How to Earn Yield on PancakeSwap
PancakeSwap is where a lot of DeFi beginners start out, and it’s a well-polished site with a slick interface, good yields, and a great DEX.
Using the DEX to swap tokens is fairly straightforward, but providing liquidity and navigating the yield farms may be slightly intimidating to those not familiar with DeFi.
Let’s put that right with a quick guide!
How to Mine Liquidity on PancakeSwap
- The first thing to do is connect your wallet. For this you’ll need a MetaMask wallet (or similar), and you’ll need to have a little bit of BNB for transaction fees. You read our MetaMask guide here, and our guide on getting hold of some BNB here.
2. Next, go to the Trade tab and switch from Exchange to Liquidity.
3. Choose Add Liquidity.
4. At this point we need to select two different assets. We explained some of the background to liquidity mining in the previous article, and covered why you normally need to provide two assets. Before deciding which tokens to provide, it might be worth first referring to the Farm tab on PancakeSwap to check out the interest rates on offer. Don’t always go for the highest interest rate available, as you need to consider factors such as the volatility of the token, impermanent loss (see the previous article for a short explanation of this), and the tokens’ long-term prospects. There’s no point getting 300% interest if the token itself collapses to near zero.
Providing liquidity for stablecoin pairs is a good way to earn solid interest in a risk-free way.
Once you’ve provided liquidity, you’ll get a proportional cut of the 0.17% transaction fee for every swap involving this pair. The more you provide, the bigger your cut of the transaction fee.
5. If you haven’t provided liquidity before, you’ll need to enable the tokens you plan to provide. This requires a small transaction fee and is done via your wallet extension. Once you’ve enabled them, click Supply.
6. After a few moments, you’ll discover you now have some LP tokens in your wallet. These are the receipts you’ll use to retrieve your funds from the pool when the time comes. These LP tokens are what’s called “yield bearing assets”, and will gradually increase over time as fees are accrued. You could just leave them in your wallet and let them grow, but it’s important to realise that these LP tokens are valuable assets in their own right, and can be used to generate additional yield. Within PancakeSwap, we can do this inside the Farms tab.
7. Open the Earn tab. By default, you’ll be in the Farms tab.
8. Browse through the farms and find the one for the pair you provided liquidity for. Click on Enable Contract. Once again, this will require a small transaction fee.
Note that the interest will be paid out in PancakeSwap’s own Cake token. The reason PancakeSwap does this is because they want to encourage people to provide liquidity, and the fees alone may not be enough to attract sufficient depositors.
9. Once the contract is enabled, pick Stake LP.
10. In the window that opens up, click Max. It doesn’t make sense to only stake part of your LP tokens, so for most users it will be best to stake all of them. Once you’ve click Max, pick Confirm. Once again, you’ll need to confirm this in your wallet extension and pay a small transaction fee in BNB.
11. Once staked, you’ll start to see your earned Cake rewards going up. Once they’ve built up to a reasonable amount, you can click Harvest and they’ll go to your wallet.
Remember that there are transaction fees (roughly $0.45, although it can vary), so there’s no point claiming the rewards when you’ve only accumulated a dollar or so. If you claim too frequently, your effective APY will decrease a lot.
12. With your harvested Cake, you can either sell it immediately on the Trade tab, or you can go to the Pools tab and stake it in a pool. PancakeSwap offers a very attractive “Syrup Pool” where Cake auto-compounds to achieve an APY over 70% (it was well over 100% in the early days).
Whether you sell it immediately or not depends on whether you think the Cake token has long-term potential, or if it’s just a cheap inflationary token used to entice people to the platform. That assessment is beyond the scope of this article, but it’s worth saying that Cake is somewhat less inflationary than most “farm tokens” (many other farm tokens are incredibly inflationary and are certain to fall in value). That said, Cake is also not too likely to significantly increase in value from its current position, so you have to decide whether or not the high APY is sufficient compensation for holding it instead of something like Bitcoin.
Asumming the token does broadly hold its value, the auto pool is a great way to boost your APY even higher.
Conclusion
PancakeSwap is a great platform for learning about DeFi as it includes a DEX, liquidity mining, and staking pools all in one user-friendly package. The Binance Smart Chain fees are also quite low, so it won’t break the bank to play around and test things out. Other platforms might offer higher yields and more innovative features, but PancakeSwap is a secure and stable platform, and the Cake token is one of the better reward tokens out there. It’s fairly easy to earn APYs in excess of 20% without taking on excessive risk, so it’s definitely worth checking out.
If you want to keep on top of where the best (sensible) yields are in DeFi, follow us on Telegram, Twitter, or Instagram where we offer regular updates of the best yields across different platforms and chains. The name of the Telegram channel is “DeFi Decrypted — Yield Alerts”.
