Proposal to confirm Farm Emissions for PancakeSwap v3 (“v3”) and reduce Farm Emissions for PancakeSwap v2 (“v2”)

It has been a while since we did the last CAKE Farm emission reduction, but we know CAKE tokenomics is one of the most discussed topics in the community. As our goal is still for CAKE to become emission neutral or even deflationary, we wish to continue the conversation with our community, and hear your thoughts.

tl:dr;

Overall Trading Emissions Reduced from 3.11 to 2.40, of which:

• Farm emissions reduced from 2.21 to 1.50 CAKE/block
• Emissions detailed below:

Please note, for the BNB Chain emissions, the reduction would be carefully managed over 45 days, to enable an orderly transition of TVL from v2 to v3.

For Ethereum emissions, only if required, emissions are to increase gradually to 0.3; the primary criteria is whether incentivized TVL is driving PancakeSwap v3’s adoption on Ethereum, and supporting trading volumes.

• Net proposed reduction in farm emissions on BNB Chain = 45%
• Net proposed reduction in farm emissions across BNB Chain and Ethereum = 32%

In the near term during adjustments, any unused emissions will be temporarily directed to burn, until they are needed to incentivize TVL. This is to minimize unnecessary inflationary supply of the CAKE token.

• These changes will get us closer to ultrasound CAKE:

Read before voting 📖

Before you vote, please make sure you understand the impact of the long and short term effects of CAKE emissions changes on our tokenomics.

1️⃣ Read and digest the CAKE Tokenomics documentation

2️⃣ Read this proposal in full, especially the v3-related explanations below

3️⃣ Make up your mind, and cast your vote!

Reducing v2 Farm emissions on BNB Chain and Ethereum - Explanation 🥞

With the launch of v3 on BNB Chain and Ethereum, a significant upgrade to capital efficiency has been introduced to v2 liquidity providers (“LPs”), allowing them to concentrate their liquidity in tighter ranges. LPs no longer need to apply their capital to all parts of the liquidity curve – as in v2 – where prices are not likely to trade and generate trading fees.

As a result, capital is up to 4000x more effective, with LPs also enjoying outsized trading fees. (Please see the graphic above for an example.) Key trading pairs on PancakeSwap has also increased between 30x to more than 1000x, with potential for even higher effective liquidity depth as more TVL migrates to v3.

This provides an opportunity for CAKE holders to reduce v2 Farm emissions significantly given that liquidity providers can now generate more trading fees organically with highly capital-efficient positions.

This Farm reduction will help CAKE take another step in achieving deflationary tokenomics.

Significant progress on PancakeSwap v3

The capital efficiency of PancakeSwap v3 has already upgraded PancakeSwap’s trading execution significantly despite launching for only 10 days.

• BNB Chain v3

V3 on BNB Chain has attracted $190m of TVL in one week, representing just ~10% of TVL on v2. Despite the lower TVL, V3 is already executing ~44% of all trading volumes on BNB Chain.

We expect more trading volumes will shift to v3 as liquidity providers become more familiar with v3. To help our users, we will continue to publish guides on how to provide liquidity in v3, and also to come up with products to make it simple to manage v3 liquidity (stay tuned!).

• Ethereum v3

V3 on Ethereum has attracted $22m of TVL in 1 week, breaking the 6 month all-time high TVL on v2, and has consistently outperformed v2 on trading volumes by 3-10x in just the first week.

The Ethereum migration is rolling out at a gradual pace as PancakeSwap develops its community, relationship, and brand in the Ethereum ecosystem. As per the previous voting proposal, up to 1.25 CAKE/block from the Syrup Pools can be redirected to incentivize multichain farm emissions.

Currently, Ethereum v3 is drawing only 0.15 CAKE/block from Syrup Pools and Chefs will aim to cap it at 0.3 CAKE/block within Q2 2023, increasing redirection only towards pairs that generate high trading volume and CAKE burn.

With v3, PancakeSwap is already a top 10 DEX on Ethereum only 10 days into launch 🔥.

(Data from our DefiLlama friends!)

What are the downsides of reducing v2 emissions? ⚖️

Reducing farm emissions reduces the CAKE APR earned by liquidity providers across v2 incentivized pairs and may result in reduction in TVL on v2. However, this has been more than overcome by the significant increase in capital efficiency introduced by v3.

Thus far, we have observed that overall trading volumes have increased since v3 launched, generating more fees for liquidity providers.

Other considerations 🧠

V3 will not be suitable for all tokens as some tokens are not so well-established. Thus, some pairs will continue to be incentivized on v2 either fully or partially (i.e. with farms spread between v2 and v3).

To provide support to liquidity providers who are still getting used to v3, we will retain some CAKE emissions on CAKE, BNB, BTC, ETH and stablecoin pairs for the next 2 months, with most rewards directed to the v2 CAKE-BNB farm.

The Kitchen will be rolling out more educational content on different aspects of v3 to help liquidity providers understand how to provide liquidity and farm on v3.

The Kitchen will also release a position manager for users who may prefer to automate the management of their liquidity positions on v3.

Please see above graphic for the eventual farm migration results.

PancakeSwap will work with current and future project teams on getting the optimal mix of capital efficiency (v3), extensive pricing (v2), and CAKE emissions.