PancakeSwap has introduced a significant upgrade to its Ethereum-based decentralized exchange (DEX) by integrating professional market makers. This enhancement aims to provide users with improved liquidity, reduced slippage, and better overall trading execution.
What Is Market Maker Integration?
Market maker (MM) integration supplements the existing automated market maker (AMM) model by providing an additional source of liquidity. This hybrid approach helps ensure traders receive competitive pricing and a smoother trading experience, especially for larger orders.
The system automatically compares quotes between the integrated market makers and the standard AMM liquidity pools, routing trades through the source that offers the best available price.
Key Benefits for Traders
- Reduced Slippage: Achieve better execution prices, particularly for larger trade sizes.
- Enhanced Liquidity: Access deeper liquidity pools for popular ERC-20 tokens.
- Optimal Pricing: The protocol automatically selects the best available price between MM and AMM sources.
- Seamless Experience: The trading interface remains unchanged; the better price is automatically sourced behind the scenes.
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Supported Trading Pairs
At launch, the integration supports over 20 popular ERC-20 assets. The initial list includes major cryptocurrencies and stablecoins such as ETH, WBTC, USDT, USDC, DAI, and BUSD, among others like MATIC, LINK, UNI, and AAVE. The platform plans to gradually add more trading pairs over time.
How the Market Maker Integration Works
The process is designed to be effortless for the user:
- Initiate Trade: On the standard swap interface, you input the token amount you wish to trade.
- Quote Request: PancakeSwap sends a request for a quote to the integrated market makers.
- Price Comparison: The system instantly compares the quote from the market makers with the price available from the AMM liquidity pools.
- Best Price Selection: The trade route offering the superior price (either from the MM or the AMM) is selected.
- Confirmation: You are presented with the final quote, which refreshes every 5 seconds to ensure price accuracy.
- Execution: You confirm the transaction in your wallet, and it is sent to a smart contract for execution.
- Settlement: The smart contract facilitates the token swap, sending the output tokens to you and the input tokens to the respective liquidity source.
Note: During periods of high market volatility or major economic events, market makers may temporarily pause their quotes. During these times, all trading will continue to be executed seamlessly through the AMM pools.
Fee Structure Explained
Understanding the fees is crucial for any trader:
- No Extra User Fees: PancakeSwap does not charge users any additional fees for trades routed through market makers. The goal is to provide the best net execution price.
- MM Fees: PancakeSwap charges market makers a 0.05% fee for their services (0.01% for stablecoin trades).
- Standard AMM Fees: If a trade is routed through the traditional AMM pools, the standard 0.25% trading fee applies.
This structure ensures that you always get the best possible price without incurring hidden costs.
Implications for Liquidity Providers (LPs)
For those providing liquidity to PancakeSwap's pools on Ethereum, the integration brings reassurance:
- Continued Earnings: Liquidity Providers will continue to earn their 0.17% share of the trading fees (LP fees) from the AMM pools.
- CAKE Rewards: Farming CAKE rewards by staking LP tokens remains unchanged.
- No Dilution: Market makers do not receive any CAKE emissions for providing liquidity, protecting the value for existing LPs.
The Rationale Behind the Integration
PancakeSwap's expansion to Ethereum introduced a multi-chain AMM, enabling trading of ETH, BTC, and stablecoins. However, the Ethereum DEX landscape is highly competitive with established players holding significant Total Value Locked (TVL).
This integration is a strategic move to offer a top-tier trading experience without solely relying on massive CAKE emissions to bootstrap liquidity. By connecting professional market makers with its decentralized AMM, PancakeSwap can provide deep liquidity and excellent prices from day one.
Frequently Asked Questions
What is the main advantage of using market makers on a DEX?
The primary advantage is access to deeper liquidity, which results in less price slippage when executing trades. This is particularly beneficial for users making large-volume trades, as it helps them get a better overall price.
Do I need to do anything differently to use this new feature?
No, the integration is seamless. You continue to trade on the standard PancakeSwap interface. The system automatically finds the best price between the market makers and the AMM pools without any extra steps required from you.
Are my trades still secure and non-custodial?
Absolutely. All trades, whether routed through a market maker or the AMM, are executed through smart contracts on the Ethereum blockchain. You retain custody of your funds until the moment you sign and execute a transaction.
How does this affect the fees I pay?
You do not pay any additional fees. The goal is to give you the best net price. If the market maker provides a better price even after their fee, you will receive that superior execution.
Will this integration be coming to other chains like BNB Smart Chain?
The initial announcement and integration are focused on the Ethereum deployment. The team may consider expanding this feature to other chains in the future based on its success and community feedback.
Can I participate in liquidity farming and use the MM integration?
Yes, these are separate functions. You can continue to provide liquidity to farms and pools to earn fees and CAKE, while also benefiting from the improved trading execution as a trader.
For a deep dive into the technical mechanics and full fee schedule, you can always consult the project's official documentation.