PancakeSwap (CAKE) has now emerged as one of the top decentralized finance (DeFi) platforms. Also, its Binance Smart Chain (BSC) integration has made it a liquidity magnet against major competitors like SushiSwap and Uniswap.
DeFi has slightly taken a back seat to nonfungible tokens (NFTs) in the last month. But, that has not stopped the top DeFi projects from developing and strategizing how to expand their ecosystems and grow their market share.
One notable project that has outperformed the field lately is PancakeSwap, the BSC-based automated market maker (AMM) that enables users to exchange tokens and earn a segment of fees via yield farming.
Based on a recent report published by Delphi Digital, many factors have played a major role in enabling the PancakeSwap ecosystem to grow in recent months, and analysts project that the protocol will continue to become a major competitor to Uniswap.
Users Avoid High Ethereum Fees
Anybody that has transacted on the Ethereum network in 2021 might have noticed the massive surge in gas fees that has been compounded by the rising price of ETH.
Comparing market charts of the average gas fees on Ethereum with the ones showing monthly trading volume on PancakeSwap, there seems to be a correlation between higher fees and more activity on the decentralized finance platform.
While the Ethereum fees were exploding, Binance Smart Chain (BSC) became a viable option due to many cross-chain bridges and low transaction costs. PancakeSwap is the biggest and most established DEX on the Binance Smart Chain. Therefore, it benefits from the influx of users and Binance’s huge user base.
Delphi Digital analysts pointed to Binance’s large ecosystem as another major factor that is providing a boost for CAKE as its:
“vast network effect comes from being the biggest crypto exchange that’s typically the first choice for retail traders.”
Potential users can gain some access to the BSC by just withdrawing their tokens from Binance to a Binance Smart Chain-supported wallet.
PancakeSwap Might Become A ‘Perpetual Vampire’
Delphi Digital also commented on CAKE’s token economics as a considerable factor for its future growth. Unlike Uniswap (UNI) and Sushiswap (SUSHI), there is no hard cap on the supply of CAKE tokens. That factor gives the platform the:
“ability to perpetually conduct targeted vampire attacks in order to attract liquidity and incentivize projects to launch on PancakeSwap’s AMM.”
Today’s weekly inflation rate for CAKE is 3.78%, which is higher than UNI’s 2% annual inflation rate. Even with different deflationary measures implemented by CAKE developers:
“the net emission is approximately 1,000,000 CAKE per week – which translates to 37% real inflation annually (or 0.7% weekly).”
Based on the Delphi Digital publication, PancakeSwap is aware of how the current inflation numbers appear and the team unveiled a governance vote to change the emission schedule. The vote also comes with the option to leave it the same, drop it to 23.5 or 22 CAKE per block.
The option to push emissions down to 22 CAKE (20% decrease), is expected to win and that might reduce CAKE emissions by 1,050,000. That strategy might help neutralize inflation while also enabling the project to maintain its vampire attack capabilities in the long-term.
CAKE Tries To Break Above Resistance
Data published on TradingView shows that since bottoming at $8.30 on February 28, the CAKE price has made many attempts to break out to new all-time highs and at the time of writing the coin is trading for $15.62.
Based on other market data, market conditions for CAKE have been quite favourable for some time. The VORTECS™ score is a popular algorithmic comparison of historic and current market conditions that are derived from an integration of data points like trading volume, market sentiment, Twitter activity, and recent price movements.
A recent test of the ecosystem resulted in investment returns that reached as high as 1,497% using particular strategies outlined in the report.
As seen in the market charts, the VORTECS™ Score for CAKE turned green and recorded a 65 on March 21, around six hours before the price started to rally in the next four days. After the first precise rise on March 22, the Score continued to rise and reached a high of 81 on March 25, three hours before the price started to rally 36%.
Massive backing from Binance and low fees on Binance Smart Chain have PancakeSwap in an enviable position to attract more liquidity from the Ethereum-based DeFi protocols as a practical solution to high gas fees remains quite elusive.
Despite the inflation-related worries, analysts now suggest keeping an eye on the Uniswap competitor as the battle for decentralized finance dominance continues to unfold.