Have you heard about PancakeSwap, a decentralized finance protocol getting popular nowadays. Learn more about PancakeSwap in this definitive guide.
The craze for DeFi continues to build momentum with continuous developments and new, innovative solutions. One of the most recent trends in the domain of DeFi is the creation of various food-themed farming protocols. Many DeFi protocols have evolved in recent times with the capability of enabling users to stake their funds and obtain the protocol tokens as rewards. A major share of such DeFi protocols is based on the Ethereum blockchain network.
While Ethereum has a massive community of users and developers alongside tools for developing high-performance DeFi solutions, PancakeSwap utilizes Binance Smart Chain. What is it, and how is it relevant in the modern DeFi space? You can find the answers to these questions in the following discussion about one of the most popular DEXs in the market right now.
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What is PancakeSwap?
In simple words, you should know PancakeSwap as a decentralized exchange or DEX. However, the distinct thing about it is that its foundation is Binance Smart Chain, a massive competitor of Ethereum. Most important of all, one should also note the fact that the Binance Smart Chain blockchain network serves as the foundation for Binance.
The backing of the underlying technology in the world’s largest centralized crypto exchange definitely improves the credibility of PancakeSwap exchange. With this decentralized exchange, Binance is putting up formidable competition to the popular crypto networks such as Uniswap and Ethereum.
The mystery around the PancakeSwap token gets stronger with the possibilities for overthrowing Binance itself as a crypto exchange. On the other hand, excluding the crypto aspects of PancakeSwap would still make it one of the biggest DeFi protocols in present times. The platform kicked off in September 2020, and by February 2021, it was the first billion-dollar project on the Binance Smart Chain. Interestingly, the latest variant PancakeSwap v2 arrived in April 2021, showcasing the exceptional growth of the platform.
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How Does PancakeSwap Work?
The identity of PancakeSwap as a decentralized exchange is quite clear right now. One of the first aspects of the working of the DEX is the underlying blockchain network, i.e., Binance Smart Chain. Interestingly, Binance Smart Chain offers a faster and cost-effective alternative for Ethereum.
The PancakeSwap exchange follows the AMM system just like many other DeFi protocols such as Uniswap. It helps users in swapping crypto assets by leveraging user-generated liquidity pools. You don’t have to depend on any order book, where you have to wait for matching orders. On the contrary, you would trade with the liquidity pool on the DEX.
According to the AMM or Automated Market Maker system, the participants have to contribute to the liquidity pools with their assets. Users have to deposit their funds in the liquidity pools and receive liquidity provider tokens or LP tokens in return. Then, liquidity providers can use the LP tokens for reclaiming their share in the liquidity pool alongside a share of trading fees in the pool. Therefore, you can just trade BEP-20 tokens alongside adding liquidity and earning rewards with the help of the PancakeSwap app.
Another important highlight in the working of PancakeSwap refers to the development of liquidity pools. How will the decentralized exchange enable the creation of liquidity pools? Where will users get the tokens for putting in these liquidity pools? Therefore, the PancakeSwap exchange also features an exclusive range of opportunities for DeFi farming. For example, the liquidity grab has been in favor of the exchange, with more than $1 billion of total value of assets migrated to PancakeSwap since its launch. Let us dive into details about farming in the next section.
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Farming and Staking Opportunities with PancakeSwap
The next important highlight about PancakeSwap token would refer to farming opportunities with it. You can deposit crypto assets in the liquidity pools on the DEX and become a liquidity provider with LP tokens. Now, you could deposit the LP tokens and invest them in a process in return for rewards with native tokens, i.e., PancakeSwap CAKE.
The list of LP tokens that you can use for farming opportunities on the DEX would include many pairs. Some of the popular entries include USDT-BUSD LP, CAKE-BNB LP, and others. You can also get many other rewards with the farming opportunities on PancakeSwap.
At the same time, you should also look for the possibilities for staking, and you need PancakeSwap CAKE for staking. The native BEP-20 token of the platform is the only suitable choice for staking on the popular DEX based on the Binance Smart Chain. Upon staking CAKE in SYRUP pools, you can receive SYRUP in the ratio of 1:1, which entitles you to rewards. The rewards for holding SYRUP amount to almost 25% of CAKE emissions distributed in a proportional manner throughout different holders.
After depositing your funds for receiving LP tokens and farming PancakeSwap CAKE, you can stake them. Subsequently, you can earn many other tokens by participating in different staking pools. One of the largest pools for SYRUP is dedicated to CAKE, which means that you can stake your CAKE tokens for more of them.
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How Can I Use PancakeSwap?
All the discussion about PancakeSwap coin and how it works alongside a detailed overview of its underlying technology is incomplete without the practical implications. Just take a tour of the website of the DEX platform, and you will find that many features are inaccessible. So, how do you unlock the features for which people are hailing PancakeSwap as a competitor of Uniswap?
Connect the Wallet
You have to click on the “Unlock Wallet” option for unlocking the features. Then, you can witness the different options for choosing a wallet like WalletConnect, MetaMask, Binance Chain Wallet, Trust Wallet, and many other choices. You might be wondering about the compatibility of MetaMask with PancakeSwap exchange despite being an Ethereum wallet.
