Hey all, we have now entered the second day of the Cub Finance launch on Binance Smart Chain.
Being fairly new to cryptocurrency, and especially new to the realm of decentralized finance, I thought a short post detailing what I've learned from the launch of $CUB could be helpful.
The Difference Between a Farm and a "Den"
Within a farm, you will serve as a Liquidity Provider (LP) within an Automatic Market Maker (AMM). By exchanging two currencies in equal amounts for a special token, you will be the individual that others exchange with when they swap between those tokens in that pool. By staking these tokens, you will be provided a fee in the form of $CUB. You can withdraw and sell your tokens at a later time, and receive an equal dollar-value amount in the exchange rate at the time of your withdrawal.
The last sentence is important, and describes the risk associated with participating in participating in liquidity pools: impermanent losses. While this guide by Bancor is well written, I'll provide a brief example:
- You invest $200 into a CUB-BUSD farm:
- $CUB rises to $10, and you decide to withdraw from the farm:
You're still receiving your $200 initial investment returned to you, but if you had held your $CUB instead of participating in the pool, you would have $200 in CUB, and $100 in BUSD.
This is what impermanent loss is all about. Note: this does not consider the fees you receive for providing that liquidity, which can and should outpace any impermanent losses while the APR %s are as high as they currently are.
Always Consider Fees
The driving force of running a DEX on Binance Smart Chain over Ethereum is because of the fees.
Here's an exchange of a small amount of USDT into USDC on BSC:
This gas fee converts to around 36 cents.
Here's an exchange of a small amount of ETH into USDT on Uniswap, which runs on Ethereum:
Even though it's only a small amount of a fee per transaction, it does start to add up. In addition, some transactions will have more fees than others:
- Depositing into non-CUB Farm or Den comes with a 4% deposit fee,
- Selling your LP tokens back into the individual pairs come with a fee around 0.02 BNB, or $5~
While the fees are far smaller than Ethereum, they still exist and should be thought about before engaging in a lot of random transactions. While I'll count this all as a learning experiment, I have easily wasted $10 to $20 on transactions that ended up serving no point if I had thought about them a bit more beforehand.
The fear of missing out can hit hard, especially when you see the price increasing when you decided against purchasing more $CUB fifteen minutes ago. Remember that you made a decision for a reason, and sometimes that gut feeling can lead you in the right direction. If you look at any cryptocurrency, or stock, it's rarely the case that the price won't dip back down and provide a solid entry point. Doing a little dollar-cost averaging can go a long way in getting you exposed without making emotional decisions.
Think About Your Strategy
As you're generating $CUB, what do you plan to do with it? Are you going to stake it in the Den, and continue generating more? Do you want to convert some to any of the various stable coins and generate smaller amounts of $CUB, while avoiding the volatility?
While selling some CUB at $6 does feel painful while looking at the price hover around $10, it's important to be aware of risks associated with any sort of investment, never mind cryptocurrency. No one went broke taking profits.
Finally, Have Fun
These are exciting times, and being a part of a launch has been tons of fun. While it's important to use your head as much as you can, don't forget to enjoy the ride as well. Just... try not to pull out your wallet every time you're feeling yourself.