PancakeSwap is a Binance-backed decentralized exchange that has given a tough challenge to traditional DEX options including Uniswap and Sushiswap.
Binance is the world’s largest cryptocurrency exchange that provides trading facilities in different cryptocurrencies. But Binance is a centralized exchange due to which many investors avoid using it. Therefore, Binance launched a decentralized exchange (PancakeSwap) shortly after the launch of its smart chain.
PancakeSwap provides a fast and inexpensive solution to swap between different crypto assets. Thus, it gives a tough competition to Ethereum and Uniswap. The stats show that PancakeSwap can even outshine Binance if its volume increased over time.
What is PancakeSwap?
PancakeSwap is a decentralized exchange designed to enable crypto trades without the need for an intermediary. Most features of this decentralized exchange are pretty much similar to the popular Ethereum DEX, Uniswap. Although PancakeSwap runs on Binance Smart Chain, it’s built by anonymous developers and Binance doesn’t control its operations.
PancakeSwap consists of user-fueled liquidity pools because it’s built on an Automated Market Maker (AMM) system. Thus, users can instantly swap their crypto tokens with the locked tokens without having to wait for a seller. Interestingly, PancakeSwap distributes rewards among users for locking their crypto tokens in the liquidity pool.
PancakeSwap is particularly used for BEP-20 tokens because it’s built on Binance Smart Chain. So, the users need to wrap their tokens as BEP-20 tokens using Binance Bridge if they’re bringing tokens from other platforms.
PancakeSwap vs Other DEXs (Decentralized Exchanges)?
Uniswap and Sushiswap are the two popular decentralized exchanges built on Ethereum’s Smart Chain. PancakeSwap is particularly designed to compete with these exchanges.
Lower trading fee is the most important factor that makes PancakeSwap a leading choice for individual traders. Although PancakeSwap was launched almost two years after Uniswap, it has outranked this leading exchange several times in terms of trading volumes. However, it couldn’t hold its position consistently.
But the instant growth of this new exchange shows that it has the capacity to outrank the leading decentralized exchanges in the future. Unlike Uniswap, PancakeSwap offers rewards to the token holders for staking their coins. Therefore, it has become more popular within a short span of time.
How Does PancakeSwap Work?
The users need to create an account on a digital wallet like MathWallet, Trust Wallet, and Binance Chain Wallet. They’re required to store BNB and CAKE tokens in these wallets because PancakeSwap doesn’t support fiat currencies. The users can also connect to the platform using Ethereum’s Wallet MetaMask.
The users need to visit the official website www.pancakeswap.finance to connect their wallet to the platform. They can then opt for trading, farming, or liquidity based on their preferences.
Adding Liquidity
The user can become a liquidity provider by depositing the tokens in the available liquidity pools. Once they successfully lock their tokens, they receive a Liquidity Provider (LP) token from the system. These tokens are generated from the trading fees that users pay when swapping cryptocurrencies on the PancakeSwap exchange.
On average, the users pay around 0.2% of the total transaction amount as a transaction fee. 85% of the total transaction fee is distributed among Liquidity Token holders while the remaining is stored in the local treasury to consistently support the network’s growth.
Trading
The users can swap/trade the LP tokens they’ve received as rewards. They can swap it with any other crypto token available on the PancakeSwap network. Once the user confirms the transaction in his/her wallet, the transaction completes successfully.
Yield Farming
The users can also farm their LP tokens with the pairs that tally with their existing tokens. It’s the most profitable option to earn money on PancakeSwap. The users receive the governance token “Cake” as a reward when they farm their LP tokens. The best thing about farming on PancakeSwap is that the users can instantly harvest their rewards whenever they want.
Staking
Staking is another passive income source for those who aren’t good at trading cryptocurrencies. The users need to deposit their coins in the SYRUP Pools to participate in this process. Staking is a little bit similar to farming but the major difference is that the users need to lock their tokens for a specific period of time. And they can only obtain the rewards once the staking period is over.
Another important thing is that the users can opt for other crypto tokens if they don’t want to receive the Cake Token as a reward.
NFTs
The users can also win special NFTs through PancakeSwap’s gamification approach. They can then trade these NFTs on the marketplace or they can store them in their personal collections.
Initial Farm Offerings (IFO)
IFO is one of the most important aspects of PancakeSwap that enables users to buy newly launched farm tokens using their LP tokens. The benefit of investing in these tokens is that they can give pretty high returns once they’re registered on other exchanges.
Lottery
The lottery is another important option to earn rewards through PancakeSwap but it’s a bit expensive because the users need to trade 10 Cake tokens to participate in the lottery. The platform executes 4 lotteries every day and each session lasts for almost 6 hours.
Benefits of Using PancakeSwap
PancakeSwap is particularly designed to fix the problems that are in the Ethereum-based decentralized exchanges. Thus, it provides a range of features that make it a better option for decentralized exchange users.
Ease of Use
PancakeSwap has a user-friendly interface that enables users to perform activities like trading, farming, and staking quite easily. Even beginners don’t face any problems using this platform.
Numerous Earning Facilities
As mentioned above, PancakeSwap offers a number of earning opportunities including Farming, staking, NFTs, lotteries, and more. It’s one of the major reasons why PancakeSwap gained more attention than other DEXs.
Fast & Cheap Transactions
PancakeSwap offers the fastest transaction speed compared to other DEXs because it’s built on Binance Smart Chain. Moreover, the transaction fee is as low as $0.08 per transaction. On the contrary, Ethereum-based DEXes charge around $20 as the gas fee for each transaction.
Interconnectivity
Interconnectivity was one of the major concerns of PancakeSwap developers because they knew that they need to bring investors from Ethereum to their network.
Therefore, they made it possible to connect popular wallets like Metamask to their platform. They also established a bridge to facilitate the users who back and forth between the two blockchains.
Conclusion
PancakeSwap is a decentralized exchange designed on Binance Smart Chain. It has appeared as a tough competitor for Ethereum-based DEXes like Uniswap and Sushiswap. We’ve shared detailed information about How does PancakeSwap work. If there are still any questions about PancakeSwap, feel free to get in touch with us.