PancakeSwap launches veCAKE, triggering a new round of yield farming wars?

Yesterday, Pancakeswap announced the launch of veCAKE, a mechanism that determines future CAKE reward distribution based on staking weight, strengthening the governance value of past vCAKE. CAKEPIE also offers staking services similar to Convex. Could a liquidity war specific to CAKE be on the horizon?

Pancakeswap Launches veCAKE

The largest decentralized exchange on the Binance Smart Chain (BSC), Pancakeswap, announced the launch of veCAKE yesterday. What is the relationship and difference between veCAKE and the existing vCAKE, and how will it impact Pancakeswap?

Previous Mechanism: vCAKE

Pancakeswap previously introduced the vCAKE mechanism in July last year. Users needed to stake CAKE tokens in the Syrup Pools to earn vCAKE scores, which served as the basis for governance weight calculation.

However, the exchange was criticized for governance proposals being mostly decided unilaterally by the team, making it difficult for users to participate in discussions, including proposals on CAKE reward distribution. This led to the introduction of veCAKE.

What is veCAKE

Pancakeswap's key CAKE-exclusive Syrup Pools and vCAKE will be replaced by a new staking governance module - veCAKE.

veCAKE is a new governance mechanism score, not a real token and cannot be transferred, serving only as a calculation score for governance voting weight. Similar to vCAKE, the calculation is based on token quantity and remaining staking time, with a maximum staking period of four years.

Similar to Curve's veCRV mechanism, veCAKE can be used for "directing CAKE reward distribution," allowing users to decide which pools Gauge to direct each round of CAKE liquidity rewards to, thereby enhancing the depth of specific trading pairs.

The reward distribution adjustment interval for each epoch is 14 days, with traffic being distributed based on veCAKE voting ratio every two weeks.

Not all pools have the same calculation method; some pools have multipliers and restrictions:

• Boosted gauges: Important trading pairs usually have multipliers applied when calculating votes. For example, the team controls trading pairs related to BTC, ETH, and BNB protocols.
• Capped gauges: Some less important pools have a 2% to 20% ratio cap.

Impact of veCAKE: Enhanced Governance Value

Unlike the previous vCAKE, users can more precisely and effectively influence the distribution of CAKE token rewards according to their own ideas and interests, helping to support the depth of specific trading pairs. Holding veCAKE will increase governance value, especially for project teams and professional investors.

LSD Competition Begins

What is the Curve War

The reason why Curve's veToken model has many imitators is due to its successful external economics.

Projects, especially stablecoin projects, aim to build deep liquidity pools on Curve to strengthen token stability, creating a strong demand for Curve. Stablecoin projects like FRAX, MIM, and OHM are major buyers of its tokens.

For retail investors, Convex offers users the cvxCRV token, which allows staked CRV to become a tradable token. This enables users to trade and unlock their stakes at any time or reinvest the token, attracting significant capital inflow and strengthening the Curve ecosystem.

As of now, Curve and Convex have TVLs of $20 billion and $18 billion, respectively.

Pancakeswap is Replicating the Curve Ecosystem

This is happening on BSC, where even before the launch of veCAKE, the Magie project initiated an IFO on Pancakeswap to join the competition.

Magie focuses on the liquidity staking LSD field, similar to Convex, providing liquidity services for "tokens that need to be staked" to enhance users' capital utilization efficiency. It has integrated projects like Radiant, Pendle, Wombat, among others.

Magie recently launched the subproject CAKEPIE, aiming to allow users to stake CAKE tokens in the protocol and earn mCAKE. It is expected that CAKEPIE will replicate the services offered by Convex on BSC, and since Pancakeswap is the largest decentralized exchange on BSC, the impact on the ecosystem is worth evaluating.

However, the project has not officially started yet and is currently holding an opening event to attract users to stake CAKE. More information is expected to be released when Pancakeswap's 1st epoch begins.

Pancakeswap Continues to Experiment

Although this Pancakeswap update is replicating concepts from other projects, it shows that the team aims to improve by making the governance mechanism of CAKE tokens more robust, allowing token holders to directly control their interests.

Decentralization

However, it is important to note that Pancakeswap is still considered a centralized project, with the team having control over the distribution mechanism of CAKE rewards and the presence of backdoors in token contracts, enabling the team to change rules at any time.

Pancakeswap still has a long way to go in terms of decentralized development. Although not yet perfect in terms of decentralization, it is indeed making efforts to change.

Market Attractiveness

On the other hand, liquidity staking LSD is a keyword seen frequently this year. Whether Pancakeswap can effectively combine its existing advantages with the vetoken token mechanism and ride the market trend by successfully replicating the Convex model will be a focal point in the coming months.