol described here, takes responsibility for your investment decisions. Always proceed with caution.

CAKE is PancakeSwap’s governance token. Its utility is quite broad as you can see in the image below:

CAKE is used to earn income on PancakeSwap in basically three ways::

• Participating in the stake pool earning more CAKE as a result of emissions and also the revenue sharing part.
• Boosting your yield on the Farm. In other words, when staking CAKE you earn up to 2x higher APR on farms.
• Obtaining the right to participate in IFO, i.e. purchasing project tokens at launch.

• CAKE has been deflationary since September 2023, that is, burning more CAKE than it is minting.
• Current Total Supply is approx. 386M CAKE. We say approximately because it is being burned weekly. The Circulating Supply is 246M. It means 386M(Total Supply) minus the amount of locked CAKE (~140M). Maximum supply has been reduced to 450M. Since it is deflationary, this maximum supply is the limit set today that will never be exceeded. But it will only be used in cases of extreme need. Furthermore, the Chefs have already said that in the coming years, as burning develops, the maximum supply may be reduced again.

Thus we came to the conclusion that::

🔥🥞 All rewards distributed by PancakeSwap is real yield. Even those that come from the minting/emission of CAKE. Given that, since the last 4 months, there has been more burning than emission. This is possible because part of the fees earned by the protocol are used to buy-back CAKE from market to burn.

See the docs: https://docs.pancakeswap.finance/governance-and-tokenomics/cake-tokenomics
See the interesting discussion in the forum about CAKE’s tokenomics: https://forum.pancakeswap.finance/t/discussion-for-proposal-to-reduce-cake-token-total-supply/100

It’s the locked staked CAKE weighted by the lock time. You will have veCAKE in proportion to two things: the amount of CAKE staked and the lock time. Pool rewards is distributed based on the amount of your veCAKE.

So veCAKE is like a unit of account that provides a quantification of how much the holder will receive in reward, taking into account not only how much CAKE he has, but also, how long he is willing to hold it.

The proportion is: every 1 CAKE staked for 4 years will give you 1 veCAKE. Now see the magic. If Johnny has 10k CAKE locked for 1 year, he will have 2500 veCAKE. But if Mary only has 2500 CAKE and locks it for 4 years, she will have the same amount of veCAKE as Johnny. In other words, with a smaller amount of CAKE Mary can receive the same rewards as Johnny from the CAKE Pool.

The interesting thing is that as veCAKE decreases over time, to increase veCAKE you have to lock more CAKE or extend the locking time.

If you haven’t already migrated from the old Pool to the new one, do it now. If you want to know more about migration, see here.

With veCAKE you continue to earn the CAKE emissions allocated to the stake and the revenue sharing.

What is the yield or APR? At the time of writing this article the APR for the 4 year lock-in was approximately 15%. On average, each 1000 veCAKE earns 3.86 CAKE per week according to data from Jan 10th released by Seb.

On the CAKE Staking page, just below the CAKE lock modal you will see a modal called “Earn CAKE”:

By clicking on “Check Reward” you check your earnings and information about it including the APR:

What is the difference between veCAKE and the previous model that also had lock? Is it just the longer locking time? No.

Now there is something new that changes everything: veCAKE directly and proportionally controls CAKE emissions through voting.😱

This is where the gauges come in, which are precisely this system of using veCAKE to vote for the pools/farms that will receive cake each epoch.

With your veCAKE you can vote for the farm/pools every set period (two weeks). At the end of each epoch, the proportion of votes received by each farm/pool will be the proportion of CAKE allocation from the emission that each farm/pool will receive.

This is the maximum utility that a Dex’s token can have. It is the total and in fact empowerment of holders.

On the same CAKE Staking page, you will see a modal called “Gauges Voting”.

When clicking “Check Gauges” you will be taken to the voting page. There you will have a long list of all the farms. At the bottom you will see the place for your vote.

Then, by clicking on “Add Gauges”, you add a farm to vote and then define what proportion of your veCAKE wants to vote for that farm. You can vote for as many farms as you want and in whatever proportion you want. From 100% on one farm, to distributing your votes across all farms.

