How to earn $VINU and $USDT by providing liquidity on PancakeSwap (v3)

The project team has decided to move the bulk of our liquidity from the VINU/BNB trading pair on PancakeSwap (v2), to the VINU/USDT trading pair on PancakeSwap (v3). Here’s an updated guide on how you can earn both $VINU and $USDT by providing liquidity on PancakeSwap (v3). There are some important differences, so please pay attention!

What is a liquidity pool?

Liquidity pools are an essential part of Decentralized Finance (DeFi) systems. The basic idea is simple — tokens are put into a big pool, which is managed by a smart contract. Swaps or trades are executed via these liquidity pools. For instance, when someone tries to buy VINU using USDT, their transaction involves depositing USDT into a liquidity pool, and withdraws VINU from that pool. When someone sells VINU for USDT, their transaction involves depositing VINU into the liquidity pool, and withdrawing USDT from that pool. All these actions are automatically and seamlessly executed by a smart contract.

Staking your VINU tokens in a liquidity pool allows you to earn trading fees as rewards

Many DeFi systems allow anyone to stake their tokens in liquidity pools, to earn rewards. The reason is simple. The more people stake their tokens in liquidity pools, the more liquidity there is, and the less volatile the price of the token will be. This means that people can make bigger trades or swaps via the liquidity pool, without having a big impact on the price.

In order to encourage users to stake their tokens in liquidity pools, most DeFi systems offer various incentives and rewards. The more people make trades on PancakeSwap via your selected trading pair / liquidity pool, the more rewards you earn!

Do your own research

As is the case with all DeFi systems, there are some risks involved. Please feel free to read up more about providing liquidity, before actually doing so.

- https://academy.binance.com/en/articles/what-are-liquidity-pools-in-defi

- https://docs.pancakeswap.finance/products/pancakeswap-exchange/pancakeswap-pools

Trading fees on PancakeSwap (v2) and PancakeSwap (v3)

There are some important differences between PancakeSwap (v2) and PancakeSwap (v3) in terms of how trading fees are charged.

PancakeSwap (v2)

In PancakeSwap (v2), there is a 0.25% fee (based on the size of the trade) on all trades. Of this amount, 0.17% is added to the liquidity pool as a reward for liquidity providers. Let’s see how it works out in practice.

• A user uses 1000 USDT to buy 100,000,000,000 VINU.
• The trading fee for this trade is 0.25% = 2.5 USDT and 250,000,000 VINU.
• Of this amount, 0.17% is added back to the liquidity pool = 1.7 USDT and 170,000,000 VINU. The rest goes to the PancakeSwap platform.
• This amount can be split by the users who stake their tokens in the VINU/USDT liquidity pool, based on the proportion of their tokens relative to the size of the entire pool.

For example, if there is a daily trading volume of $1,000,000 on the VINU/USDT trading pair, $1700 will be split among everyone who has provided liquidity!

PancakeSwap (v3)

In PancakeSwap (v3), the liquidity provider — that’s you! — can choose the fees that you want to charge for trades. The options available are: 0.01%, 0.05%, 0.25% and 1%. There is much more flexibility now for liquidity providers on v3.

You can now choose the trading fees that you want to charge.

As is the case with PancakeSwap (v2), a certain portion of the trading fees are split among those who provide liquidity. The portion is variable —

• 67% of the trading fees are split among those who charge 0.01% trading fees
• 66% of the trading fees are split among those who charge 0.05% trading fees
• 68% of the trading fees are split among those who charge 0.25% trading fees
• 68% of the trading fees are split among those who charge 1% trading fees

Liquidity range on PancakeSwap (v2) and PancakeSwap (v3)

There are also important differences between PancakeSwap (v2) and PancakeSwap (v3) in terms of liquidity range.

PancakeSwap (v2)

In PancakeSwap (v2), the liquidity that you provide is spread out across the entire trading — that is, from $0 to infinity. For instance, consider the VINU/BNB pair on v2.

• When people buy $VINU, there will be less $VINU and more $BNB in the entire pool.
• When people sell $VINU, there will be more $VINU and less $BNB in the entire pool.

PancakeSwap (v3)

In PancakeSwap (v3), liquidity providers can choose the trading range that they wish to provide liquidity for. For example, you can choose not to provide liquidity for the entire range ($0 to infinity) — which spreads out your liquidity. Instead, you can choose to provide liquidity only for a narrow price range — which concentrates your liquidity. For example, suppose that you provide liquidity for the $VINU/$USDT pair, within the range $0.00000001 and $0.00000002. There are also some preset ranges that you can choose — 10%, 20%, or 50% variation from current price.

When you concentrate your liquidity, it is active only within this range, instead of being spread out across the entire range.

You can now determine the range to provide liquidity for.

There are benefits of being able to concentrate your liquidity.

• Capital efficiency: By providing liquidity for a narrower range, your liquidity is more effectively used (compared to being spread out over the entire range). This means that you need to provide less funds to earn the same fees. Or, you earn more funds by providing the same amount of funds.
• Less slippage: When liquidity providers concentrate their liquidity within a certain range, the liquidity within that range will be much deeper. This means that there is less price impact and less slippage for trades — even big trades — within that range.

However, there are also some risks of concentrating your liquidity in a narrow range (compared to providing liquidity for the entire range).

• Impermanent loss. The risks of impermanent loss is greater when you concentrate your liquidity. For example, suppose that you provide liquidity for the $VINU/$USDT pair, within the range $0.00000001 and $0.00000002. You add both $VINU and $USDT tokens into your liquidity position. Now, if the price of $VINU goes above $0.00000002, you will find that your liquidity position contains only $USDT tokens. The $VINU in your liquidity position would have been sold to people buying it. If the price of $VINU goes even further — e.g. to $0.00000005 — it means that you would have missed out on gains, compared to simply keeping $VINU or providing liquidity for the entire range. This is because all your $VINU tokens were sold by the time the price reached $0.00000002.
• Technical complexity. As you can see above, the decision about whether to concentrate your liquidity, and what range to concentrate it in, is technically complicated. This is not for everyone.
• Time consuming. Even if you know what you are doing, you still have to spend a fair amount of time regularly checking the price of the token and rebalancing your liquidity position.

Project funds on PancakeSwap (v3)

We have used project funds to provide liquidity on PancakeSwap (v3), with the following parameters.

• Trading fees: 0.25%
• Trading range: Full Range

If you are new to liquidity provision, we suggest that you follow the same strategy.

If you are a veteran, please feel free to concentrate your liquidity however you see fit. When concentrating your liquidity, it would be a good idea to look at what ranges people are concentrating their liquidity in.

In the image above, we see that people have concentrated their liquidity in a small range (from -15% of current price, to +80% of current price). It is up to you to decide how to respond to this information.

Do your own research

Again: as is the case with all DeFi systems, there are some risks involved. Please feel free to read up more about providing liquidity, before actually doing so.

- https://academy.binance.com/en/articles/what-are-liquidity-pools-in-defi

- https://docs.pancakeswap.finance/products/pancakeswap-exchange/pancakeswap-pools

Make sure you are following all things VINU, and we will see you in the next update!

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