PancakeSwap is a fairly new decentralized exchange (DEX) that’s been created on the Binance Smart Chain (BSC). The automated market maker (AMM) offers users a number of innovative ways to create income streams from their cryptocurrencies. In the following review we’ll go into more detail about what makes the PancakeSwap exchange work, and how you might be able to benefit from it yourself.

What is PancakeSwap?

Launched on September 20, 2020 PancakeSwap is a DEX on the BSC using permissionless liquidity pools that are automated and run completely by algorithms. This use of algorithms to run the pools makes PancakeSwap an automated market maker.

Why the name PancakeSwap? Well it is simply following the trend in decentralized finance that uses food tokens. First there was SushiSwap, then BakerySwap, and now we have PancakeSwap. There are many other food-themed projects and tokens in the DeFi space too.

As for PancakeSwap they use the deliciously named CAKE token, which is a BEP-20 token on the BSC, and the just as deliciously named SYRUP pools. The PancakeSwap exchange boasts fast transactions and lower fees than the DeFi projects built on Ethereum. As the number one AMM platform on the BSC PancakeSwap can be considered in the same league as the ERC-20 based AMM’s like SushiSwap and Uniswap.

If you haven’t used an AMM yet they are exchanges that allow users to trade digital assets against liquidity pools and collect yields. This is more like a dividend bearing stock or a bond than a traditional exchange where an order book matches buyers and sellers and profits are only made by selling your assets. In the AMM a user loans their digital assets to liquidity pools and in return they receive liquidity tokens that they can then stake to earn more digital assets.

What can you do on PancakeSwap?

As you might already be guessing based on the explanation above, PancakeSwap allows users to exchange BEP-20 tokens. It also allows them to use their cryptocurrencies to provide liquidity for the exchange pools, and thus earn additional tokens. It’s also possible to stake tokens on PancakeSwap and earn more tokens from that method.

PancakeSwap allows for all the following:

• Trade BEP20 tokens
• Provide liquidity to the exchange and earn fees
• Stake your LP (liquidity provider) tokens to earn CAKE token
• Stake CAKE to earn more CAKE
• Stake CAKE to earn tokens of other projects

PancakeSwap Advantages

There are some obvious advantages to PancakeSwap, and then there are the behind-the-scenes advantages that aren’t as well known, but are no less important for that.

Let’s look at these advantages:

Earn more Tokens

PancakeSwap, like many DEXs, has its own native token called CAKE. Users can stake CAKE or use it in the SYRUP pools of PancakeSwap in order to earn more CAKE tokens, or even tokens of other projects built on the Binance Smart Chain such as DODO, UST (Terra USD), or LINA (Linear Finance) just to name a few. There are currently 16 pools listed and more are added all the time.

Low Fees and Fast Transactions

One of the growing complaints about projects built on Ethereum are the high fees and slow transactions from the network. PancakeSwap doesn’t use the Ethereum network though, it uses the BSC network and BEP-20 tokens. As a result the fees paid are much lower, typically ranging from $0.04 to $0.20, and transactions take less than 5 seconds on average. Compare that with Ethereum, where fees have been above $20 for much of 2021 and transactions take up to 5 minutes to confirm.

No KYC Requirement

Every centralized exchange we know about follows the requirements for Know Your Customer and Anti-Money laundering (KYC/AML) which removes users’ privacies by requiring them to provide extensive documentation to prove their identity.

As a decentralized exchange under no regulatory authority users are able to transact with privacy at PancakeSwap. Anyone anywhere in the world is able to trade in the hundreds of assets available at PancakeSwap with over $600 billion in liquidity.

Audited and Secured

PancakeSwap has gone through the time and expense of receiving an audit from the cyber-security firm CertiK.

