According to its latest ‘Transparency Report’ the Cake DeFi platform experienced macro challenges to its growth this year, as it plans its expansion into tokenized stocks, commodities, and precious metal offerings in the near term.
Since its 2019 launch, Singapore based Cake DeFi says it has grown to over 270,000 users and has over $700 million worth of assets on its platform. The company recently released its Q3 Transparency Report which chronicles Cake’s highs and lows to date, and its near and medium-term plans for growth.
Cake 2021 results
According to the report, Q3 2021 was Cake’s best quarter since its launch as each of the protocol’s 10 departments recorded positive growth. In terms of finance, it was the “strongest financial quarter” with Cake paying out $74 million in rewards to clients.
Significant strides were also taken to create key partnerships with gaming companies and institutional investors. In R&D terms Cake set up a team in Q3 that revolved around open-source R&D contributions for projects. To accelerate development, the company has also launched two blockchain teams with a focus on C++ and Rust.
China and Market Sentiment Challenges for Cake
Despite achieving enviable milestones in Q3, it was not all smooth sailing for Cake. The protocol faced some challenges along the way that threatened to derail its growth. According to founder Julian Hosp, the headwinds were unavoidable and “would have hit us no matter how well we were executing.”
The first challenge was a prevailing negative crypto market sentiment. In May, crypto markets experienced a major sell-off that led to almost $1 trillion being liquidated across the sector. The price decline sent shockwaves that adversely affected investor sentiments in Q3.
Another challenge faced by Cake was the cyclical nature of the slow summer months that dampened Cake’s non-seasonally-oriented businesses (US institutions are notoriously slow to move during the US summer).
The third major headwind faced by Cake was China’s crackdown on cryptocurrencies and associated activities, which reached a high point in Q2 2021. This led to a mass migration of miners and several crypto startups from mainland China. These factors all combined to cool Cake’s growth over the last three months.
In terms of broad operational risks, Hosp identifies fund and data hacks, treasury volatility, and transaction errors as foreseeable risks that can be influenced. To reduce the risks of fund and data hacks, the firm utilizes wallet separation and state-of-the-art security systems.
Treasury volatility is lessened by investments in assets with low volatility, while the risk of transaction error is cushioned through the combination of manual and automated processes. Risks beyond the control of the firms are the prevailing crypto sentiment, regulation, the pandemic, and macro economic trends.
Cake DeFi Future Goals
Going forward, the platform’s short-term goals are to carry out an audit to PCAOB standards to increase transparency for current and potential users. Many major players in the crypto-finance space are now looking to audits by A-list firms to provide the level of financial transparency required by institutional investors.
Hosp says Cake has ambitious goals in the decentralized stocks, commodities, and precious metal tokens space – and is also looking to algorithmic decision-making functionality to allow customers to make no-hassle investment choices.
From a staffing perspective, Cake is currently limited in its ability to advance on these goals, however, and requires significant investment in human resources. One interesting observation in its report was the longer-term impact of Covid-19 in terms of staff availability today. “Due to the pandemic,” says Hosp, “very few team members took days off over the past 18 months.” He notes that with countries opening up again for tourism, many staff are taking leave – leaving the company shorthanded.