PancakeSwap V3 Update at a Glance: Introducing Market Makers, Reducing Transaction Fees, and Incentivizing Trading Volume

Although it is the leader on the BNB chain, PancakeSwap is often overlooked in the comparison of DEXs. In fact, its liquidity is second only to Curve and Uniswap. As of March 9, its TVL was 2.5 billion US dollars. After its launch in 2020, PancakeSwap has been continuously updated, such as accessing perpetual contract transactions, expanding to other chains, and reducing transaction fees for stablecoins. After being deployed on Aptos and starting liquidity mining, PancakeSwap also became the project with the highest TVL on Aptos.

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Introducing market makers to execute transactions: lower handling fees and better conversion ratios

On March 3, PancakeSwap announced that it integrated a market maker (MM) on the BNB chain for quotation. Previously, PancakeSwap has integrated the market maker quotation function on Ethereum. The market maker here should specifically refer to a centralized market maker, similar to the services provided by Hashflow (Hashflow is a Binance Launchpad project, and most of the circulating HFT is stored in Binance). Centralized market makers usually rely on their own trading volume advantages to reach cooperation with centralized exchanges. Taking orders only requires a very low rate, and placing orders can also get rebates from the exchange.

Afterwards, when PancakeSwap trades, it will automatically compare the original conversion ratio calculated by the AMM's x*y=k formula with the conversion ratio given by the market maker, and choose a better path for users to trade.

The liquidity owned by the market maker can be considered independent of the existing AMM, and the transaction fee is also lower. After comprehensively considering various costs, the optimal path is selected. As shown in the figure below, trading on PancakeSwap is likely to be done directly through market makers, which is equivalent to introducing more liquidity and lower handling fee trading paths for PancakeSwap.

In AMM transactions, PancakeSwap charges a 0.25% transaction fee for non-stablecoins and a 0.01% transaction fee for stablecoins. If trading through a market maker, PancakeSwap will charge a 0.0375% fee. AMM transactions have slippage losses, and the greater the transaction volume, the greater the slippage. Market maker transactions do not need to consider slippage (but it may be considered when formulating strategies, but users will not intuitively feel it). Therefore, the friction of trading on the original PancakeSwap AMM includes the AMM's 0.25% transaction fee + slippage.

After the market maker is introduced, the market maker can make quotations based on the price of the centralized exchange, because the transaction fee of PancakeSwap through the market maker is only 0.0375%. Market makers can provide quotations on PancakeSwap by virtue of their own rate advantages and hedge on centralized exchanges such as Binance. The difference in transaction fees can be allocated between the hedging transaction fee rate of the centralized exchange, the profit of the market maker, and the profit for the trader.

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PancakeSwap V3: May introduce a liquidity aggregation function similar to Uniswap V3

Also on March 3, PancakeSwap announced on Twitter that it will launch PancakeSwap V3 in the first week of April. The new features will provide users with a better experience and help more people use DeFi.

According to PancakeSwap’s tweet, its updates include:

• More functions and activities to enhance users' DeFi experience;

• Adding liquidity can get airdrops;

• Exclusive NFT;

• VIP rebate program.

According to reports, PancakeSwap will provide some new features, including improving the way of providing liquidity, competitive transaction fees, transaction incentives, and improved liquidity mining experience.

Although the official has not announced which updates PancakeSwap V3 will include, it can be speculated from a series of work that has been done in the past.

On February 15th, a post appeared on the PancakeSwap Governance Forum"Emissions Redirection Proposal for v3 Products". The main purpose of this proposal is to allocate a part of CAKE originally allocated to Staking (CAKE single currency pledge pool) to Trading (including liquidity mining and transaction incentives on each chain) for the development of certain functions of v3.

In the original CAKE allocation scheme, the newly issued CAKE will allocate 2.11 CAKE for Trading and 7.65 CAKE for Staking in each block. In addition to this, 0.1389 CAKE will be allocated for the CAKE lottery per block. On top of these, the developer address mints an additional 9.09% of tokens every time someone harvests a CAKE reward.

This is the most controversial proposal of PancakeSwap recently. It received a total of 274 million yes votes and 121 million no votes, and passed with a support rate of 69.35%. The total number of votes for other proposals is usually only tens of millions of votes, such as the two recent proposals"and"and"Stader ($SD/$BNBx) Syrup Pool and Farm Proposal"There were only about 42.8 million and 32.5 million votes respectively, and the support rates were both over 90%.

After the proposal was passed, the allocation of Trading increased to 3.11 CAKE per block, and the allocation of Staking decreased to 6.65 CAKE per block.

According to the proposal, the additional portion of 1 CAKE per block allocated to Trading will be “used for developments that have not yet been released, which will significantly enhance PancakeSwap’s transaction volume and its position as the best multi-chain DEX”.

According to the official description, it is very possible that PancakeSwap V3 will launch a liquidity aggregation function similar to Uniswap V3. Although the official has not released detailed information, after PANews asked in the community, many community members also made the same guess and got approved by the administrator. The liquidity aggregation function also requires additional liquidity incentives, can have higher capital efficiency and effectively increase transaction volume, which is in line with PancakeSwap's past work and official description.

PancakeSwap V3 Event: Airdrops and NFT Rewards

To celebrate the upcoming release of PancakeSwap V3, PancakeSwap is now offering $135,000 in CAKE and an additional NFT airdrop to reward early supporters.

To participate in this airdrop, users must hold 500 tokens in the four liquidity pools of BUSD/WBNB, USDT/WBNB, BTCB/WBNB, and ETH/WBNB in ​​PancakeSwap before 13:00 (UTC) on March 5 ~$20,000 of liquidity, and the liquidity will not be withdrawn before 12:00 on April 3. Airdrop rewards will be distributed among all eligible users of each tier. Eligible users will also receive an exclusive PancakeSwap V3 Legendary NFT.

Users who meet the above conditions can participate in the second part of the airdrop, worth $30,000, by adding an additional $500 to $20,000 in liquidity in the above four liquidity pools of PancakeSwap. Additional liquidity must be added by 12:00 on March 18th and maintained until 12:00 on April 3rd.