Even if MetaMask is an Ethereum wallet, the architecture of Binance Smart Chain enables the use of MetaMask for interacting with BSC-based dApps. After connecting the wallet to PancakeSwap, you are ready to start exploring the new DeFi protocol and its interesting functionalities.
Any individual who has used any AMM-based protocol would know how to add liquidity to the PancakeSwap app. Liquidity is an essential requirement if you want to farm CAKE tokens on the exchange.
- To add liquidity to the exchange, you should start by navigating to the option of “Trade,” which you can find on the sidebar on the left.
- Now, you can find the option of “Liquidity.” Click on the button and then on “Add Liquidity.”
Choose the token pair which you want to deposit in the liquidity pool. Ensure that you have a clear idea of the potential impermanent loss before contributing liquidity in pools.
With the LP tokens in your possession after adding liquidity in PancakeSwap, you are ready to start your farming venture. You could participate in staking on the exchange for earning CAKE as a reward.
- Locate the ‘Farms’ tab on the PancakeSwap app and choose the option relevant to the LP tokens you have.
- Just like ERC-20 tokens, owners have to provide approval for moving BEP-20 tokens. Click on “Approve Contract,” and then you can find a popup asking for confirmation of the transaction. You can also notice the fees associated with the transaction.
- After confirming the transaction, you have to choose the amount you plan to stake and provide your confirmation. Interestingly, you can move away from the page and return again after a few minutes to check your PancakeSwap CAKE earnings.
Some users may look for options to harvest their rewards, and you can do it instantly with the PancakeSwap DEX. All you have to do is click on the “Harvest” button, followed by confirming a transaction.
As discussed already, farming opportunities on PancakeSwap are one of the foremost positive factors in their favor. You can use the exchange for staking in SYRUP pools. With a few simple steps, you can easily start staking on the PancakeSwap exchange.
- Access the “Pools” tab, and then you can see the available pools for staking your CAKE tokens.
- You would have to provide the approval for withdrawing your tokens by clicking on “Approve CAKE.”
- Once the approval process is done, you can choose the amount of PancakeSwap CAKE you want to invest in staking.
- After staking the CAKE tokens, you can earn passive reward tokens from the pool. By clicking on “Harvest,” you can cash out all your rewards on the exchange.
Other Applications on PancakeSwap
The discussions about PancakeSwap token farming and staking showcase the promises with the new DeFi protocol. However, the new decentralized exchange is not just another DeFi solution that lets you farm and stakes your way to crypto fortunes. PancakeSwap also offers many other interesting applications which you can try for better returns on your investments.
One of the most striking highlights in PancakeSwap v2 would be the facility of lottery features. You can participate in the lottery and try your luck for some promising rewards. Take note of the fact that the lottery sessions could last around 6 hours, and you can participate with tickets.
One ticket would cost 10 CAKE tokens, and it would include a random combination of four numbers between 1 and 14. The winning prize or the jackpot in the lottery is 50% of the whole lottery pool. The numbers of the ticket should match with the four numbers of the winning ticket in exactly the same order. You can also win rewards if two or more numbers of your lottery ticket are in the same position as the winning ticket. Quite an interesting approach to your crypto experience on the PancakeSwap exchange, isn’t it?
The lottery on PancakeSwap is probably a surprising feature for many who are seeking a decentralized exchange. Interestingly, the DEX has many other surprises in store for everyone with the facility for winning special NFTs. You can also leverage the PancakeSwap token for winning adorable NFTs on the Binance Smart Chain. NFT winners could trade them for CAKE tokens or store them as a collectible. All you need to do is register for a chance to win the NFTs on the PancakeSwap app. The best thing about the NFT contest is the random selection of winners. Stay updated with the NFT page on the exchange for discovering the latest opportunities.
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IFOs, Teams, and Profiles
PancakeSwap also has many other interesting functionalities which every beginner should know about in detail. The example of IFOs can prove the same. IFOs or Initial Farm Offerings is an interesting method for leveraging yield farming to bring a newly launched token closer to users.
Users can launch IFOs on the exchange by committing LP tokens from supported pools to enable access to sale of newly launched tokens. PancakeSwap exchange also offers the feature of Teams and Profiles, which can help you show off your statistics through creation of a public profile.
Safety with PancakeSwap
Just like other decentralized exchanges, the question of “is PancakeSwap safe” becomes quite inevitable. For starters, it has the advantage of auditing by a third-party auditor such as CertiK. However, the auditing and security features do not necessarily imply that your funds are safe in the exchange. You have to face the risks of bugs and vulnerabilities in PancakeSwap since it runs on smart contracts. So, you could have the risk of losing your assets on the exchange.
The final thought on PancakeSwap clearly impinges on the independence from Ethereum. It is definitely a top competitor to the other notable decentralized exchanges like Uniswap. The other distinct features on the exchange, such as lottery and NFT rewards, also present a strong case for the platform.
On top of it, the capabilities of Binance Smart Chain also serve as vital support for growth of the decentralized exchange. However, the concerns such as “is PancakeSwap safe” continue to present some setbacks. In the long run, the awareness of such an innovative DEX would drive its adoption. Learn more about decentralized exchanges and the AMM system alongside the practical implications of using DEXs.
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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research!