It has been a while since I made my first endeavours with PancakeSwap at the 31st December of 2020 and it has been quite a ride (Check out my first steps here if you want to read it in total - actually it might be the first ever PancakeSwap tutorial here on Publish0x and hopefully some people tagged along).
In the end end I bought my first PancakeSwap (PCS or CAKE) for some stunning 0,42 € per token. Overall 232.69 Token for 100,- € ( minus 57 Cents fee 😅). Hopefully not the best investment for the rest of my life but a pretty good one as the worth of those token is now roughly 3.871 € which means a delta of plus 3,962 percent).
I am not here to brag because a big part of that success story is based on luck (being at the right time and the right place) and believe but I am here to share some additional knowledge that I discovered in my journey with PancakeSwap meanwhile.
There is Staking and there is Staking
When I got my first PCS I was just stunned by the the incredible APY offered by team within the different pools and farms at PCS. What I did not understand at this time is that the staking needs to be done manually. And it needs to be done "all the time" to benefit from compounding interest. That being said you can once a day click on the "harvest"-button at PCS and restake the harvest again but you will have to pay fees for it and you won´t do it in the most efficient way. I thought there must better solutions and yes there are better solutions: Take a look at yield aggregators like Autofarm or Beefy.finance. Obviously both run on the Binance Smart Chain and offer smart contracts to auto compound your stakes. Autofarm does it 13.833 times for per year. Try to beat this manually ;) This is also why Yield aggregators offer higher APY than PCS.
Optimal compounds per year: 13,833
Make sure to read the details before investing into Yield aggregators. Sometimes there are fees for entrance or withdrawal fees for staking your coins. In general if you decide to stake your cakes via a yield aggregator make sure to leave it there for a longer time than just a few days. Otherwise fees - like entrance / withdrawal fees as well as higher deposit fees due to more complex smart contracts - might steal away the higher yield quite easily (It is a matter of proportions. Two to five Euros in fees does not sound a lot if you are talking about a 1.000 € invest into the platform but if you are moving around only 50 € worth in coins it will take some time to recoup even with higher yields).
Impermanent loss - once again
I guess it is mentioned a hundred times on Publish0x already but maybe there are some people here who have not heard of it before. I will keep it short and simple - treat it as a reminder or skip this paragraph if you know about it already. If you invest into Liquidity Pools (called Farms on PCS) you create a "new Liquidity Pool" token which you can stake in Farms. This token consists out of pair of two coins - like BNB-PCS - you merged at a certain ratio . If one of those token grows in value in a short time you will loose some of this coin and get more of the other half of the pair. PCS worth goes up - PCS coins in the LP go down! This is not the best explanation in the world but there are tons of videos for free which do the job even better:
As always - DYOR I am not offering any financial advise.
Adjusted Reward - what is that?
"Adjusted reward" is a term I learned quite recently - let us dive into that by visiting Coingecko for a sec to remember one thing about PCS:
The supply of CAKE is not hard-capped. Theoretically, CAKE’s supply is unlimited. The team is looking into conducting regular token burns to make deflation higher than emission. For example, the team will burn 10% of the CAKE collected on lottery tickets and burn half of the fund raised through Initial Farm Offerings (IFO).
Everyday new CAKEs are minted or printed out of thin air or however you want to call it which means we are talking about inflation (or dilution - in the end the effect is the same). To fight inflation/ dilutions there are weekly manual CAKE burns by the team at the moment as well as other mechanism (read the tokenomics here) to prevent the price going down faster within the long term. The newly generated CAKEs will be divided between all farms and pools (see tokenomics link again please - as this might be changed by governmental decision by the CAKE holders - as well as the emission rate and everything else - which just happened recently as a deflationary mechanic). So if everyone is staking all their CAKE and the new CAKE is distributed to all stakeholders we are just talking about numbers going up without generating any "real" value - in the end this should devaluate the worth of PCS. The more CAKE gets burned as well as the less it is staked the happier could be the people staking it as the get a bigger slice of the new minted CAKE in proportion to everyone else. This is not typically bad but part of the Proof-of-Stake process. (read more about staking in general here).
The Adjusted Reward takes all this into account and compares the emission of a non-capped crypto currency (which is reduced by deflationary mechanism) with the ratio of people staking it and tells you in the end how much you really gain by staking it. To make sure you got it right: If you do not stake your non-capped currency at all you are effectively losing worth compared to all others staking it. Also:
Choosing tokens based on the highest staking reward alone might be profitable in the short-term. However, in the long run, the proportion of staking rewards received from staking will decline (all else equal) as the supply of tokens increases over time. This is especially the case if the dilution rate (inflation rate) is greater than the share of staking rewards.
There are tools within the interwebz who did the math for you already and tell you all about the adjusted reward of different currencies. Personally I use Stakingrewards.com to check out the details - just follow the link for PCS on StakingRewards. The Adjusted Reward looks super bad for PCS at the moment. I do not know whether there numbers are up-to-date regarding the lower emission rate but for me it is more important to strike a point here:
If you put all your savings into PCS right now - dont expect it to double or triple within a year based on any calculator. Sure the number of coins you own will rise but that does not mean that the value rises at the same time. As long as people want to own CAKE prize will rise (and they want to own it because of high yields) but as soon as demand gets lower price will also decline. This might even be a self-fullfilling prophecy if the emission rate gets lower - the yield declines - peoples demand declines - prices declines.
I am not talking bad about PCS at all I am still bullish for a while and I love staking my cake. I am just saying this is an golden age right now that will come to an end sooner or later. Be careful with PoS coins in general and keep the adjusted reward in your mind for future calculations :)
Thanks you for staying with me until the end of this article and please hit like if you learned something or enjoyed yourself here.
p.s.: If you are curious about PCS in general now - head over to this article on Publish0x where you find quite more numbers like TVL, etc.