It has also integrated with CertiK to receive all the following protections:

• Security Oracle
• CertiK Shield
• DeepSEA
• The CertiK Virtual Machine

Trading on PancakeSwap

The majority of CAKE tokens are traded on PancakeSwap as you might imagine. However there is also a decent level of trading volume in CAKE tokens on Binance, and you can even buy them directly on Binance and then transfer them to a wallet that supports CAKE and BEP-20 assets in order to stake your CAKE tokens at PancakeSwap.

If you don’t have a Binance account you can easily open one by clicking on this link

PancakeSwap Fees

If you’re familiar with other AMM’s like Uniswap and Sushiswap you’ll recognize the system whereby users provide liquidity to pools and receive LP (liquidity provider) tokens in exchange.

These LP tokens give holders the right to collect a portion of the trading fees generated on the platform. The trading fee at PancakeSwap is a low 0.2%, with 0.17% going to the liquidity providers and the remaining 0.03% going to the PancakeSwap Treasury, where they are burnt to keep supply lower.

PancakeSwap Supported Wallets

PancakeSwap has support for a number of popular wallets, including Trust Wallet, TokenPocket, WalletConnect, MathWallet, and MetaMask. While MetaMask is an ERC-20 wallet it is also able to store BEP-20 assets when set up properly. Binance provides instructions on how to do this here.

CAKE Token Distribution

CAKE tokens can be bought or earned as a liquidity provider and through staking CAKE tokens. The current emission rate for CAKE tokens is as follows:

Emission rate

Reward per block — 40 CAKE, however 15 CAKE per block are burned, making the effective reward per block 15 CAKE.

Daily emission (Based on 30k blocks per day) — 1.2 million CAKE, but with 450,000 per day burned the effective daily emission is 750,000 CAKE per day.

Distribution

• Farmers — 60% of the rewards per block (15 CAKE)
• CAKE holders — 40% of the rewards per block (10 CAKE)
• Farmers daily — 450,000 CAKE (based on 30k blocks per day)
• CAKE holders daily — 300,000 CAKE (based on 30k blocks per day)

There are additional deflationary measures currently in place as follows:

• 09% of CAKE harvested from farms is sent to the dev address, then burned
• 10% of CAKE spent on lottery tickets is burned
• 100% of CAKE raised in IFOs is burned

All of these rates are subject to change in the future through governance proposals. Any CAKE holder is able to participate in governance of PancakeSwap by voting on existing proposals or creating their own proposals.

How to stake CAKE?

In order to stake some CAKE tokens you first need to buy some CAKE tokens along with some BNB and transfer them both to a wallet that’s supported by PancakeSwap. The BNB can be transferred to your BEP-20 BSC address for paying your transaction fees.

To begin staking CAKE you first need to connect a wallet to PancakeSwap. Once that’s done you can go to the “Pools” tab on the left side of the PancakeSwap site. That will present you with the available pools where you are able to stake your CAKE and earn more CAKE or other BEP-20 tokens.

One of the excellent features is the low transaction fees you’ll enjoy working with the BSC, which means you won’t have to second guess each and every transfer to decide if it’s worth paying the transaction fee. On the Binance Smart Chain you won’t even think about the small fees for each transaction.

Using PancakeSwap

Using PancakeSwap isn’t difficult once you understand what’s going on in each areas of the site. When you first visit the website it can be difficult to get a handle on what’s happening, but that’s because many of the features remain locked until you connect a wallet and unlock it.

Once that’s taken care of you’ll see loads of additional information that was missing before you had an unlocked wallet connected to the site. You’ll see all the different returns offered in the various farms and pools and you’ll have the chance to add liquidity and to stake tokens yourself.

Adding liquidity

If you’ve experienced using an AMM you know how this works. It’s not really difficult, but we know some people balk just because they aren’t familiar with the process. So, the first step to take when using PancakeSwap is to add liquidity to the exchange.

