Ethereum has been “the” place for most of the recent innovations happening in the blockchain space.
After all, it is one of the earliest blockchains to support smart contracts. It comes as no surprise, therefore, that the blockchain has a huge community of users of all kinds—from developers to average investors. It also has a lot of tools for building decentralized applications that are both powerful and optimal.
But over the years, the network congestion and high gas fees have pushed a lot of people to look elsewhere. Developers are now trying to find alternative blockchains to build their dApps on.
An alternative blockchain, that has seen quite a lot of developers flocking to it, is the Binance Smart Chain (BSC). Being relatively new, BSC does not have a lot of network congestion. Nor does it have the high gas fees associated with the Ethereum blockchain. These factors together have created the perfect breeding ground for innovative dApps.
It is one of the dApps built on BSC that we’ll be talking about in this blog. We’re talking about the decentralized exchange, PancakeSwap. More specifically, we’ll be talking about how you can participate in a PancakeSwap IFO.
But before we get into it, let’s talk about what the blog contains. I know that a lot of the readers might already be aware of PancakeSwap and know how to find their way around the platform.
That said, there might be a lot of readers who are new to the platform. To these readers, I would request for you to read through the entire blog. There are concepts here that would allow you to make a more informed decision. For those of you who already know about it, feel free to skip to the section that interests you the most.
With that out of the way, let’s get right into it!
What is Initial Farm Offering (IFO)?
When you hear the word farming, you are probably thinking about traditional farming—the one you do with seeds and a shovel. But when it comes to the blockchain, the meaning changes to some extent.
In the Decentralized Finance (DeFi) space, farming is the process of locking in some of your crypto funds for a certain amount of time. And when the time is right, taking the funds out along with some yield that your investment generates.
The concept in itself is great. To add to that, food-based farming has taken the DeFi over by storm. The craze has grown stronger than ever over the last few months. There have been numerous platforms that emerged over the last few months that have allowed users to lock in their funds (called staking in the world of DeFi) in return for some tokens of the protocol.
To add fuel to the many platforms have started a new type of fundraising activity wherein farming events are used for generating funds for the projects that are participating. This type of fundraising activity is called Initial Farm Offering or Initial Farming Offering. The shorthand for that is IFO, which is a term you would see fairly often in the course of this blog.
These IFOs allow users to participate in pre-sales much like it happens in the case of Initial Coin Offerings (ICO). These pre-sales are hosted through DEXes and it is through these pre-sales that the users can get tokens before they have been listed on the exchanges they’re supposed to go out on.
Having participated in many ICOs, I can tell you from personal experience that it is one of the most exciting things out there in the world of blockchain.
In case you’re wondering about the chances of getting scammed through an IFO, rest assured, there’s a system in place to prevent that from happening. More often than not, the DEX teams thoroughly vet projects before they are hosted on the official IFOs.
Now, a thing to remember here is that regardless of how strict and thorough the vetting process is, there can always be something that slips through the cracks. So, as an investor, you need to do your research before investing your hard-earned money in a project. Financial decisions should never be made based on what you hear from others.
What is PancakeSwap?
PancakeSwap, put simply, is a decentralized exchange that you can use to swap BEP-20 tokens. The way it works is pretty similar to how Uniswap and SushiSwap works. At their core, most of these exchanges work on the same principles that any automated market maker (AMM) would use.
What this means for you as a user is that you can trade digital assets on the platform without the need for being matched with someone else in an order book. You don’t trade against other traders here. Instead, your trades are done against a liquidity pool.
These liquidity pools are filled with the funds locked in by other users. Against the cryptos they deposit into the liquidity pool, the users receive liquidity provider tokens. These tokens can then be used by them to reclaim their fair share along with an added portion of the trading fees.
So, at the end of the day, you can either trade with BEP-20 tokens or lock them in a liquidity pool to add liquidity to the platform. Choosing to lock your cryptos in would earn you a handsome reward.
For different types of tokens you add to the liquidity pool, you would receive different types of liquidity pool tokens. For example, if you choose to lock your BUSD tokens into the liquidity pool, you would receive BUSD LP tokens.
Likewise, if you choose to lock your BNB tokens into the liquidity pool, you would receive BNB LP tokens. If you instead choose to invest both in the pool, you would receive BUSD-BNB LP tokens. You get the picture.
How to Participate in a PancakeSwap IFO?
Participating in a PancakeSwap IFO is pretty simple. All you need to do is commit some of your LP tokens from a supported pool to gain access to a newly launched token’s sale.
Since most of the token sales support CAKE-BNB LP tokens, all you need to do is add some of your CAKE and BNB tokens to a liquidity pool. In return for that, you would get the CAKE-BNB LP tokens that you would need to participate in the token sale.
If you’re afraid of missing out on an interesting IFO, I would strongly recommend you to buy some CAKE and BNB tokens in advance and add them to a liquidity pool. This way, you would always have some CAKE-BNB LP tokens to participate in token sales.
Let’s assume that you’ve bought CAKE and BNB tokens and added them to a liquidity pool and are ready with your CAKE-BNB LP tokens.
Taking it a step further, let’s assume that you’ve even committed your CAKE-BNB LP tokens to an IFO of your choice. What happens now?
After the sale has taken place, you can claim the IFO tokens that you’ve bought and the unspent funds would be sent back to you.
There are a couple of scenarios that can take place here. Let’s look at each of them and find out how we can maneuver around them.
To start with, you might run into what is called an overflow. Basically, you can commit as much as you want (and conversely as little as you want) to an IFO. The final allocation would be on the basis of the funds that you managed to put in.
Now, this would be taken as a percentage of all the funds that the IFO managed to raise from all users. At the end of the sale, the total is calculated. It is when you claim your tokens after the sale that you get back any leftover funds from the sale.
Another possibility is for the IFO to not raise the targeted amount of funds. What happens when that happens? In such cases, the sale would end up proceeding normally and the funds the IFO managed to raise would be spent.
So at the end of the day, you get a fair deal regardless of whether there’s a case of an overflow or the IFO not raising the targeted amount of funds.
Before You Go…
Having been in the industry and having participated in many ICOs (not IFOs) in the past, I can tell you that it is absolutely thrilling to take part in something like this.
However, it comes at a cost for the uninformed. So make sure you know everything you need to know about an IFO before you take part in it.
That said, PancakeSwap has provided a great platform for users to participate in exciting projects. As the community grows, I’m sure there will be more and more interesting projects to participate in.
But until then, I would advise you to do your research and invest only in the projects you trust.