The most fantastic thing about this is that in addition to empowering CAKE holders, it creates a whole new demand for CAKE. And it also brings more economic incentives for locked CAKE holders with voting incentives known by the terrible name of “bribes”.

Let’s pretend that we are from a protocol/project that needs to increase the liquidity of our token on PancakeSwap where we have a farm. How do we do it? We have to somehow propose to PancakeSwap to increase the CAKE allocation for our token farm so that more liquidity providers will feel encouraged to provide liquidity in our farm.

But as CAKE emission to farms is limited to a fixed rate divided across all farms. How to define which farm receives the most incentive and why?

This is where this new voting gauge system with veCAKE comes in. Now it is the veCAKE holders who decide so our protocol/fictitious project could distribute token rewards to those holders who choose to vote for our farm to receive more CAKE allocation. (Let us also not forget that there are farms that are extremely important due to the volume of trade it produces, generating a high impact on revenue.)

But how do voting incentives work in practice?

You must be wondering where the bribes are. PancakeSwap has formed a series of partnerships with several top projects that have expertise in this area. There are so far two primary Bribery markets:

Hidden Hands by Redacted Cartel: https://hiddenhand.finance/pancakeswap

VoteMarket by StakeDao:
https://votemarket.stakedao.org/?market=cake&solution=All

What they do? They receive Bribes/voting incentives from projects and distribute them to those who have veCAKE and vote for those specific farms.

Hidden Hands is not yet operating at full capacity because there are no voting incentives yet. But after you lock your CAKE on PancakeSwap, you will go to the Hidden hand and vote for the farm you want with the veCAKE you have.

VoteMarket is already operational with some incentives being distributed. It works like this: You enter the site to see the bribes offered. When you click on vote you will be redirected to the Pancake voting page. Vote normally there. And at the end of the epoch, return to the VoteMarket page to receive your rewards.

With veCAKE and all this new utility, it opened up the possibility for PancakeSwap to have meta governance protocols as part of its ecosystem. And this helps PancakeSwap’s growth a lot and is of great interest to all CAKE holders.

Today there are three such projects: Cakepie and Stake Dao. These three projects have some differences but fundamentally they all accumulate CAKE to optimize yield. Each with their own approach and in their own way, everyone is helping the PancakeSwap ecosystem.

Remember that these are third-party projects. In other words, they are not made by PancakeSwap. They received support and grants from PancakeSwap and BNB Chain. Of course, Pancake is working together and always talking or supporting. But they are autonomous projects, each with its own risks, its smart contracts, its team, its experience, etc. So you have to study the projects and decide on your own the risks and whether or not you want to use them.

Calm down. Don’t you understand anything? Let’s do it by steps. I will explain everything.

Accumulate and Lock CAKE forever

These projects accumulate CAKE. In other words, they compete for users’ CAKE by offering optimized yield and rewards.

Now, in addition to depositing CAKE directly on PancakeSwap, you can deposit CAKE on any of these 3 meta-governance projects. What do they do with CAKE? Permanently lock for 4 years.

Distribute income from this CAKE locked forever

The general idea here is that they achieve higher returns given the volume of CAKE they manage to collect as well as the fact that they keep them permanently locked for 4 years.

Increase yield for liquidity providers

As they collect a lot of CAKE and lock it, they also get a large increase in farm boost. This is why they are able to release this maximum yield on the farm to liquidity providers without the need for them to have CAKE blocked.

Capture and distribute vote incentives/bribes

These protocols also function as a collector and distributor of vote incentives/bribes each in their own way but may have either a secondary bribery market (cakepie) or have some type of delegation (stakedao).

Make locked CAKE liquid — mCAKE, sdCAKE e xCAKE

After depositing your CAKE in these protocols, there is no way to withdraw your CAKE back. That’s why CAKE is locked forever. And that’s why we call these protocols black hole of CAKE. This means that these projects contribute greatly to the removal of CAKE tokens from circulation.

But when you deposit CAKE into these protocols, you receive a synthetic token representing the CAKE deposit you made.

