My first venture into a Decentralized Exchange (DEX) was buying Safemoon on Pancakeswap. Once I saw all the fancy things I could do, I was hooked on DEXs. The first thing I did on Pancakeswap bought some Cake (Pancakeswap's native token) and stake it to earn more Cake. The second thing I did was put one BNB in the prediction and bet the price of BNB would go down. A coinflip later I had over three BNB and I converted them to Cake for additional staking. Like with Vegas, I should have walked away from the predictions area of Pancakeswap and lots of therapy later I finally did (Well, that and there was an error on the code so they shut it down) kick the habit. Luckily I never quite kicked the habit of staking.
Staking is when you add your token or liquidity pair to a pool in order to get rewards. The rewards are paid out in a token or tokens. In the case of my Cake stake, it was paid out in Cake. On WSB DEX I am paid with WSB. These are nice because if you don't plan on using your token for buying another token, it makes sense to stake it and make some passive income. There are things to watch out for, and we will go into that as well.
The number of tokens that are rewarded is usually based upon supply and a time limit. For example, if there is a Cake staking pool that has a 100 day time period and 1 million Cake tokens to distribute, that would mean 10,000 Cake will be distributed per day. With this staking pool, it doesn't matter how many people are in the pool, it all depends on the percentage of the pool each investor owns. If you own 10% of the pool, you will receive 10% of the 10,000 Cake, or 1,000 Cake, per week. Broken up by day that means you would get 142.857143 Cake per day. This is great! Only, it isn't reality. Usually, unless you are a whale, you will get into a pool and have a low percentage of stake. On Pancakeswap the auto compound staking pool has $96M US dollars in value. With this moment's Cake valued at $19.390 US, there are a total of 4,951,005 Cake staked. To get 1$ you would need 49,510.05 worth approximately $959,999.87 US. Most of us don't have that. So let's start simple.
Right now on Pancakeswap, the staking pool for Cake has 67.43% APR. This is an important number because it forecasts your potential earnings. Breaking it down simply, your return on investment is 0.09283 Cake is worth $1.84 US per every $1,000 US invested. That means the APR for the day is 0.18%). If you leave your investment in the pool for a year, the forecasted return on investment is 34.837 Cake is worth $674.27, or 67.43%. Remember, there are two big parts to this forecasting. This assumes the staking pool will not increase or decrease and that the value of Cake will stay the same from Day 1 to Day 365. I think you might know what they say about assuming. It makes an ass out of u and me. Now that the corky joke of the day has been checked off the list, it is very unlikely the two assumptions will be true. Anyone familiar with crypto understands the market goes completely insane almost daily so price stability, unless a stable coin, is not a given. The other assumption will be covered below.
If you add your 51.5729758 Cake totaling $1,000 US into the staking pool, you have instantly changed the makeup of the pool. You actually took (teeny tiny) earnings away from everyone else in the pool, as the pool has to always remain at 100%. This will also immediately change the APR % to a lower value, though in a $96M staking pool, $1,000 isn't going to do a lot and is possibly not even noticeable. The important thing is you are now in the staking pool. You have a 0.000010416558161% share of the pool, meaning you will get that percentage of the rewards. If someone else buys $1,000 of Cake and adds it to the pool, your percent will reduce to 0.00010416449657%. The change is very small, but it is a change. Regardless, you get around 0.095 Cake per day. As people enter and leave the pool. your share will fluctuate. You might see a new pool with a ridiculous % APR. That generally just means not a lot of people are in the pool yet. After a while, as more people join the % APR will reduce more, eventually settling on a more realistic % APR. Just remember, if you get into a pool with 1,000+ % APR, understand it will reduce unless you are the only person that knows about it (and you won't be).
You have 51.5729758 Cake and you are earning 0.09283 Cake per day. After seven days you have 0.64981 earned Cake. After 365 days you have 33.88295 Cake, totaling 85.4559258 Cake. That is great! Is that enough for you? Don't you want just a little more? Well, lucky for you there is compounding. Compounding involves claiming your rewards and then reinvesting them. So, on day one you received 0.09283 Cake. You claim that Cake 24 hours after you first entered the staking and you deposit it into the pool. Now you have 51.6658072 Cake. You let it ride for a day and you receive 0.09300 Cake. Now you have 51.7588056 Cake. You do the same thing for 7 total days and you end up with 52.1324764 Cake, 0.0.65452 Cake earned in 7 days. If you kept this up for 365 days, you would have 99.4253607 Cake. 14 more Cake than if you just let it sit. This is compounding. You get the same % APR, but it changes daily because you are growing your stake in the pool. Of course, as you add more Cake to the pool you are reducing your % APR, which in theory reduces your Cake output, only the amount you are putting in is less than what you are losing, so for the most part compounding will raise your Cake earnings.
Remember, every time you take the earnings you pay a gas fee. Every time you add to the rewards pool you pay a gas fee. If you are on Pancakeswap you are using the Binance Smart Chain which has low fees. On the WSB DEX with Ethereum, you need to determine the best time to do these actions due to high gas prices. There is one place that I currently know of (which means there are many, many more) called Autoshark where they have pools that auto compound daily without you having to remove your tokens. That means you don't pay gas fees for two actions daily. This optimizes the return. These sites can charge withdrawal fees on the earned token, so understand if the fee they charge is better than the return you are getting.
Remember these key things with staking:
- You get the percent of rewards relative to the percent of your share in the pool
- The % APR will grow and shrink depending on how much money is in the pool
- Compounding will raise your returns but it will cost gas fees
- Auto compounding will not cost gas fees, however, watch out for fees to withdraw
I hope this was an informative article for you all! I know, a lot of math. You can make a simple spreadsheet to check the benefits of compounding.
- Cell A1 enter your token total in the pool, Cell B1 enter the daily % rate of return, Cell C1 =SUM(A1*B1)
- Cell A2 =SUM(A1 + C1), Cell B1 the same daily % rate of return, Cell C1 =SUM(A2*B2)
- Rinse and Repeat for 366 rows
References -
Pancakeswap - https://pancakeswap.finance/
Autoshark - https://autoshark.finance/
Disclaimer - I use both websites to earn and lose money
