This topic outlines a strategic initiative aimed at diversifying PancakeSwap revenues, adding more values to veCAKE and onboarding more users from Binance to PancakeSwap.
I. Context
According to Defilamma there are currently few BNB liquid staking providers and their yields are pretty low regardless of their TVL, here is a breakdown
All these LST issuers operate in a similar way, they deposit & stake users $BNB to the beacon chain and mint LST tokens that provide opportunities in DeFi.
This model is not the best one for providing optimal yield to stakers. As all LST providers on BNB Chain are implementing it there is now an opportunity to provide an LST service relying on a different model that optimizes users native staking yield.
II. Dual token Mechanism
First implemented by Frax Finance on Ethereum with frxETH & sfrxETH, this model has proven to provide the best native staking yield for $ETH stakers. Here is a chart comparing sfrxETH staking earnings performance vs Lido stETH, Rocketpool rETH & Coinbase cbETH
So far no liquid staking issuer has implemented the dual token mechanism on BNB Chain. Therefore PancakeSwap can implement it and provide a better BNB LST yield than others. This would work with an underlying staking architecture built around 2 tokens, ckBNB & stckBNB.
1. ckBNB
A stablecoin loosely pegged to $BNB, so that 1 ckBNB always represents 1$BNB. Users mint it when they deposit $BNB directly on PancakeSwap LST Deposit Contract. PancakeSwap stakes users $BNB on the beacon chain but doesn’t distribute staking rewards to ckBNB holders. Holding ckBNB on its own is not eligible for staking yield and should be thought of as analogous as holding $BNB. As ckBNB doesn’t earn native $BNB yield from staking, holders will benefit from opportunities in DeFi.
2. stckBNB
A staked version of ckBNB, all yields generated by $BNB deposited in PancakeSwap LST vault from users are distributed to stckBNB holders. At any time, ckBNB can be exchanged for stckBNB by depositing it into the stckBNB vault, which allows users to earn staking yield on their ckBNB. Over time, as staking yield accrued, an equivalent amount of ckBNB is minted and added to the vault, allowing users to redeem their stckBNB for a greater amount of ckBNB than they deposited.
The exchange rate of ckBNB per stckBNB increases over time as staking rewards are added to the vault.
By holding stckBNB users hold a % claim on an increasing amount of the vault’s ckBNB, splitting staking rewards up among stckBNB holders proportional to their share of the total stckBNB.
3. Mechanism
In the example above, 100 $BNB are deposited in PancakeSwap LST Deposit Contract and converted to 100 ckBNB. Only 50 ckBNB are staked as stckBNB. This means 50 stckBNB currently earns as much rewards as 100 $BNB staked on the beacon chain.
Therefore stckBNB native yield is higher than any other LST since stakers are earning more rewards for a given amount of $BNB deposited.
III. DeFi & Yield opportunities
The success of this model relies on the fact that not all ckBNB are staked into stckBNB. It’s then important to provide alternative yielding opportunities to ckBNB holders in order to incentivise them to give their native BNB staking yield to stckBNB.
Here are some ideas of DeFi & yielding opportunities that can be implemented around ckBNB.
1. ckBNB-slisBNB LP
ListaDAO is currently the biggest LST provider on BNB Chain, it would be smarter to work with them rather than compete for that number one spot. They have proven to be a trusted and well appreciated protocol by the BNB community.
Building a ckBNB-slisBNB pool on PancakeSwap would allow ckBNB holders to benefit from slisBNB yield and also farming opportunities with $CAKE emission.
If PancakeSwap & ListaDAO collaborate together to bribe this pool on the gauge, it can become the deepest onchain $BNB pool with a high yield and very low risk from underlying tokens.
Given the potential of that LP we can expect it to handle a significant amount of volume on PancakeSwap. This would contribute to burning more $CAKE.
2. Binance Products
Since 1 ckBNB represents 1 $BNB, integrating that LST on Binance could be a great opportunity for ckBNB holders. Lately Binance has announced its will to extend BNB benefits from the Exchange to the decentralized world with new DeFi BNB Assets feature.
Allowing ckBNB holders to be eligible to Launchpools and other Binance products can onboard more Binance users to PancakeSwap.
3. Venus Protocol
As Venus is the main venue for lending & borrowing on BNB Chain, it would be a great opportunity for ckBNB holders to be able to borrow tokens against their holdings.
4. Pendle Finance
Onchain yield trading has been on the rise for more than a year thanks to Pendle Finance v2. Having a dedicated pool for ckBNB-slisBNB LP integrated on Pendle would give yield traders many opportunities while providing an additional layer of yield to ckBNB-slisBNB LPs. It’s important to note that only yielding assets can be listed on Pendle, it’s why a single ckBNB vault can’t be implemented on the protocol and ckBNB-slisBNB LP fits well here.
Note
The above is just a brief list of what can be done in order to provide yield opportunities to ckBNB. Many other vaults & LPs can be implemented across DeFi. Sky’s the limit.
If for any reasons PancakeSwap & ListaDAO can’t work together on a ckBNB-slisBNB pool then the kitchen can still work on lisUSD minting via ckBNB instead of ckBNB-slisBNB LP and a Pendle vault can still be implemented via ckBNB-BNB LP.
IV. Benefit to PancakeSwap Ecosystem
1. Revenue Diversification
The first benefit for PancakeSwap would be to improve its product offering and ecosystem while diversifying its source of revenue. As shown below, revenues related to LST products are more stable and less volatile than revenues that depend on market volatility (trading).
PancakeSwap would make revenue by taking a cut on rewards earned by stckBNB, 5% seems to be the market standard.
2. veCAKE
Currently more than 89% of veCAKE yield relies on $CAKE emission & incentives from external protocols. Although these rewards can be juicy, they are not as reliable as Revenue Sharing which is directly tied to PancakeSwap growth.
veCAKE Pool APR tends to decrease overtime as the gauge voting gains in popularity amongst external partners. As we can see Cake Pool already lost its number 1 spot on the voting gauge.
Bribes are vote incentives from external protocols, by nature this income is volatile from one epoch to another and is extremely sensitive to market conditions.
This is why an increase of revenue sharing is suitable for veCAKE sustainability as this source of income is more reliable. The current revenue sharing distribution to veCAKE is only composed by 5% trading fees from v3 0.01% & 0.05% fees tiers trading pairs, the rest of the fees are used to counter $CAKE inflation via weekly buyback & burn.
PancakeSwap can increase the revenue share distributed to veCAKE, by distributing 100% of earnings from LST products to veCAKE holders.
veCAKE would then benefit from a significant increase of APR powered by steady real yield distributed in ckBNB.
3. Onboarding more users from Binance
Current $BNB yield on Binance Earn is low and users have to lock their liquidity up to 120 days in order to earn max benefits. Since ckBNB & stckBNB will both provide more attractive yields, a partnership between PancakeSwap & Binance Earn can be worked out in order to onboard more $BNB holders from Binance to PancakeSwap and to share ckBNB & stckBNB opportunities with Binance user bases.
This could result in a significant inflow of deposit in stckBNB vault and ckBNB LP & vaults in DeFi. PancakeSwap will then have to balance these inflows in order to maintain optimal APRs between ckBNB & stckBNB.
4. $CAKE burn 
Even if 100% of earnings from stckBNB are being distributed to veCAKE, this LST product will still benefit to $CAKE burn. Indeed as ckBNB grows we can expect ckBNB-slisBNB & ckBNB-BNB pools to handle significant amounts of volume. These two pools could be amongst top performing pools by volume on PancakeSwap and contribute significantly to burning $CAKE.
Thanks for reading, feel free to share any feedback. 