Unlike veCAKE, which is non-transferable and non-negotiable. The synthetics of these protocols are tradable, with these projects opening liquidity pools allowing you to buy and sell these synthetics. So in practice you have liquidity with your CAKE position locked.

It is similar to the blockchain liquid staking tokens that are very famous and popular in both ETH and BNB. For example, you deposit ETH on Binance or Lido and receive wBETH and stETH. The difference here is that in most cases of net network staking you receive the reward for the increase in the value of the liquid token, that is, wBETH or stETH increase in value as they receive income from ETH staking.

In the case of net staking of CAKE blocking the three protocols, you need to stake the synthetic and you can withdraw your income/yield separately.

Risks with synthetic CAKE

Here comes a new risk that you should always evaluate, which is Peg/Deppeg. All projects have their mechanisms to ensure that the price of their synthetic CAKE is the same as the CAKE in a 1:1 ratio. But as this price is defined by the market, there is a risk that at certain times the price will be different or vary over time.

Synthetic CAKE tokens from each project

Cakepie:

Deposit CAKE and receive mCAKE
Stake mCAKE in one of the dual pools to receive rewards

Site: https://www.pancake.magpiexyz.io/stake
Twitter: https://twitter.com/Cakepiexyz_io

Telegram:
English: https://t.me/CakepieXYZ_Official

Stake DAO

Deposit CAKE and receive sdCAKE
Stake sdCAKE to receive rewards

Site: https://www.stakedao.org/lockers/cake
Twitter: https://twitter.com/StakeDAOHQ

Telegram
English: https://t.me/StakedaoHQ

If you want to follow some numbers about the projects gathered in one place, see here: https://www.defiwars.xyz/wars/pancake

In short, we can say that they help all parties involved in the ecosystem.

1 — CAKE holders who want to earn income as if they had CAKE locked for 4 years but want to have their token more liquid even with the risk of depeg.

2 — CAKE holders who do not want to manage their stake. Or everyone who has CAKE as the amount in circulation decreases.

3 —Anyone interested in increasing income in secondary bribery markets.

4- Liquidity providers who do not wish to have CAKE locked or have CAKE locked, and want to make the most of the farm increase.

5- All CAKE holders and PancakeSwap benefit from increased demand and CAKE locked forever. They also benefit from more decentralized and efficient governance and greater community control over the protocol.

6- Projects that accumulate veCAKE win, which in addition to delivering higher returns to holders are also able to obtain revenue.

7- Projects that have liquidity on PancakeSwap have numerous ways to efficiently boost their liquidity and engage with the community.

Here is another very interesting thing about the PancakeSwap veCAKE ecosystem. The ecosystem attracted and brought together very serious and committed meta-governance projects with innovative, tried-and-tested approaches, each with its own uniqueness.

Each protocol has its own way of distributing the income to those who deposited CAKE, for example what proportion, how to access it, etc. There are also differences over the distribution of bribes. Just as the role of the governance token in these projects can also have different approaches. And the last thing to see is that the three have their own way of maintaining the liquidity and PEG of their synthetic veCAKE token.

The only one who can answer whether it’s worth it for you, as well as define which project is best for you, is you. You can join the project’s official groups, read the docs, ask questions and then make a decision that you think is best. You should do your own research, study, expose yourself as much as you are comfortable with, be aware of the risks, and have fun while watching your tokens yield and PancakeSwap grow.

Nothing written here is investment or financial advice. I don’t recommend anything to anyone. DYOR. NFA

Hope this helps! If you have any comments, corrections or questions, you can reach me on the official PancakeSwap Telegram channels. Just enter one of them and tag me. Please do not contact me privately before then. Or tag me on my Twitter: https://twitter.com/juapia

Português: https://t.me/PancakeSwapPortuguese

English: https://t.me/PancakeSwap

Spanish: https://t.me/PancakeSwapES

To stay up to date, delve deeper… Be sure to check out the docs and articles on the official PancakeSwap blog

https://docs.pancakeswap.finance/
https://blog.pancakeswap.finance/

Note about english version: Please note that English is not my native language and it is very difficult for me to write something of this length in English. So any considerations about the language, call me in DM and I’ll adjust it.

Juapia