Preheat the oven to 350F. Line three, 8-inch cake rounds with parchment paper; or, two, 9-inch cake rounds. Set aside.
Prepare the cake layers first. In a large bowl, cream together the softened butter and sugar until light and fluffy. Add the eggs, vanilla and dulce de leche. Microwave the caramel for 30 seconds to soften it. Mix all ingredients together until creamy, then pour in the milk.
In a separate bowl, combine the dry ingredients: flour, baking powder and salt. Add the flour into the batter in small amounts and whisk after each addition. Whisk only until flour is incorporated.
Divide the cake batter evenly between the prepared pans. Bake in preheated oven for 35 to 40 minutes, or until a toothpick inserted into the center comes out clean. Remove cakes from pans and allow them to cool completely. Once cooled, use a long, serrated knife to level the cake layers.
For Caramelized Sugar Garnish:
While cakes are baking, prepare the crystallized sugar garnish. Combine the sugar and water in a small saucepan and cook over medium heat, not stirring, until sugar caramelized into deep amber color. Pour the sugar syrup over a baking sheet lined with parchment paper. Use a spatula to spread the syrup as it cools. Allow the syrup to cool completely and harden before handling. Break the candy into shards of different sizes.
For Caramel Frosting:
Prepare the buttercream once layers have cooled. Place the softened butter into a stand mixer bowl and whisk it on high speed for 5 to 7 minutes, until light and fluffy. Scrap down the sides of the mixing bowl a few times. Next, add the dulce de leche, vanilla extract and a few pinches of salt. Add less salt first, then taste and add more to taste. Whisk buttercream until it's light and fluffy.
Add the confectioner's sugar next. Keep whisking for another 3 to 4 minutes, until the buttercream is light and fluffy. If your butter was too warm, the buttercream will stay flat. Place the frosting into the refrigerator for 1 hour, then whisk again.
Assembling the Cake:
To assemble the cake, first level the cake layers with a serrated knife. Spread each layer first with a generous amount of dulce de leche, then add the caramel buttercream. Frost the top and sides of cake and smooth over with a flat spatula. Transfer the remaining frosting into a pastry bag tipped with tip #4FT. Watch my video for decorating the top. Decorate the sides with the broken sugar.
Keep cake refrigerated and remove from fridge about 1 to 2 hours prior to serving to allow the cake to soften.