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【Old Cat Tests 3C】Binance Smart Chain (BSC), Liquidity Mining Tutorial on PancakeSwap

2021/3/9

This article is reproduced from Lao Mao Test 3C, written by Josh Lu Zijian. The original title is "Introduction to Liquidity Mining on Binance Smart Chain BSC," original link.

Binance Smart Chain BSC has recently become a hotspot. With the attraction of low gas fees and high returns, many novice miners are eager to try liquidity mining. In this article, Josh will explain how to engage in liquidity mining, using Pancake swap as a case study. The content will be divided into the following four parts:

1. What is the process of general farm mining?
2. How to obtain liquidity proof LP?
3. How are mining rewards distributed?
4. Common questions

Before engaging in liquidity mining, you need to at least understand the content of the following two articles:

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Binance Smart Chain BSC, Decentralized Finance DeFi Wallet Setup Tutorial
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Table of Contents

Pancake Swap Mining Process General Farming Mining Process

On Pancake Swap, there are two places where liquidity mining can be done, namely Farms and Syrup Pool. There are many types of liquidity that need to be provided, with different yields. Each pool also has different weights allocated, which will be explained in the latter part of the article. First, let's introduce these two different mining methods.

Farms

Mining by providing liquidity requires LP of two currencies. For example, if you choose the CAKE-BNB farm, you must provide the LP of CAKE-BNB, stake it, and then you can start mining. What is LP? LP stands for Liquidity Proof. The rewards earned from mining on Farms are all in Cake.

After entering the Farms on the left, you can see many farms, each requiring different currencies. You can choose to use the currency you hold or the currency you favor to create LP for mining.

Click Enable and then confirm to see the Stake LP button.

Syrup Pool

Participating in the Syrup Pool is relatively simple. Basically, you only need to deposit a single type of currency to start mining. Most of the time, depositing Cake is sufficient. On the Syrup Pool, there are various pools where you can deposit Cake and choose to receive different currencies.

You can see that after approving Cake, you can stake Cake and earn various different currencies. Pancake swap actively collaborates with various projects, so there will always be new currencies available for earning. It is worth noting that the quantity of each currency in each Syrup Pool is limited, and once it is mined out, it will end. Except for pools where Cake can be mined with Cake, other pools will end once the supplied quantity from the project side is exhausted.

How to Obtain Liquidity Proof LP?

LP stands for Liquidity Proof. In simple terms, we can think of it as a receipt. When we provide liquidity to Pancake swap, Pancake swap will give us a receipt, which is the LP Liquidity Proof. In the future, when we want to withdraw the currency, we will need to use the LP receipt to exchange our currency back. This is the basic concept of LP. You can enter the Liquidity section on the left sidebar to provide liquidity and increase it to obtain LP Liquidity Proof.

Almost all decentralized exchanges on BSC use the Constant Product Market Maker Model, and Pancake swap is no exception. When providing liquidity on Pancake swap, we also use the Constant Product Market Maker Model. When providing liquidity, we choose two currencies and allow people to make exchanges on the exchange. After selecting the two currencies, due to the nature of the Constant Product Market Maker Model, the values on both sides will be equal, with a 50% - 50% ratio. In the example given, we must provide both BNB and BUSD to the exchange. The values of the assets on both sides need to be equal. You only need to enter the quantity of one side, and the system will automatically calculate the quantity needed for the other side. In the example, if we enter 100 BUSD, based on the current price of BNB, we can purchase 0.445 BNB with 100 BUSD. Therefore, we must provide 0.445 BNB on the other side.

After providing liquidity, you will receive the LP Liquidity Proof. The screen will show that you will receive 6.016 LP Liquidity Proof.

When you need to exchange the currency back, you can go to the Liquidity screen, click remove, and return the LP Liquidity Proof to withdraw the initial staked currency. However, the quantity may differ because the price of the staked BNB fluctuates. When BNB rises, the system will automatically sell some BNB to balance the assets on both sides. Otherwise, the values on both sides might become unbalanced, such as 40% BUSD versus 60% BNB. The system will dynamically adjust to a 50% - 50% ratio.

How is Mining Reward Distribution Calculated?

The distribution of Cake is as follows. You don't need to pay too much attention to the weight; just focus on the APR. The APR is the calculated annual percentage yield. If you are interested in how the weight is calculated, you can refer to the data below. This will help you understand how adjusting the weight during each vote will affect your mining earnings.

The data above calculates that 40 Cakes are distributed per block. The current emission rate has been reduced to 25 Cakes per block.

Common Questions

By following the above steps, you should be able to smoothly engage in liquidity mining. Most common issues are usually related to the wallet network settings, which may cause connection issues with the wallet. Please refer to the article on BSC wallet settings. Another common problem is not being able to see your cryptocurrency, which is often encountered by beginners. The wallet article also explains how to add new currencies. Another common issue is when you can't see the liquidity trading pair when trying to remove liquidity. In this case, you can enter Add Liquidity, select your LP trading pair, then go back to the liquidity page, and the liquidity LP will appear. If you encounter any other problems, feel free to leave a comment, and Josh will help address them.