Disclaimer: I'm not an expert, not a designer, I don't know shit and this is no financial advice, so get off my back :D
Ok, so for this hypothetical proposal there is one main precondition which must be achieved first to make this proposal even possible: CAKE Tokenomics must be automated. The PCS team is still doing it manually in case you didn't know.
This post was inspired by this post and this impressive comment, which I replied to, and then thought it needed illustration. So, I'm not an expert, I'm just bored.
Now, before we start, you need to understand the basics of CAKE Tokenomics:
Simplified CAKE Tokenomics Illustration (Left to Right, not Top to Bottom)
Notes:
- This is simplified and is not 100% accurate because it doesn't account for another 9.09% additional emissions which are all burned
- All subsequent examples are built with the above simplified assumptions, so they are not 100% accurate
- The above numbers are based on data captured between 22Nov21 and 17Jan22
Ok, so now, once you've digested the figure above, notice that after the initial – straight forward – emissions distribution and burn, an additional amount of tokens is captured (labeled “Other Deflationary Mechanisms” in CAKE Tokenomics Documentation) and used to buy and burn CAKE (3.266 in this example, which is the current – 8 weeks – average). This amount is very important because this is exactly what the PCS team is trying to increase through adding features, which should eventually surpass the emissions per block (14.25 CAKE at the time of post).
If they simply burn everything, there won't be anything left to provide profit to their products (Pools, Farms and Lottery). And if they try to define a higher fixed burn rate per block in an attempt to match the Additional Burns that they are making each week, it's going to be unpredictable and will force them to keep making manual adjustments all the time.
Instead, if they automate the Tokenomics, I propose a more dynamic change that takes place in almost real time, so instead of applying burns in weekly intervals, burns should happen at the end of each block, and the burn/emission amount is dynamically determined by the amount of Additional Burn achieved in the previous block.
Example of the Dynamic Burn per Block
As you can see, in this example, the Emission/Burn ratio changes each block, which keeps the inflation in check, automatically and predictably, while still providing profit to PCS products, although at a much lower rate (almost one third of the current rates). The upside in this method is that whenever the PCS team is able to achieve more Additional Burns, everyone's profit directly increases, and in the case they can't burn enough, profits go down but take down inflation with it, so you're protected in both cases.
Now, we address another dimension. The CAKE community has two main teams. Team A wants ZERO inflation and don't care about the APR, and Team B wants the current APRs to stay so that they can make the best out of it while they can until CAKE's inflation is neutralized and APRs drop significantly. I forgot to mention team C which is a group of morons who want ZERO inflation AND high APRs at the same time, we're not going to entertain them here.
So, to give the community some governance over this new mechanism, I'm proposing they should vote on a weekly or monthly “Emissions Correction Rate”, which could be any value in the range of -5% to +5% (initially, could be adjusted later based on the results), which is applied each block after the determination of the Additional Burns amount.
Example of the Dynamic Burn per Block with the Emissions Correction Rate
This way, users could tilt the balance onto more deflation or more profit in reaction to the market dynamics.
Obviously, all of the above requires a lot of studying, development and testing, which should result in more refined Tokenomics logic that will determine the conditions and boundaries that need to be set to prevent the process from breaking or needing manual adjustments.