Find “Trade” in the left sidebar and click it to drop down the menu. Next click on “Liquidity” and then click “Add Liquidity”. Next you’ll select the token pair you’re interested in depositing to provide liquidity. You have to choose each side of the pair, and if it is a completely new pair the ratio of tokens you provide will set the price for the pool. It’s also important that before you begin the process of adding liquidity you understand the risks of impermanent loss

Farming

This is where the magic begins and I’m sure this is why so many of you reading this are interested in PancakeSwap. The yields available from farming are simply mindblowing, whether compared to traditional bank interest rates or not.

So you have some LP tokens from the previous step and now it’s time to stake them and earn yourself some CAKE. First thing you’ll need to do is navigate to the “Farms” tab in the left sidebar. Next you want to select the option that matches your LP tokens.

You’ll see that there are a number of ways to earn yield on PancakeSwap. As of late February 2021 there are 69 different liquidity pools where you can stake and earn yields that range from 23.52% to 378.19% APY for supplying the pools with liquidity.

When you supply liquidity to the pools you’ll be required to approve moving the tokens to the pool. Your approval is what allows the smart contract to withdraw the tokens on your behalf. When you connect your wallet you’ll have the chance to stake your LP tokens by clicking to Approve Contract. When you do click the button you’ll see a popup asking you to confirm the transaction and informing you of how much the fee will be for this transaction.

At that point select the amount you’d like to stake and confirm it. Once staked you can leave the page and any time you come back you’ll be able to see how much CAKE you’ve earned. You can click Harvest at anytime to harvest your rewards and move them to your wallet.

Just to give you an idea here are just some of the pools available for farming:

• CAKE-BNB LP
• SUSHI-ETH LP
• DODO-BNB LP
• SWINGBY-BNB LP
• BRY-BNB LP
• ZEE-BNB LP
• LTC-BNB LP
• DAI-BUSD LP

All of the rewards from the LP are in CAKE tokens. You can also use CAKE for governance votes, it can be staked and earn more CAKE or other coins, or it can used to participate in a deflationary lottery at PancakeSwap. It is very important that you understand how these AMM pools work, and the arbitrage opportunities provided.

It’s also important that you understand that the LPs are being at risk of impermanent loss in some circumstances. This can be exceptionally risky when pooling un-correlated assets and have high volatility, so it is essential to understand the risks associated.

In addition to using the LP tokens to farm yield, the CAKE tokens can be staked in SYRUP pools that are yielding 43.33% to 275.12% APY at the time of writing. You can also use these SYRUP pools to earn in other coins when you stake CAKE. For example you can earn UST, LINA, SWINGBY and many other tokens. You can even add your own token if you like.

Lottery

As mentioned above there is a deflationary lottery held at PancakeSwap and anyone with 10 or more CAKE can participate.

Each lottery session lasts for 6 hours, so there are 4 lotteries daily. Each ticket for the lottery costs 10 CAKE and gives the buyer a random combination of four digits, each ranging from 1 to 14. For example you might get 14 – 8 – 4 – 1 as your four numbers. To win the jackpot, which is half the lottery pool, your four numbers need to match the four numbers in the winning ticket, including the position of the numbers. So in the example given you would only win of the winning ticket was 14 – 8 – 4 – 1. If it was something like 14 – 8 – 1 – 4 you would lose because the numbers aren’t in the same order.

You also win smaller rewards if you have two or three numbers in the same position as the winning ticket. Three numbers wins 20% of the total jackpot, and two numbers wins 10% of the total jackpot. Of course the winnings do need to be shared if there is more than one winner. So for example at the time of writing the total jackpot is 24,276 CAKE. That means you can win as follows:

4 numbers – 12,139 CAKE

3 numbers – 4,855 CAKE

2 numbers – 2,428 CAKE

In the last drawing there were no tickets with 4 numbers, but there were 15 tickets matching three numbers and 320 tickets matching two numbers. That means each person with three matching numbers received 323.67 CAKE, and each person with two matching numbers received 7.5875 CAKE.

Non-Fungible Tokens

There’s even more you can do at PancakeSwap besides simply farming yield, staking CAKE, and buying lottery tickets. You can also win special non-fungible tokens created by the exchange.

