You have created your custom Bep20 token. You have listed your token in PanCakeSwap and added Liquidity. But how do you maintain the price of your BEP20 Token price? In this article lets look at how to keep the price of your token stable -or- increase and decrease as per your liking.
What is the reason for a token price to fluctuate in PanCakeSwap?
If your token is listed in Pancakeswap DEX exchange, you might have already added liquidity pools to your token by pairing it with different other cryptocurrencies ( BNB, USDC, CAKE etc. ). As you might already know that when you added liquidity to your token pair, you might have mentioned the initial price of the token against the respective pair. For ex: If you are pricing your token at $0.5 USDC per token > you will add 2 of your tokens and 1 USDC to make the required price work ie. 1/2 = 0.5 ( means your LP has 2 of your tokens & 1 USDC inside ). Theoretically, this ratio needs to be in constant balance for your token price to stay afloat at the price you want. If for example someone buys 1 of your token by paying 0.5 USDC > the ratio changes to 1 Token: 1.5 USDC … and the price of the token now becomes 1.5 USDC per token for the next buyer. Similarly the price may decrease if someone sold your token ( thus increasing the token count in the pool & reducing the USDC ).
Note: This is also called the constant product market maker formula ie. x * y = k ( where x is your token, y is the other paired token like USDC, k is constant ). The formula always maintains the constant K by changing the values of x & y accordingly. Thus altering the price of the token.
Apart from the above point, there are also other factors that needs to be taken into consideration:
– Fair pricing algorithms: The price of your token is also impacted in real-time based on the PancakeSwap algorithm. Being a dex exchange one of the main challenge faced by the exchange would be to protect its users and traders from scams and intentional manipulations. So, there are chances the exchange would have special algorithms to scrape other market data to contribute to the accurate price of the new token. This includes a plethora of possibilities like checking if the token has considerable market cap. And if yes, where else this token is traded and in what price. Also if you have multiple pairs for the same token in PanCakeSwap ( For ex: Token-USDC, Token-BNB, Token-Cake ). And if trade happens in only one pair, it would obviously not be correct to have the tokens price different across various pairs inside the same exchange. For example, the price is $1 in USDC pair and $2 with the BNB pair. So how will the exchange see the price is maintained consistent across multiple pairs?
– Trading Fee: For each trade executed on your token pool, the trader pays a trading fee ( Ex: 0.28% ). This fee collected is split and shared by the Liquidity Providers based on their share of the pool. Since this factor also is associated with the constant K in the constant product formula, it may have certain impact on the price of the token based on the liquidity supplied and volumes of trade.
– Market price of the other crypto pair: If the paired cryptocurrency to your token faces high volatility in the other markets ( Ex: BNB ), it may impact your token price in Pancakeswap. And because of this fluctuation, your tokens other stablecoin pairs will also change ( as the exchange needs to maintain token stability across pairs )
How to maintain the price of your cryptocurrency token same across various exchanges?
If your token is listed on another exchange apart from PanCakeSwap, it somehow becomes a requirement to maintain the price of your token same across all exchanges. Or it can lead to a confusion on what the real price of your token is ( as it shows different in different locations ). In a centralized exchange like Binance, Kraken etc. the price of a token is the last executed price ie. the price in which it was bought or sold. But this is not the case in a decentralized DEX exchange. In reality you cant control the the price of your token as precisely as in a CEX exchange. The reason being that various factors determine the price of a Cryptocurrency in DEX. The best option would be to keep a tab on the price of your crypto coin in a decentralized exchange and execute a trade on the cex for the same price. If you feel doing this manually can be a cumbersome job, you can write a bot that watches the price on one side in the dex & executes the trade to reflect the price in a cex ( using the API of the cex ). If you need help to create such a trading bot, you can contact these experts to get this job done quickly.
One other good that can happen is, on the go the price of your cryptocurrency token in the Dex can start getting updated automatically based on the price that reflects in the centralized exchange. As we know that the price of the token in Pancakeswap depends mainly on data from 3rd party marketcap sites like CoinMarketCap, Cryptocompare etc. And in turn these market capitalization sites update their token price as a weighted average from price reflecting on other exchanges. So what goes around comes around.
So, How do you maintain the price of your cryptocurrency token in Pancake Swap?
To be continued…