We are excited to announce two new automated liquidity strategies with Mellow Protocol - USDT-ETH (0.05% fee tier) and USDC-ETH (0.05% fee tier)! Users can now deposit the component tokens on Mellow, have their liquidity positions created for them, and enjoy automatic liquidity management based on Mellow’s Pulse V2 strategy. The liquidity position will also earn CAKE rewards from the respective PancakeSwap Farms, which will be regularly reinvested into the liquidity position.
Ethereum is expensive. In PancakeSwap v3, when users’ liquidity positions go out of range, users need to pay hefty gas fees to unstake, adjust, and then restake their positions. This is necessary to continue earning high APR, as only active liquidity will earn CAKE rewards from our Farms and trading fees from swaps.
Having an automated liquidity strategy like Pulse V2 on Mellow allows users to only spend gas when depositing and withdrawing tokens into and from the smart contract. Mellow will handle the following steps for users:
This allows users to save gas fees when seeding liquidity on PancakeSwap v3, while auto-compounding the CAKE rewards they earn from our Farms. Overall, this aims to amplify returns for users.
The automated vaults rely on Mellow’s proprietary strategy Pulse V2 to manage liquidity positions. More information about Pulse V2 can be found here. To summarize, the strategy will first establish a liquidity position on PancakeSwap v3 by specifying a lower and upper bound price range. If the price of the asset approaches either the lower or upper bound, the existing liquidity position will be expanded. This will continue up to a specified position width limit, at which point a new liquidity position will be created and centered around the latest spot price.
Additionally, there will be an NFT that is minted when the liquidity position is created on PancakeSwap v3. The vault will stake this NFT in the respective PancakeSwap v3 Farm to earn CAKE tokens. The CAKE rewards earned will be regularly harvested and swapped into the component tokens, before being added to the user’s liquidity position.
In short, the Pulse V2 strategy aims to maximize returns (CAKE yield + trading fees) for users while minimizing impermanent loss.
As with most other DeFi protocols, interacting with this product comes with its own set of risks, including but not limited to smart contract risk and risk of impermanent loss. The product is still in beta, so please try at your own discretion, with funds you can afford to lose.
That being said, Mellow and PancakeSwap take security very seriously, and are both heavily audited. PancakeSwap’s list of audits can be found here, while Mellow Protocol’s list of audits can be found here.
This integration with Mellow introduces an exciting option to our PancakeSwap v3 liquidity providers, by reducing gas fees and minimizing impermanent loss when creating liquidity positions. We are excited for our users to try this, and will continue working hard to optimize the user experience.
Stack’em, The Chefs 🥞