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PancakeSwap is a decentralized exchange built on the BNB Chain (previously Binance Chain) that allows users to easily swap BEP-20 standard tokens.
Key Takeaways
PancakeSwap is a decentralized exchange (DEX) on the Binance Smart Chain (BSC) that allows users to trade various tokens, including Binance Coin (BNB) and other BSC-based tokens.
It uses an automated market maker (AMM) model, where users can trade tokens without the need for a matching order.
PancakeSwap also features a liquidity mining program that rewards users for providing liquidity to the exchange’s pools.
It also includes a token farming feature where users can stake their tokens to earn a share of the trading fees.
PancakeSwap is a decentralized exchange built on the Binance Smart Chain (previously Binance Chain) that allows users to easily swap BEP-20 standard tokens.
The goal of DeFi and DEX is to decentralize the financial system, eliminating the need for centralized exchanges. While Uniswap and SushiSwap were the early market leaders, many people were building DApps on the Ethereum blockchain, leading to challenges such as slow transaction speeds and high gas fees. To address these issues, Binance introduced Binance Smart Chain in September 2020. PancakeSwap quickly emerged as a top contender for the chain with its advanced features and focus on performance.
How does Pancakeswap work?
PancakeSwap is a decentralized exchange built on BNB Chain that utilizes the automated market maker (AMM) model, rather than the traditional model which involves a seller and buyer. In this model, traders can trade digital assets using liquidity pools that are open to anyone.
By depositing their funds into these pools, individuals receive an LP (liquidity provider) token and a fee for making their assets available for lending. Those looking to access the liquidity in these pools pay a fee, which then distributes among the liquidity providers. A small portion of the pool is also kept in the PancakeSwap treasury to maintain the platform.
The AMM model allows users to earn by providing liquidity to the pool. As the amount of liquidity increases, the rewards also increase. The LP tokens can be traded for profits and can also be used in other types of liquidity pools to earn PancakeSwap’s native BEP-20 tokens known as CAKE. Additionally, there are special pools called SYRUP pools that offer even higher rewards for staking CAKE tokens.
PancakeSwap Features
To start using PancakeSwap, one must first add liquidity to the platform’s pools by investing in them. In return for their investment, users receive a fee and CAKE tokens, which are BEP-20 standard tokens. Investors can utilize these tokens in various ways to earn profits on the PancakeSwap platform.
Trading
PancakeSwap, as a decentralized cryptocurrency exchange, primarily facilitates trading of BEP-20 standard tokens. By providing liquidity to the platform, users can earn LP tokens as a reward. These tokens can then trade on the platform, similar to traditional cryptocurrency trading. The platform’s design prioritizes speed and security, ensuring a seamless trading experience for users.
Farming
PancakeSwap’s yield farming feature offers users the potential for high returns. By using LP tokens earned from liquidity provision, users can participate in the platform’s farming process, which allows them to earn CAKE, the platform’s governance token. This process is similar to an investment, as users lock in their funds in exchange for rewards. The terminology used on the platform, such as “farming” and “harvesting,” references the agricultural industry. The amount of assets invested and the duration of the investment directly impact the returns earned. To begin yield farming on PancakeSwap, navigate to the Farms tab on the platform’s sidebar.
Staking
Staking on PancakeSwap is a great option for those new to the world of cryptocurrency trading. Instead of trading LP tokens and earning profits, you can stake CAKE coins in SYRUP pools to earn even more rewards. These rewards come in the form of not just a CAKE token, but also other BEP tokens. To cash in your rewards, you will need to harvest your staked coins. While similar to farming, staking involves locking in your investment for a fixed period of time, allowing you to earn a passive income with minimal effort. To start staking on PancakeSwap, navigate to the “Stake” tab on the platform.
NFTs
PancakeSwap’s gamified approach includes the opportunity for users to earn unique Non-Fungible Tokens (NFTs) through trading and staking. While some users choose to trade these NFTs, others prefer to collect them as a hobby. Binance has also developed a protocol that simplifies the process of generating NFTs.
Lottery
PancakeSwap offers an additional method of earning money through its daily lottery system. The platform conducts four lottery sessions per day, each lasting for six hours. To participate in the lottery, users need to purchase a ticket using the cryptocurrency CAKE. Winning participants have the opportunity to receive an NFT as a reward. Additionally, PancakeSwap has a separate lottery pool called Pottery, where users can deposit CAKE for a ten-week period and have the chance to win from the prize pot while also earning yield.
Initial Farm Offerings (IFOs)
In order to participate in initial farm offerings (IFOs) on PancakeSwap, you must use specific tokens from the platform. IFOs are similar to initial coin offerings (ICOs) and initial exchange offerings (IEOs), which are fundraising mechanisms for new projects and tokens. By using the correct tokens, you gain access to the sale of newly launched tokens on the platform.
Pancakeswap Development
PancakeSwap launched on September 20, 2020, shortly after the launch of Binance Smart Chain (BSC). Currently, it is the third-largest Automated Market Maker (AMM) platform, behind Uniswap and SushiSwap. Among the AMM solutions developed on BNB Chain, PancakeSwap is the leader of the competition. It has gained significant popularity within a short period of time, leading to speculation about the future of DeFi market leaders.
Its native token, CAKE, had an initial launch price of around $1.37. It dropped to $0.25 shortly after, but then rallied to $20 and reached its highest point at just under $44 on April 30, making it one of the most profitable coins of 2021. Since then, it has decreased due to various market factors and is currently fluctuating between $4 and $6.
Pancakeswap FAQ
Frequently asked questions about CAKE.
How does Pancakeswap compare to Uniswap?
It can be difficult to compare PancakeSwap and Uniswap as they are both decentralized exchanges with unique features catering to different users on different networks. PancakeSwap is the better choice for users who operate on the Binance Smart Chain and hold BEP-20 tokens, while Uniswap suits better for those on the Ethereum blockchain or other EVM compatible chains.
Despite Uniswap having more liquidity due to its compatibility with multiple EVM chains, PancakeSwap offers more financial products on its platform, such as a perpetual exchange, which could attract more liquidity to the Binance Smart Chain in the future.
How do I swap tokens on Pancakeswap?
To begin using PancakeSwap, connect a BEP-20 supported crypto wallet to your account. The first step in swapping tokens is to have some to start with. To obtain LP tokens on PancakeSwap, you must invest your digital assets in their liquidity pools. In the Trade tab, select the Liquidity option and click on the “Add Liquidity” button to begin adding liquidity. Once completed, you will receive LP tokens in exchange for the assets you invested.
To start swapping your tokens, go to the Trade tab in the sidebar and click on the “Exchange” button. Select the token pair you wish to trade, one being the token you own and the other being the one you wish to purchase. Proceed with the exchange.
How do I add liquidity on Pancakeswap?
Once connected to Pancakeswap, you can add liquidity to one of the pools on the platform by going to the Trade menu and selecting Liquidity. Then, select Add Liquidity and choose the desired token pair to deposit. Keep in mind that you will need to deposit both tokens in the pool at a specific ratio. After signing the transaction from your wallet, you will receive liquidity provider (LP) tokens representing your share of the deposited liquidity in the chosen pool. Check the active trading pair section to browse your pairs. The most active trading pair (with the highest trading volume) tends to utilize multiple liquidity pools.