BSC | PancakeSwap launches creative IFO, data platform Yieldwatch releases token

This article aims to introduce the main Automated Market Maker (AMM) and liquidity mining platform – Pancake on the Binance Smart Chain (BSC) network, as well as an innovative token issuance model called Initial Farm Offerings (IFO). Additionally, in the latest IFO, the mining data platform Yieldwatch also launched its token.

Quick Introduction to Pancake

Pancake is currently the largest AMM automated market maker exchange platform on BSC, similar to SushiSwap in the early days on Ethereum. It provides liquidity providers with many choices for liquidity mining, offering high mining rewards in CAKE. Additionally, Pancake also offers token swapping, allowing users on BSC to convert between different tokens.

It is worth noting that the biggest obstacle for all AMM exchange platforms is Uniswap, which has always dominated on Ethereum. Competitor SushiSwap initially gained traction through liquidity mining, diverse cross-project mining reward collaborations, and token reward application mechanisms. Pancake seems to be following a similar path for BSC.

Pancake's Innovation: IFO

Aside from liquidity mining, Pancake currently offers some atypical but not very significant features, such as buying lottery tickets with CAKE and burning a portion of the lottery proceeds, as well as Pancake's NFTs. Notably, they have introduced IFO Initial Farm Offerings on BSC, allowing new tokens to be raised through Pancake. This is similar to Binance's early IEO Initial Exchange Offerings, where users can invest funds in exchange for newly issued tokens.

So what's the innovation here? It maintains the mechanism to support the value of mining rewards in CAKE, which is quite interesting.

What's interesting about Pancake's IFO is that participants must provide LP Tokens for the BNB/CAKE liquidity pool to qualify for investment. The allocation of new tokens in IFO is distributed among participants based on the total number of LP Tokens committed by all users, allowing those with more BNB/CAKE LP Tokens to receive a larger investment allocation.

What's special about this? It directly provides an added incentive for Pool 2. Here, Pool 2 refers to the liquidity pool that offers "mining reward tokens" themselves, as opposed to stronger cryptocurrencies like ETH or USDT liquidity pools, such as SUSHI/ETH. It is typically a high-risk, high-reward liquidity pool within the platform. As the entire platform's liquidity pools continuously provide free mining rewards to liquidity providers, these users also continue to sell them, creating selling pressure for mining rewards. On the other hand, Pool 1 refers to liquidity pools without mining reward tokens, such as ETH/USDT.

The risk with Pool 2 is that when there is a significant sell-off of "mining reward tokens" leading to price declines, liquidity providers in Pool 2 will incur greater impermanent losses. The strong currencies provided by users in the pool will be exchanged for mining reward tokens. For more information on impermanent loss, please see: What is impermanent loss?

Generally, AMM exchange platforms with liquidity mining rewards, like SushiSwap, aim to attract liquidity providers to provide assets for trading by offering mining rewards as the main incentive. However, the downside of this approach is the need to find more uses for mining reward tokens to prevent the depletion of liquidity and price collapse.

From SushiSwap's case, we can see that after achieving a certain level of liquidity and trading volume on the platform, they began to reduce the release of mining rewards and selling pressure: converting two-thirds of mining rewards into locked tokens for six months, introducing SushiBar where users can stake SUSHI to earn rewards, reducing the issuance of mining rewards in SUSHI, collaborating with other DeFi platforms to increase utility, etc.

Pancake's approach requires participants in IFO to use LP Tokens from Pool 2 to participate, providing Pool 2 participants with additional sources of profits and increasing the incentive for long-term liquidity provision. Additionally, the LP Tokens involved in IFO represent half BNB and half CAKE, with Pancake's rule set as shown in the image below where half of the CAKE raised in IFO will be burned. For example, for the upcoming Yieldwatch WATCH, which aims to raise $800,000, $400,000 worth of CAKE will be burned, which may provide short-term support for the token price. However, in the long run, since CAKE currently does not have a capped supply and is following the model of reducing mining rewards like SUSHI.

It is important to emphasize that while IFO is creative, it will not be the main factor in maintaining the price of CAKE, given its limited duration and relatively low actual fundraising amounts.

According to insights from BSC expert Josh Lu, he believes that the main ways to maintain the price of CAKE are through "new coin mining" and the potential use of fee revenue for burning. New coin mining involves Pancake collaborating with other platforms in the BSC ecosystem to introduce pools where staking CAKE allows users to mine other tokens, while also enabling other tokens to establish mining pools on Pancake for mutual benefit. Another method is through fees, where users who exchange in Pancake's liquidity pools pay a 0.2% fee, with 0.17% going to liquidity providers and 0.03% returning to Pancake's Treasury, the protocol's fund pool. In January, there was a proposal to increase the fee to 0.3% in V2, with 0.1% used for burning CAKE, potentially serving as a tool to reduce selling pressure.

Along with everything else we’re working on, we’re beginning to plan what #PancakeSwap V2 looks like.

One thing we’re curious about is the willingness to pay a higher trading fee if that extra goes to buying back and burning $CAKE.

Just gauging initial interest for now.

— PancakeSwap 🥞 #BSC (@PancakeSwap) January 23, 2021

Yieldwatch Data Platform Token Issuance

Yieldwatch is a highly useful mining data platform on BSC, allowing users to input their wallet address to view mining data from all platforms on BSC.

It provides a clear overview of which different platforms your liquidity pools are mining on, including total liquidity value, current mining reward quantity, total mining rewards earned, and most impressively, it consolidates your impermanent loss and fees in liquidity pools.

For example, with BTCB/WBNB, it will calculate the initial amount you invested, then show the adjusted pool amount due to price changes, the actual amount and value of impermanent loss for both currencies, and the amount of fees collected in this pool. The statistical data even supports multiple languages.

There are many more detailed statistical features released after the IFO announcement, with the official statement that professional version features will be available for free for a few days to users interested in exploring further.

The utility of their token WATCH allows users to use the professional version with a WATCH token worth $1, monitoring an investment portfolio valued at $200, which equates to spending 0.5% of your investment portfolio to use the professional version. This subscription-based setup appears to be a novel approach, and its actual effectiveness remains to be seen after formal launch.