PancakeSwap, a decentralized finance platform that operates on BNB Chain, Aptos, and Ethereum, has announced the release of version 3 of its DeFi protocol. The upgrade enhances the platform’s performance and lowers transaction fees. The latest release includes an updated automated market maker platform that operates on BNB Chain and Ethereum.
The upgrade to PancakeSwap emphasizes the importance of improving capital efficiency, which involves changing how liquidity providers allocate their funds within specific price intervals. The previous version of PancakeSwap distributed liquidity uniformly across the entire price range, which was deemed inefficient by the platform because assets generally trade within certain ranges.
The V3 version of the platform gives liquidity providers the option to choose a custom price range for liquidity, offering more targeted control over their capital investments towards higher trading ranges. Additionally, the new release includes four different trading fee tiers, namely 0.01%, 0.05%, 0.25%, and 1%, which departs from the standard 0.25% fee in V2.
For each tier, liquidity pools can be established for every token pair. PancakeSwap aims to attract asset pairs to tiers aligning with incentives for LPs and traders. This approach balances traders seeking the lowest fees while still incentivizing LPs. The PancakeSwap team explained the various trading fee tiers. For instance, assets such as stable pairs, where the risk of impermanent loss is low (i.e., price changes after depositing to a liquidity pool) and prices usually remain stable, fall into the 0.01% tier.
The trading fee tiers with higher percentages are designed to serve assets that experience higher impermanent loss or lower liquidity. This mechanism aims to generate more fee revenue and provide LPs with additional incentives. PancakeSwap is a decentralized finance platform that caters to a wide range of users, as demonstrated by the over $2.5 billion in total value locked and the more than 1.5 million unique users it serves.
PancakeSwap currently serves more than 1.5 million unique users. Additionally, the platform has announced that it is working on several new features still in development. These include a trading rewards program designed to incentivize traders with exclusive benefits and a position manager feature intended to enhance the user experience when depositing tokens as liquidity.
In DeFi-related news during March, Arbitrum (ARB) was prominently featured, with its highly-anticipated airdrop resulting in roughly $3.3 million being consolidated from over 1,400 addresses into two controlling wallets.