PancakeSwap and BTCV Cook up Some Liquidity

In traditional banking, liquidity has always been a bit of a failsafe. When global markets take a downturn, investors begin thinking about cashing out or moving their money. But this is only possible if an investor’s portfolio is full of liquid assets.

In the world of cryptocurrency, liquidity is a proactive way to make a profit. This is all thanks to the uniqueness of decentralized, digital ledgers. With access to PancakeSwap, a Decentralized Exchange (DEX) showing phenomenal growth, BTCV users can now take advantage of a wider selection of liquidity options.

Getting to Grips with Liquidity

Unlike traditional exchanges, there are neither market makers nor asset custodians in a DEX. And, since there is no centralization for cryptocurrency, there is no single platform that enables asset trading. For that, you are going to need a DEX.

• Decentralized Exchanges

The rise of Decentralized Exchanges (DEXes) led to the creation of liquidity pools, where users really put their coins to work. You can think of liquidity pools as funds locked into a smart contract. In one liquidity pool, there is a pair of tokens. BNB and CAKE, for example. Each time a liquidity pool is created, the user is opening a new trading market for that pair of tokens. This means users can now swap and trade the two tokens.

Users are rewarded for pairing tokens in pools with Liquidity Provider tokens (LP). The size of the reward is proportional to the size of the user’s contribution to the liquidity pool. But that’s not the only way to bring in liquidity revenue.

DEXes charge users a trading fee whenever a transaction is initiated. The liquidity providers take a percentage of this fee. Since DEXes process millions of transactions per day, this is a sizable increase in revenue.

• PancakeSwap

PancakeSwap’s finance page boasts some incredible figures. At present, PancakeSwap’s daily trading volume averages over USD 1 billion. By its own estimates, it handles over 30 million trades per month. Each trade costs the trader 0.25%, of which 0.17% gets added to the appropriate liquidity pool.

Take a look at this PancakeSwap example:
Graphic Suggestion: the following information has been lifted from PancakeSwap. Maybe we could present it in a more interesting way?

• There are 10 LP tokens representing 10 CAKE and 10 BNB tokens.
• 1 LP token = 1 CAKE + 1 BNB
• Someone trades 10 CAKE for 10 BNB.
• Someone else trades 10 BNB for 10 CAKE.
• The CAKE/BNB liquidity pool now has 10.017 CAKE and 10.017 BNB.
• Each LP token is now worth 1.00017 CAKE + 1.00017 BNB.

Staking LP Tokens

The benefits of liquidity pools exceed merely earning tokens and trading fees. The LP tokens a user receives for having created a liquidity pool are an additional asset. And like all assets, they can be used in a variety of ways to generate revenue.

Every liquidity pool has its own farm. This brings in a higher order of yield from the original pool. When PancakeSwap users provide liquidity to the liquidity pools, they are rewarded with LP tokens proportional to their share in the pool. These LP tokens can be staked in farming pools to receive CAKE, the platform’s native token, as additional yield. This CAKE can then be used once again as a stake to farm for additional yield. For example, a user receives LP tokens for creating a BNB and CAKE pool. These tokens can then be used as a stake that enables CAKE farming.

Staking earns a user greater revenue because it is an additional risk. Staking can be compared to locking funds, taking them out of circulation. Once staked, the funds will not be available for use. Since this is a decrease in overall liquidity for the staker, there needs to be an appropriate reward. And as is often the case, greater risks can lead to greater rewards. This practice is commonly referred to as liquidity mining or yield farming.

Key Takeaways

Despite being only a year old, PancakeSwap is one of the most popular DEXes on the market. It regularly adds new tokens and opportunities for millions of crypto users worldwide. Now, BTCV users are a part of that growing community.

By simply initiating a minting request, BTCV users can receive wrapped Bitcoin Vault (wBTCV) to use on PancakeSwap. This grants them access to functionalities that include storing assets, exchanging tokens, staking funds, providing liquidity, and farming for yield.

By providing liquidity to BNB and wBTCV pools, BTCV users can earn LP tokens and transaction fees from over 30 million trades per month.

Check out also:

How to exchange BNB for wBTCV on PancakeSwap

PancakeSwap: the Beginner’s Guide for wBTCV Users

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PancakeSwap and BTCV Cook up Some Liquidity was originally published in Bitcoin Vault (BTCV) on Medium, where people are continuing the conversation by highlighting and responding to this story.