Liquidity pools play a critical role in every Automated Market Maker-based exchange. It makes the exchange process happening not based on matching sellers with buyers, but the exchange rate is algorithmically predefined based on the ratio of tokens in the liquidity pool.
And PancakeSwap is no different. It is dependent on users providing liquidity.
Because liquidity providers play that important role, the exchange’s initiative is to motivate users to add their tokens to the pools by rewarding them.
Cake-LP token is the reward token given to liquidity providers. And you might be wondering now, how do you sell Cake-LP tokens? Because unfortunately, it’s not listed on any centralized exchange, where you could exchange it directly to fiat and send it to your bank account.
But don’t worry. It’s not that hard. Here’s how to claim your liquidity rewards and sell Cake-LP tokens on PancakeSwap.
What is Cake-LP Token?
To make it all more confusing, you are, in fact, not going to sell any Cake-LP tokens. It’s a bit more complex, and unfortunately, not enough websites are telling you about this.
The Cake-LP tokens you’ll receive after providing liquidity to the liquidity pool represent your share in that particular LP.
And when you decide to withdraw your tokens, you’ll be giving back the LP tokens that you received when you first deposited your tokens into the pool.
So, in fact, you are just trading those LP tokens to get your initial deposit back.
As these LP tokens represent your share of the liquidity in the pool, they also represent your right to earn a portion of the trading fees generated by the pool.
You’ll receive these additional Cake-LP tokens over time, and they will be automatically distributed to your wallet.
So when you are “selling” those tokens, you’ll receive back a proportional amount of the liquidity in the pool. In the end, you can receive back more than you gave in.
It’s important to keep all that in mind because you can actually send the tokens over to another wallet. But with that, you’ll lose the right to get a portion of the liquidity pool back. This right is tight to whoever holds the tokens.
How to Sell Cake-LP Token
If you are sure you want to withdraw tokens from the liquidity pool and stop collecting rewards, here’s how:
1. Go to PancakeSwap and Connect your Wallet
The first step is to visit PancakeSwap.finance and connect your wallet.
On the website, there will be multiple “connect wallet” buttons all over the page. Tap on one and make sure to connect the right wallet that contains the Cake-LP tokens you wish to trade in.
2. Go to the Liquidity Tab and Choose Cake-LP Pair you Want to Sell
Hover your mouse over the first menu called “Trade.” Then from the drop-down, select “Liquidity.”
On the following page, you’ll find a list of pools you can draw liquidity from. That’s because while all Cake-LP tokens can be called “Cake-LP” inside your wallet, they all have a different contract address and represent that specific liquidity pool.
For instance, for adding tokens to Cake/BNB LP, you’ll receive CAKE-BNB LP tokens.
Select the corresponding pool. If you can’t find the one you joined, simply tap “Find other LP tokens.”
3. Sell Cake-LP Tokens
Once you’ve selected the right liquidity pool, you’ll see an option to “remove liquidity” from there.
Simply set the amount or percentage of your Cake-LP tokens you want to trade in and tap “Remove.” If you wish too, you can also set it to “Max” to sell all your Cake-LP tokens.
To finish the process, sign the transaction in your wallet. You’ll also see an estimated amount of tokens you’ll receive.
Don’t forget that you can receive a lot less than you expected at first because of gas fees and slippage. That’s also why you should leave the tokens in the pool for at least a few months to break even.
Your balance will be instantly updated in the PancakeSwap dashboard, and you should receive the tokens in a few minutes, depending on the network load.
Frequently Asked Questions
Technically you can, but there is not enough liquidity for that, and it doesn’t make much sense from both sides. From the seller’s perspective, it’s the equivalent of simply unstaking your tokens. And when you take it from the buyer’s point, the person can buy the same LP directly from the provider without the hassle around.
Well, essentially, we can take those two use cases as synonyms. Because in the real market, no one is really buying or selling LP tokens.
However, if it was the option, selling would involve trading your share of the liquidity pool to someone else, while withdrawing would mean removing liquidity from the pool and receiving back the underlying tokens you deposited plus a proportionate amount of fees earned.
Yes, you indeed can. The price of the underlying token can always drop all the way to zero. But let’s not talk about that now. You can also lose quite a lot of money if you remove liquidity too soon. You pay to send the tokens there, and depending on the market condition, the slippage can also create a big loss. That’s why you leave the tokens in for at least a few months to at least break even.