Decentralized finance, also known as DeFi, has been disrupting the traditional financial industry in the last few years. DeFi uses blockchain-related technologies to create a financial ecosystem while bypassing middlemen, brokers, and banks. Many argue it has democratized finance, allowing anyone with a crypto wallet and access to the internet to trade digital assets in real-time.
With 4.4 million users worldwide and over 3 billion dollars staked, PancakeSwap is a leader in the DeFi sphere. What is PancakeSwap? A decentralized cryptocurrency exchange (DEX) built on Binance Smart Chain (BSC), the platform is powered by its very own CAKE token. Using an automated market maker (AMM) model, users trade digital assets through a liquidity pool, rather than being matched with someone on an order book.
The PancakeSwap decentralized exchange allows you to earn passive income with crypto with innovative features such as the ability to play in a lottery to win free tokens. Along with its very own NFT marketplace, users can engage in trading, yield farming, staking, and more on the PancakeSwap platform.
What is PancakeSwap?
If you are only now diving into the crypto world, PancakeSwap might sound like jargon to you. So, what is PancakeSwap really?
PancakeSwap is a decentralized exchange (DEX) that allows users to swap their coins for others without middleman services. Launched in 2020, this DEX offers massive liquidity, a wide range of features, and a growing popularity within the blockchain space. The platform allows users to trade BEP20 coins and Binance Coin (BNB) without having to rely on a middle man or losing any control over their private keys.
It is similar to Ethereum’s Uniswap but differs from other decentralized exchanges as it instead runs on Binance Smart Chain. PancakeSwap focuses on BEP20, a token developed by Binance. It is essentially a blueprint for tokens with rules for their usage such as how they can be spent. BEP20 was designed to allow developers to launch a range of different tokens with such a flexible format.
It is not only one of Uniswap’s top competitors, but also the most popular decentralized exchange on the Binance Smart Chain. It is a cheaper and faster alternative than Uniswap due to Ethereum’s high gas fees.
Moreover, PancakeSwap offers security. The platform has been audited by blockchain security companies such as Certik. Although the platform is anonymous, it is also open-source, allowing for full transparency.
How Does PancakeSwap Work?
PancakeSwap uses an automated market maker (AMM) so that users do not need an intermediary to facilitate trading. Users trade against liquidity pools instead of counterparties and earn a share of the rewards generated by transactions. If you haven’t heard of liquidity pools, we’ve got you covered.
A liquidity pool is essentially a user-built fund. Users are incentivized to contribute to the Liquidity pool and become liquidity providers via staking rewards sourced from transaction fees. Staking rewards are calculated based on the share the liquidity provider holds in the liquidity pool.
This system also means that users do not have to be matched with sellers. When they are looking to trade tokens, they can simply deposit the token into the liquidity pool and exchange it for another.
But there’s more. PancakeSwap offers game-like experiences. Users can bet on whether the price of Binance Coin will rise or fall within a time frame and use the lottery feature to win free tokens.
How To Use PancakeSwap?
If you are looking to use PancakeSwap, you first need to create a wallet that is compatible with BNB chain, such as Metamask, Coinbase Wallet, and BNB Chain Wallet. Once you have created a compatible wallet, go to the PancakeSwap website and click “connect wallet”. You will find a range of wallets that are compatible and connecting your wallet is simple, just follow the instructions.
You might be confused as to why MetaMask is a compatible wallet. Although it's an Ethereum wallet, MetaMask also provides functionality to connect with other chains such as BSC and Polygon.
Once your wallet is connected, you can now access all the DeFi features of PancakeSwap. You can now add liquidity to one of the pools on the platform. Again, PancakeSwap makes this process intuitive and user-friendly. Liquidity is central to the PancakeSwap Exchange so this is an important step.
Go to “Trade” menu on the sidebar on the left, then “Liquidity” and finally “Add Liquidity”. You can then select the token pair that you want to deposit. You will then sign the transaction from your wallet, free of charge. After this, you will receive liquidity provider (LP) tokens that indicate your share of the liquidity.
Now that you have your LP tokens, you are ready to take advantage of PancakeSwap’s features such as yield farming, staking, and trading NFTs. Let’s take a look at the features that make PancakeSwap one of the best decentralized exchanges out there.