If you do win one of these unique NFTs you can choose to keep it in your wallet as a memory of your luck, or you can trade it immediately for the CAKE value it represents.

In order to participate you need to register for the chance to win. All winners are chosen at random. New opportunities to register and win the newest NFT are posted to the Collectibles page of PancakeSwap. And you can go there to see what nifty NFTs have already been produced and given away.

Teams & Profiles

Just in case you don’t think that the exchange has been gamified enough you can also create a public profile and join teams in order to show off your personal stats and to compete for team achievements.

Note that this feature is still in development, but when released there will be tasks available that will generate points for the teams involved.

Initial Farm Offering

An Initial Farm Offering (IFO) is a way that newly launched tokens are distributed to new users who are yield farming at PancakeSwap. Users can get access to IFO tokens by committing LP tokens from one of the supported pools in order to gain access to the sale of a token that’s just been launched.

There’s an IFO tab in the left sidebar of the PancakeSwap website where you can check on upcoming IFOs and the terms for purchasing any newly launched tokens.

The CAKE Token

The CAKE token got out of the oven at a price near $1.37 just after PancakeSwap was launched in September and after some initial volatility it dropped and settled around the $0.25 level. After spending roughly two months there however it began climbing as the altcoin rally of 2021 picked up steam.

After reaching an all-time high of $21.41 on February 19, 2021 it sank as quickly as it rose and a week later it was trading at nearly half its all-time high at $11.72. The quick drop was part of a larger selloff in the cryptocurrency market, which continues as this is being written. That said, there’s no telling where the token might settle in a week, a month, or a year from now. Considering the growing popularity of DeFi platforms and yield farming we would guess it will be higher.

Is PancakeSwap safe?

PancakeSwap has been oprating without any issues for 5 months as of the time of this writing, and as a decentralized exchange it seems completely safe. The team behind the DEX has gone as far as to have it audited by CertiK and the results found that all the code is secure. Of course one audit doesn’t mean the exchange is completely safe and you should always take care with funds you plan on committing to any of the new DeFi applications.

PancakeSwap Roadmap

Ok, it isn’t really a roadmap, it’s more like a to-do list. Whatever you want to call it the team at PancakeSwap has done an excellent job in checking items off over the five months the DEX has been in existence. As of February 2021 the following items remain:

• Lending & Borrowing: Lend and borrow BSC and LP tokens – CAKE provides rate discount
• Margin Trading: Trade BSC tokens with leverage on-chain — periodic CAKE buyback and burn
• NFT-based Gamification: Complete tasks, level up etc. to earn NFTs — use CAKE to mint
• Binary Options
• Fixed-term Staking

Conclusion

On the Binance Smart Chain PancakeSwap is the largest and most heavily used AMM for yield farming and staking. With over $650 million in daily trading volume it is over double the traing volume of SushiSwap and nearly as large as Uniswap (v2). It is by far the largest project running on BSC, and as DeFi continues to grow in popularity it would be surprising if it didn’t continue to grow as well.

Truthfully adding a DeFi dApp to the BSC is a major step as it gives users the ability to participate in DeFi without being stuck with the massive fees of the Ethereum network. At just 5 months old it’s very likely that PancakeSwap has some massive growth in its future. Binance has been helping that along by including PancakeSwap in the Binance Accelerator Fund, which provides funds that help the project grow more rapidly.

Overall it’s clear that DeFi is continuing to grow, both on Ethereum and on the BSC, and PancakeSwap is creating a name for itself as the place to come for yield farming. The team has done an outstanding job in both launching and improving the DEX during its short existence and we expect they will bring an increasing level of innovation to the DeFi space.

PancakeSwap is a project worth using for yield farming, and worth watching to see what developments are made in the coming months and years.

Featured Image via Shutterstock

 

Author Steve Walters

Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies. View all posts by Steve Walters ->