PancakeSwap is a decentralized crypto exchange built on Binance Smart Chain used for swapping BEP-20 tokens. Binance Smart Chain is fast and inexpensive as compared to Ethereum which is its top competitor. Binance Smart Chain is created by Binance which is the largest crypto exchange in the world. PancakeSwap and Binance together compete against UniSwap and Ethereum as PancakeSwap brings all the functionality of UniSwap to Binance Smart Chain with extremely low fees as compared to the DeFi protocols based on Ethereum. Currently, PancakeSwap is one of the largest DeFi protocols and it can even outshine Binance if the volume on the exchange gets deep.
Instead of using traditional order books used by other exchanges, PancakeSwap uses an Automated Market Maker (AMM) model which does the matching of buy and sells orders in the liquidity pool. These liquidity pools are maintained by user deposits and PancakeSwap utilizes these user-generated liquidity pools to enable its users to swap between crypto assets. Users are rewarded to provide liquidity to these pools.
PancakeSwap was launched by a group of anonymous developers in September 2020. It is known that the team of PancakeSwap consisted of more than a dozen developers who like to call themselves Chefs. The team has two leaders who go by the names Hops and Thumper. PancakeSwap had raised over $1 million in its seed round on 16th June 2020. Then on 17th February 2021, it became the first billion-dollar project on the Binance Smart Chain (BSC). It was upgraded to version 2 on April 2021. It conducted another seed round on July 2, 2021, wherein it raised $4 million.
PancakeSwap is a fork of SushiSwap and therefore has an almost identical code base. But, because PancakeSwap is built on BSC, it provides lower fees and faster transactions than SushiSwap. It also has some additional features compared to SushiSwap.
At the time when PancakeSwap was launched, almost all the DeFi applications used to live on Ethereum and this made PancakeSwap different as it was built on Binance Smart Chain and thus had advantages over its peers as it offered faster and cheaper transactions. Pancake also offered a lower swap fee of 0.2% while the standard rates of the swap were 0.3%. All this helped Pancake to register a rapid rate of growth in both trading volume and total value locked. Pancake also has plans of expanding its purview into prediction markets, lending and borrowing, and margin trading.
Read more: Pancakeswap Price Prediction
PancakeSwap works on the Automated Market Maker model in which traders trade digital assets using ‘permissionless’ liquidity pools. Users deposit their funds in these liquidity pools and receive LP (liquidity provider) tokens as a reward. The exchange also pays a fee to these users for lending out their assets. This fee is paid by the people who want to use this liquidity pool for swapping their assets. Some of the fees are also kept by the platform in its treasury to maintain the platform. The AMM model lets the users earn by creating liquidity for the pool. The reward that one gets is directly proportional to the amount he/she contributes to the pool. The LP tokens which you get as rewards can be traded for profits. LP tokens can also be farmed in another type of liquidity pool to earn CAKE. CAKE is PancakeSwap’s native BEP-20 token.
PancakeSwap also has SYRUP pools where people can stake their CAKE tokens to earn even more rewards from the SYRUP pools. PancakeSwap offers a lot of opportunities to earn profits.
- Trading: The most basic function of an exchange is to support trading. PancakeSwap supports trading in BEP-20 tokens. Therefore, the LP tokens which users earn by adding liquidity can be traded with other BEP-20 tokens. PancakeSwap provides a smooth trading experience as it is fast and secure.
- Yield Farming: Farming is by far the most profitable way to earn on the platform. It provides users with large returns. The LP tokens can be farmed on the platform. This provides a way to collect the own native coin of the PancakeSwap, the CAKE. CAKE is also the governance coin of the platform as it gives the right to vote. The act of investing your funds and waiting for the CAKE rewards is known as farming and the act of reaping your rewards is known as harvesting. The return that one gets is in proportion to the volume of the asset invested and the time for which it was invested.
- Staking: PancakeSwap allows its users to stake CAKE coins in the SYRUP pools to earn rewards. Yield farming and staking differ as in staking, the person ends up locking in his investment for a fixed time which is not the case with yield farming. Staking is a lot simpler and one of the most popular ways to earn a passive income.
- NFTs: PancakeSwap also lets its users win special NFTs and then use them for trading and staking. People are also into collecting NFTs.
- Lottery: The platform runs four lotteries a day with each lottery session running for 6 hours. The platform collects a fee for participating in these lotteries and winners are rewarded with NFTs. This is a cool way to earn profits and test luck on the platform.
Advantages and Applications
PancakeSwap made its way into the market by addressing the problems faced by the Ethereum-based platforms. It thus has some advantages over its peers.
- Interconnectivity: Before the PancakeSwap was launched, Ethereum used to dominate the DeFi space, and therefore the developers had an idea that anyone who would use Pancake for the first time would want some compatibility between the two technologies. Hence, PancakeSwap was made to support all the popular wallets. The platform also listed some Ethereum-based coins on its exchanges so that it becomes easy for people to migrate from one blockchain to the other.
- Ease Of Use: The user interface of PancakeSwap is clean. Simple and easy to use. It gives a top-notch trading experience to its users.
- Plenty of options to earn from: The platform provides various tools for its users to get rewards from.
- Transaction speed: PancakeSwap provides much faster transactions than its Ethereum-based peers as it is built on BSC. This faster transaction speed helps the traders not lose any opportunity due to performance issues which translates to good profits.