PancakeSwap Features
Trading with PancakeSwap DEX
If you are a trader with a smaller wallet, PancakeSwap might be the platform for you. You can trade on this DEX without having unlimited access to large funds. To start trading, head to the “Trade” menu and select “Exchange”. Choose the cryptocurrencies you want to swap from the menu. Click the “Swap” button and confirm the transaction in your wallet free of charge, and your trade is complete.
As previously mentioned, unlike other platforms, on PancakeSwap, you will be exchanging against liquidity pools generated by users. Remember that you can only trade BEP20 tokens on this DEX as it is built on Binance Smart Chain. However, if you only hold ERC20 tokens, you can still use the Binance Bridge to allow you to trade on the platform. To do so, just head to the Binance Bridge and connect your wallet. This will wrap your ERC20 tokens over to BSC and save you money in trading fees due to the platform’s low costs.
After you’re done on PancakeSwap, you can convert your BEP20 back to ERC20 in the Binance Bridge.
Yield Farming With PancakeSwap
PancakeSwap allows you to farm the platform’s native token, CAKE. Using your LP tokens which you acquire when adding liquidity, you can stake these to earn CAKE. This way, PancakeSwap yield farming will provide you with CAKE rewards over time. You can collect these and use them to purchase more LP Tokens, use them to play the lottery feature, and more.
To do so, head to the “Farms” tab and select the option that fits your LP tokens. Farms will only accept their own LP Token. For example, the CAKE-BNB Farm only accepts CAKE-BNB LP Tokens.
Once you have selected your farm, click the “Enable” button and confirm your action in your wallet. This button will then change to “Stake LP”. After you click on it, it will take you to a new window. Here, type the amount of LP Tokens you would like to farm or just click “Max” if you want to use all your LP Tokens. After confirming the amount, you will need to confirm your action in your wallet once again.
Adding liquidity to PancakeSwap
Liquidity pools are what enable users to trade without a middleman, instead, providing users with liquidity. But what is liquidity in cryptocurrency? Liquidity refers to the ease with which tokens can be swapped for other tokens and is essential to the DeFi model.
Liquidity is not just a vital part of PancakeSwap, it also benefits the user on the platform. In return for adding liquidity, users receive trading fees and LP Tokens that they can stake in farms to earn CAKE. We summarized how to add liquidity in a previous section, but let’s go step-by-step.
Head to the “Liquidity” page under the “Trade” menu. Click the “Add Liquidity” button. You will need to commit an amount of a token pair of your choice. There are two inputs to fill out here. First, for the top “Input”, select a currency and choose one of the tokens in the pair you want to add liquidity to. Do the same for the second input. Then, all you need to do is enter an amount for one of the tokens under “Input”. The other “Input” will be calculated automatically. If there is an issue with your balance, such as one of the tokens not having enough available, you will see an error and can lower the amount.
If everything looks right, click “Enable” and confirm the action in your wallet. A “Supply” button will light up and just click it to continue. You will once again confirm the transaction in your wallet and will be able to access your LP Token balance. If a user deposits CAKE and BNB into a liquidity pool, for example, they will receive CAKE-BNB liquidity provider tokens.
Staking with PancakeSwap Syrup Pools
The decentralized exchange also allows you to stake your CAKE in PancakeSwap pools. Syrup pools are the easiest way to earn free tokens on the platform. Staking is when users lock in tokens for a period of time and receive rewards for the amount of time these are locked. Every staking pool has a yield percentage which is used to calculate rewards based on the amount staked.
To do so, head to the “Pools” tab to find the pools where you can stake your CAKE. You will need to select the amount of CAKE you want to stake and approve the withdrawal. Once that’s done, you will be rewarded without having to lift a finger with free tokens. You can also choose between flexible and fixed-term staking.
Flexible staking allows you to be able to unstake whenever you please. Fixed-term skating allows you to maximize your yield by locking your staked CAKE for a period of time which will generate even more CAKE. However, you cannot harvest rewards or withdraw before the locked term ends.
Playing the PancakeSwap Lottery
What makes PancakeSwap unique is that one of its features feels like a game. With the PancakeSwap lottery, users are given the chance to win large CAKE prizes. All you need is to have obtained CAKE so that you can buy lottery tickets.
