Cake DeFi is a Singapore-based staking, lending and liquidity pooling platform that allows users to make deposits and earn returns on a variety of tokens.
Despite the “DeFi” name, Cake DeFi is a depository platform that offers a range of features based on various DeFi products.
Cake DeFi offers three main products: Lending, liquidity mining and staking– each generates different returns and has different requirements. Users can earn around 6.5% by lending digital assets like BTC, USDC, and ETH, or over 80% from liquidity mining.
About Cake DeFi
Cake DeFi was created in 2019 by Dr. Julian Hosp (CEO) and U-Zyn Chua (CTO) founded.
The company is based in Singapore.
Julian Hosp, MD has a variety of experiences ranging from being a trauma surgeon to being a professional kitesurfer. In 2015, Hosp co-founded TenX, a cryptocurrency-enabled Visa card and mobile wallet.
Hosp and Chua collaborated on the TenX token sale and helped the project raise $80 million in June 2017; it was one of the biggest ICOs back then. However, the project faced tremendous difficulties in the trials and tribulations of the 2018 cryptocurrency market crash.
Hosp parted ways with the project in 2019, sparking various controversies – addressed in his blog post here.
TenX renamed to mimowhich previously appeared as a staking and liquidity pooling platform for a EUR stable token called Parallel Completely closed in 2021.
U Zyn Chua was a chief researcher for the DeFiChain project since January 2019, playing an integral role in the Cake DeFi ecosystem.
The DeFiChain DFI token
Cake DeFi has built many of its services around the DeFiChain (DFI) token.
DeFiChain is a fully non-Turing blockchain that aims to enable decentralized finance on Bitcoin. Running on a PoS consensus mechanism, DeFiChain anchors its newest Merkle root to the BTC blockchain.
DFI went live in August 2020; Its price peaked in April 2022 with a market cap of $2.34 billion.
The project is run by the Singapore-based DeFi Foundation and the foundation is managed by Cake founders Dr. Julian Hosp (Chairman) and U-zyn Chua (CTO).
Cake DeFi lending
Cake DeFi lending rates are competitive with their real DeFi counterparts. It advertises a “guaranteed” base APY – with bonus returns if the native coin’s price increases during the loan period.
Deposits are lent in “batches” where users deposit digital assets (BTC, ETH, USDC or USDT) and the coins are locked in options contracts for four weeks. The stack lasts 28 days, beginning and ending on a Friday.
At the end of the four-week period, users can automatically advance to the next batch, withdraw all their funds and return to their Cake Wallet, or just withdraw the proceeds.
Cake DeFi Lending
Cake does not charge its users; it receives commissions directly from its partners.
Bonuses occur when the spot price of the asset closes in a certain range. For example, let’s assume the following:
- The spot price of BTC is $10,000 as of launch date.
- A lending batch offers 5% APY on BTC and a bonus BTC yield of 2.5% APY if the spot price of BTC is at least $12,500 at the end of the 28-day period.
- We enter the batch with 10 BTC.
Situation #1: The spot price of BTC at expiration is $10,500.
We would get 5% APY on our 10 BTC or 0.0375 BTC – 5% APY for the 28 days of the stack. We would have approximately 10.0375 BTC in our account, which we can choose to carry over to the next batch or withdraw entirely.
Situation #2: The price of BTC at expiry is $2,500. (Ouch)
We would still get our 5% APY. As in the example above, we would receive about 10.0375 BTC in return.
Situation #3: The price of BTC at expiry is $13,000.
We would get our 5% APY and an additional 2.5% APY bonus, bringing our total APY to 7.5%. At the end of the stack, we would end up with a total of 10.0565 BTC:
- Our client (10 BTC)
- Our 5% APY (0.0375 BTC)
- Our Bonus 2.5% APY (0.01896)
Although Cake claims the capital and returns are both fully guaranteed and risk-free with “potential bonuses”, they don’t really explain how – their team didn’t comment when contacted.
Liquidity Pools
Cake DeFi offers shared liquidity mining pools where users can earn pairs of returns between popular coins and the DFI token.
These liquidity pools pay a return of over 68% (subject to change). Cake takes 15% as a fee on all rewards.
Rewards are paid directly to your wallet on the Cake platform every 12 hours; It can take up to 24 hours for the first rewards to appear.
A snapshot of the Cake DeFi liquidity mining pools
These rewards are paid in both pairs. So when you add liquidity to a BTC DFI pool, you will be paid out in equal amounts in BTC and DFI.
Users can withdraw their coins from liquidity mining pools at any time.
Mark out
Users can stake (‘bake’) Masternodes and earn rewards in real-time. Cake currently offers two masternodes – DFI (up to 31.7% APY) and Dash (5.7%).
A snapshot of Cake DeFi staking options
The cake freezer 🥶
The more die-hard Cake users can “freeze” or lock their DFI for up to ten years. In exchange, they receive daily cash flow from their locked funds and an 85% discount on staking fees.
To use the Cake Freezer, simply choose to freeze your DFI for at least a month (or a decade at most). Your funds are automatically allocated to liquidity mining pools; Bonuses are tiered based on the duration of your suspension.
For example, let’s say we freeze 10,000 DFI for 1 month. We would get a base APY of 89% and our Freezer APY would be around 92%. For the 1 month we would get about 500 DFI in rewards.
Alternatively, let’s see what happens when we do a full transmit on our DFI. Let’s say we are super optimistic about the Cake platform, DFI token, and see that both exist in 10 years.
In that 10-year period, our Freezer APY would increase to around 108%. At the end of that period, our 10,000 DFIs would have grown to approximately 42,000 DFIs.
Final Thoughts: Is Cake DeFi Legit?
Cake DeFi is a pretty unique offering compared to its crypto yield relatives. Cake DeFi is a centralized entity like BlockFi and Celsius; By using the service, you trust them to keep your funds safe during the various income generation activities. It offers some guarantees, but there’s nothing substantive to support the guarantee, which turns out to be marketing language.
However, it differs in the options available. While most crypto interest accounts only offer a return on lending your wealth, Cake allows users access to much higher returns through liquidity mining and staking — activities generally reserved for the DeFi-savvy masses.
How can Cake offer 80% APY? Well, like most other liquid mining and staking opportunities, Earnings are paid in DFI controlled by the Cake DeFi team. So the actual “return” you get depends on whether DFI maintains its price, as well as your ability to sell it (its most popular exchanges are Kucoin and Binance, with limited support elsewhere).
These tokenomics don’t work well for DFI in the long term, so the “Freezer” product of locking DFI for 10 years seems like a risky proposition.
The controversies with TenX should not be ignored, but it does not appear that this product was created with malicious intent. The company itself is based in Singapore, which adheres to different regulatory bodies than US-based companies.
However, despite dubious claims of guaranteed returns and no response from the company to clarify, it doesn’t seem like the product is illegitimate. The token itself has held up its value surprisingly well lately.
As always, this guide is not financial advice or a recommendation. Digital assets are risky, and platforms that hold your assets pose another risk.
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