- Cheap transactions: Ethereum network has become overcrowded because of the large number of transactions that it has to support. Thus, the transaction fee on the Ethereum network is very high. PancakeSwap provides cheap transactions with 96% lesser transaction fees per transaction on average.
PancakeSwap is a decentralized exchange developed under the Binance Smart chain which uses an automated market model(AMM) model to fulfill the orders. It is one of the top DEX for inexpensive liquidity pools. With a $56,702,337 USD 24-hour trading volume, the current live PancakeSwap price is $4.45 USD and a market cap of $639,647,800 USD. Below is a list of competitors and alternatives to PancakeSwap:
- UniSwap: Uniswap is among the most popular decentralized exchanges on the Ethereum blockchain. The majority of DEXs have, in one way or another, taken functionality from Uniswap to run their platforms because it was one of the first and most popular DeFi protocols. After Uniswap’s UNI governance token was made public in September 2020, it cemented its position. Uniswap’s current live price is USD 5.73, and its 24-hour trading volume is USD 94,018,592. Nowadays the market cap of Uniswap is USD 3,308,669,925.
- 1inch: As a decentralized exchange (DEX) aggregator, 1inch searches the crypto market for the best exchange rates and lowest costs. The fact that 1inch supports various blockchains and is available on Ethereum, Polygon, and Binance Smart Chain is one of its greatest advantages. Like most Defi projects, it has a governance token called 1inch, enabling users to stake the native token and take part in platform governance. 1inch has a market cap of USD 418,446,523 and it trades at USD 0.51 with a 24-hour trading volume of USD 33,380,632 at the time of writing this article.
- SushiSwap: SushiSwap Decentralized Exchange is a fork of UniSwap DEX. It controversially joined the market because its objective was effectively to drain Uniswap’s liquidity by providing liquidity providers extra benefits; at the time, the approach was referred to as a “vampire attack.” The Sushi project has developed an outstanding DeFi platform that supports a variety of blockchains, including Fantom, Binance Smart Chain, and Ethereum. SushiSwap price is USD 1.06 with a 24-hour trading volume of USD 36,882,605 and a market cap of USD 241,427,465 at the time of writing this article. Other exchanges that compete with PancakeSwap include dYdX, Raydium, and DODO.
Know more about Pancake Swap vs Uniswap
A prominent decentralized exchange (DEX) on BNB Chain (BSC), PancakeSwap makes use of permissionless liquidity pools that are managed by algorithms. It uses the AMM protocol. This implies that a mathematical algorithm determines the pricing of coins on the exchange. It does allow you to exchange digital assets, but there isn’t an order book where you can match up with other users to trade with. You trade in opposition to a liquidity pool instead.
The emission rate of cake is 40 per block and 1,152,000 per day. There are numerous additional CAKE emission models, including farms, pools, and lotteries, which account for 58,000, 259,200, and 400 daily emissions, respectively. In total there are 321, 200 CAKE emissions daily. While most of the burning process of CAKE is manual, there are several other ways in which CAKE is burned like 100% of CAKE is burnt on profile creation and NFT minting, 30% of CAKE spent on lottery tickets are burnt, etc.
In total 830, 800 CAKE tokens are burnt daily. In April 2022, PancakeSwap migrated to a new MasterChef v2 contract. This new contract allows chefs to have more control over CAKE emissions.
Additional read: Top BNB Chain ecosystem Tokens
Roadmap and Vision
As DeFi’s mainstream moment in 2020 caused tremendous demand for transactions, Ethereum was experiencing pricey and delayed transactions at the time of PancakeSwap’s inception. The majority of DeFi applications at that time ran on Ethereum but the lower fees and faster transactions helped PancakeSwap to capture the market. In fact, by trading volume, it surpassed AMM pioneer and Ethereum’s Uniswap in February 2021 to become one of the market’s biggest decentralized exchanges.
- Now balancing the scarcity and sustainability, they have planned to insert a 750 million cap on the Maximum Supply on CAKE, which previously could be emitted infinitely, thus giving them an approximate runway of 2 to 3 years before the circulating supply reaches this cap.
- Apart from vCAKE and iCAKE, they have also got bCAKE (Boosted Farm Benefits) coming in the future.
- Countering the decrease in overall trading volume of the swap, they also have Multichain & Stableswaps on their roadmap to bring more revenue and CAKE burn while being competitive with DEXs on the other chain.
- On the Q3 roadmap, there are certain Fixed-Term Staking Benefits for the yield boosters, i.e. the syrup pools are going to be coming to the Farms as well, and apart from that there are going to be Upgrades to the Lottery (Lottery has started now though). Together with all this, they are also focussing on the Regular Release of IFOs.
PancakeSwap has always focussed on the long-term benefits, and has never tried anything just for the sake of being in that market or anything of sub-par quality; even if they did try something like that, they eventually shelved it. They keep analyzing their peers/competitors judiciously and accordingly formulate new launches and upgrades.
The future is bright for PancakeSwaps if it continues to grow and execute its plans. Having just survived hopefully the worst of the bear market & the big leverage washouts, it can be seen that Binance is stable enough to stay in the market for long, they are well funded and now they’re helping fund PancakeSwap as well. Hence PancakeSwap is also going to stay in the market for a long time, so it’s not like one is buying potentially a token in cake that is going to go to zero.
Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Aman Bansal, Aditya Choraria, Kartikeya Kamal Jain
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