A single lottery session takes 6 hours and a ticket costs 5 USD in CAKE. You can buy as many as you wish, but only 100 tickets at a time. A ticket will provide you with a 6-digit combination. To win prizes, match numbers from the left. You can win rewards if two or more numbers match, but to win the jackpot, four numbers must match. The jackpot means you win 50% of the entire lottery pool.
Using the PancakeSwap NFT Marketplace
Users can also trade and list their own BNB Chain-based non-fungible tokens (NFTs) on PancakeSwap’s NFT marketplace. As of right now, the platform only allows you to buy and sell PancakeSwap NFTs, but there are new features coming soon. You can apply to list your collection on the NFT Market and create royalties on trades on PancakeSwap. Users can also win special NFTs which they can trade for CAKE or keep in their wallet as a collector’s item.
In February 2021, PancakeSwap added an NFT Profiles feature, allowing users to select an NFT profile picture after purchasing a Bunny NFT. If you obtain a complete profile, you can join a team that can participate in events to earn more rewards.
What is the CAKE token?
First pancakes, now cake? Bear with us. PancakeSwap (CAKE), powered by the BEP20 Pancake tokens is one of the many tokens used within the PancakeSwap ecosystem.
CAKE tokens are listed in numerous crypto exchanges, but unlike other digital currencies, cannot be purchased in fiat currencies. CAKE has a current supply of over 300,000,000 with over 149,000,000 in circulation. The last known price of CAKE is 3.43 USD.
The PancakeSwap ecosystem is powered by the CAKE tokens. Users can farm CAKE and stake these in syrup pools, one of the easiest ways to earn free tokens on the platform. They can even enter a lottery with their CAKE by purchasing a ticket that could lead them to win 50% of an entire lottery pool.
PancakeSwap FAQ
Is PancakeSwap safe?
PancakeSwap has undergone extensive audits by blockchain security companies. The platform has been audited by the cyber-security firm Certik which provides comprehensive security assessments of smart contracts and blockchain codes. Certik has given PancakeSwap a good trust score of 88 and a security score of 87. Amongst all projects, Certik says that PancakeSwap’s trust store is in the top quartile.
As a user of PancakeSwap, you know that you are using a reliable exchange. Although the platform is decentralized and anonymous, it is also open-source, allowing it to be publicly scrutinized and fully transparent.
What are Initial Farm Offerings (IFOs)?
Initial Farm Offering (IFO) is a fundraising model for decentralized finance (DeFi) projects to raise capital. It is a new type of token sale or distribution method used by exchanges using automated market maker (AMM) models to guarantee liquidity on sales. Investors participate in a pre-sale event hosted by the exchange to raise the capital for projects by investing in native tokens.
PancakeSwap is the most common platform for IFOs where users benefit from fundraising for projects by winning rewards. The owners of the projects benefit from the liquidity pool on PancakeSwap. Users on PancakeSwap need CAKE to participate and use these tokens to buy the IFO tokens when a sale is live. You can also apply to launch your own IFO here.
Is PancakeSwap better than Uniswap?
PancakeSwap and Uniswap are the most popular decentralized exchanges out there. Although both rely upon automated market maker (AMM) models and liquidity, Uniswap was built on the Ethereum blockchain network. Both platforms also have a similar architecture where users can trade from a range of crypto wallets.
PancakeSwap is known to be better than Uniswap in terms of costs as it provides lower gas fees. PancakeSeap runs on Binance Smart Chain (BSC) with gas fees that are less than 0.35 USD per transaction. Uniswap might not be suitable for the small trader as users have to pay 100 USD or more per trade in gas fees.
Bottom Line
Ethereum might have paved the way, but platforms like PancakeSwap are showing that the DeFi trend is not limited to a particular chain. Although Binance Smart Chain (BSC) is less established than Ethereum, PancakeSwap has still managed to make its mark as a successful DEX with an automated market maker (AMM) model.
Launched in 2020, PancakeSwap is now the largest decentralized exchange on Binance Smart Chain (BSC). The platform offers innovative features that make generating passive income easy. With low gas fees, certified security, and a diverse range of features, PancakeSwap is also geared to all.
From newbies with little capital to crypto whales, PancakeSwap has made it clear that DeFi should be accessible to all and is one step closer to democratizing finance.
