Decentralized finance (DeFi) protocol PancakeSwap has launched version 3 of its automated market maker platform on BNB Chain and Ethereum, with the upgrade encompassing performance improvements and lower fees.
Enhanced capital efficiency is cited as a key aspect of the upgrade, with a change in how liquidity providers can allocate capital on specific price intervals. In the previous version of PancakeSwap, liquidity from providers (LPs) was distributed uniformly along the price curve of trading pairs, which the platform notes was inefficient given that assets typically trade within certain ranges.
V3 allows liquidity providers to select a custom price range to provide liquidity, allowing specific control over capital investments to higher volume trading ranges. The release also touts the provision of four new trading fee tiers from 0.01%, 0.05%, 0.25%, and 1%, which is a change from V2’s standard 0.25%.
Every token pair can have liquidity pools for each tier. PancakeSwap expects asset pairs to be drawn to tiers where incentives for LPs and traders align, with the approach an effort to balance between traders targeting the lowest fees while still incentivizing LPs.
The PancakeSwap team unpacked the different trading fee tiers in correspondence with Cointelegraph. Assets such as stable pairs where impermanent loss is low (price changes after depositing to a liquidity pool) and prices typically match fall into the 0.01% tier.
The higher percentage trading fee tiers cater to assets that have higher impermanent loss or lower liquidity. This mechanism intends to provide more fee revenue and incentive for LPs.
PancakeSwap caters to a broad DeFi user base, accounting for over $2.5 billion of total value locked and serving over 1.5 million unique users.
The platform also revealed upcoming features that are still in development, including a trading rewards program incentivizing traders with exclusive benefits, while a position manager feature aims to improve user experience when depositing tokens as liquidity.
Arbitrum (ARB) has been front and center in DeFi-related news in March, with its highly-anticipated airdrop seeing around $3.3 million consolidated from over 1,400 addresses into two controlling wallets.