How you can earn $VC and $USDT by providing liquidity on PancakeSwap (v3)
Liquidity is essential for projects to survive, but did you know ordinary users can still earn both $VC and $USDT just by providing liquidity to the VinuChain pool on PCS (v3)?
What is a liquidity pool?
To get started, it’s important to understand what liquidity pools (LP) are. Liquidity pools are an essential part of Decentralized Finance (DeFi) systems. The general concept 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 VC using USDT, their transaction involves depositing USDT into a liquidity pool, and withdraws VC from that pool. When someone sells VC for USDT, their transaction involves depositing VC into the liquidity pool, and withdrawing USDT from that pool. All these actions are automatically and seamlessly executed by a smart contract.
Earning trading fees for staking VC in an LP
Most DeFi platforms 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 (DYOR)
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 (v3)
There are some important things to take note of on PancakeSwap (v3) in terms of how trading fees are charged.
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 choose the trading fees that you want to charge
We recommend choosing 0.25% to stay consistent with the pool we have already created, but the choice is up to you.
Liquidity range on PancakeSwap (v3)
It also important to under how liquidity ranges work on 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, if you provide liquidity for the $VC/$USDT pair, within the range $0.02 and $0.05. 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 determine the price range to provide liquidity for
There are also 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 from the same amount.
- 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 $VC/$USDT pair, within the range $0.02 and $0.05. You add both $VC and $USDT tokens into your liquidity position. Now, if the price of $VC goes above $0.05, you will find that your liquidity position contains only $USDT. The $VC in your liquidity position would have been sold to people buying it. If the price of $VC goes even further — e.g. to $0.10 — it means that you would have missed out on gains, compared to simply keeping $VC or providing liquidity for the entire range. This is because all your $VC tokens were sold by the time the price reached $0.05
- 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.
How to stake your VC & USDT to earn LP rewards
Now that you understand how the liquidity pools work, lets put it all together and stake our $VC & $USDT to start earning!
- Load up your wallet balance with the amount of $VC & $USDT you wish to stake (you will stake a 50/50 balance so make sure you have enough of both coins!).
- Go to pancakeswap.finance → Trade → Liquidity → + Add Liquidity → select VC & USDT
- Choose your parameters (0.25% + full range recommended), connect your wallet, approve and submit!
Here’s the direct link that will pre-select VC & USDT for you:
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