PancakeSwap Finance is like Uniswap a decentralized exchange, (DEX) built on Binance Smart Chain (BSC). This DEX has become quite popular among decentralized finance (DeFi) investors and is now competing with Ethereum-based DeFi giants like Uniswap or SushiSwap.
Sometimes ago, Ethereum was the unrivaled king of DeFi. But as the DeFi activity on Ethereum grew due to the recent crypto bull run, high gas costs and already-present low scalability problem forced the next-generation of DeFi projects to looks elsewhere. So other smart contract blockchains started to take root and as a result, comparable DEXs are springing up on other public chains.
Binance Smart Chain (BSC) is developed by the leading crypto exchange Binance. The mainnet went live in September of 2020 and gained a lot of traction in the DeFi space. According to Defistation, $26.45 billion is locked on all BSC-based DeFi protocols.
PancakeSwap is the leader in TVL on BSC with $7.18 billion locked on its platform. Let’s take a brief look at PancakeSwap.
What is PancakeSwap Finance?
PancakeSwap is a Binance Smart Chain-based decentralized exchange (DEX) with an automated market maker (AMM) model for swapping BEP-20 tokens. The project was launched in September of 2020 by a group of anonymous developers. Just like other AMM-based DEXes, users trade against a liquidity pool and without maintaining orderbooks. PancakeSwap has been audited by CertiK.
Apart from earning by providing liquidity to PancakeSwap pools, staking, and farming, users can also try their luck with the lotteries and non-fungible tokens on PancakeSwap. The PancakeSwap token CAKE is a BEP20 token that originally launched on Binance Smart Chain. The main function of CAKE is to incentivize the liquidity provision to the PancakeSwap platform.
CAKE can be used to enter a lottery on PancakeSwap. Users can also win non-fungible tokens (NFT) that can be traded for CAKE or kept in a wallet. So PancakeSWAP offers features different than other traditional DEXes. So it will be worth writing about these features.
There are 3 kinds of tokens on PancakeSwap: FLIP, CAKE, and SYRUP.
FLIP is an LP token. When users provide liquidity towards the various liquidity pools available on the platform they receive LP tokens in the form of FLIP.
LPs can stake their FLIP tokens to receive CAKE tokens. They can be used to buy lottery tickets and vote on proposals relating to the PancakeSwap ecosystem. According to the documentation, there’s currently no hard cap on the supply of CAKE tokens, making it an inflationary token. The protocols describe the reason as:
“CAKE’s primary function is to incentivize providing liquidity to the exchange. Without block rewards, there would be much less incentive to provide liquidity.”
Instead, CAKE supply is limited by reducing block emissions and other deflationary mechanisms, such as regular token burns, to counter inflation.
CAKE tokens can be staked in the SYRUP Pool to earn SYRUP. SYRUP holders will earn a portion of 25% of each CAKE block reward and give them the right to earn tokens from brand new BSC projects.
At its core, PanckaeSwap is a decentralized exchange (DEX) that uses an Automated Market Maker (AMM) to facilitate token trading. Users provide liquidity to PancakeSwap pools just by connecting a Binance Smart Chain-compatible wallet.
In return, they receive FLIP Liquidity Pool (LP) tokens. They can redeem their funds at any time by removing their liquidity instantly with any locking period.
Users can swap both BEP20 and ERC20 tokens on PancakeSwap. ERC20 tokens are first wrapped using Binance Bridge to turn them into BEP 20 tokens. When a user makes a token swap (trade) on the exchange, he pays a 0.25% trading fee. Of this 0.25%, 0.17% is returned to liquidity pools in the form of a fee reward for liquidity providers. 0.03% is sent to PancakeSwap Treasury and 0.05% towards CAKE buyback and burn.
Yield Farms allow users to earn CAKE while supporting PancakeSwap. On Farms, users can stake their LP tokens to earn rewards in CAKE. Users can collect these rewards and use them to get more LP Tokens, stake them in Syrup Pools, use them to play Lottery or anything else they would like.
Syrup Pools are the simplest way to earn free tokens on PancakeSwap. In Syrup Pools, users can stake their CAKE token to earn more CAKE. There are two types of syrup pools: Auto CAKE and Manual CAKE.
Auto cake pools:
These pools automatically compound users’ rewards and any CAKE reward they earn is harvested and re-invested in the same pool automatically. A small performance fee of 2% is subtracted each time the pool is automatically compounded. Unstacking from the Auto CAKE pool has a fee of 0.1% if a user unstake within 72 hours.
Manual cake pools:
In Manual CAKE pools, users have to harvest and compound their earnings manually. The process requires a bit of BNB for transaction fees. At the time of staking, Syrup tokens are added to the user’s wallet. These tokens represent the amount staked by a user.
Syrup Tokens cannot be sold as they required to unstake CAKE from the Manual CAKE pool. The amount of SYRUP a user returns must be the same as the amount of CAKE he unstake. 0.01% fee is applied at the time of unstaking within 3 days of manually staking. This 3-day timer resets every time users manually stake more CAKE in the pool.
But there are other pools as well that allows users to stake CAKE to earn dozens of other cool tokens.
CAKE tokens can be used to enter a lottery on PancakeSwap. Each lottery session lasts 6 hours. Users can purchase a ticket with their CAKE between draws. The ticket will give them one entry into the lottery. According to the documentation, one ticket costs one CAKE.
There is no overall limit for a single user lottery entry limit, but only 50 can be bought at one time. One ticket will give users a random 4 digit combination with each digit being between 1-14, eg “1-9-3-2”.
If all four numbers of tickets match with 4 winning numbers in exact order, the ticket holder receives 50% of the entire lottery pool or split the pot if more than 1 winner. If 3 number matches in exact order, a winner wins or splits 20% of the pot. If 2 number matches, the ticket holder receives 10% of the pot. The remaining 20% of the lottery pool is burned.
In PancakeSwap, users can earn rewards by predicting BNB’s price will rise or fall. Users predict if the price of BNBUSDT will be higher or lower than it was when the 5-minute LIVE phase starts. If their prediction is correct at the end of the 5-minute LIVE phase, they win and lose otherwise.
But the PancakeSwap prediction game is not free. Users have to commit some amount of their BNB holding to play this prediction game. If their prediction goes wrong, they lose money.
Initial Farm Offering (IFO)
Initial Farm Offerings (IFO) are a way to get a newly launched token in the hands of users using the power of yield farming. Participating in IFO requires CAKE-BNB LP tokens. While the sale is live, users can buy CAKE-BNB LP tokens to buy the IFO tokens at a dedication portion on PancakeSwap. When the sale is complete, users can claim the IFO tokens they have bought.
IFO lets users get early access to PancakeSwap’s new tokens as soon as they are added. By being one of the first to have a new token, they can benefit from higher rewards.
PancakeSwap NFT Profiles
PancakeSwap supports personalized profiles for users. These profiles allow users to choose their own name, join a team, and choose from NFT profile images they have collected to use as their profile’s display picture.
Creating an NFT profile costs a total of 1.5 CAKE. After creating a profile, users can join teams where they can participate in any special team events when they happen.
Pancake is a UniSwap and SushiSwap-like DEX, but apart from serious DEX products, it brings much more fun to DeFi through prediction games and lottery tickets. ERC20 token holders can use PancakeSwap and it will be more advantageous than Uniswap or SushiSwap as PancakeSwap leverages the lower fees and the high throughput of BSC.
At the time of writing, PancakeSwap has more TVL than Uniswap and has Uniswap on multiple occasions based on trading volume, but hasn’t consistently maintained that title as of yet. Projects like PancakeSwap show that Ethereum now has strong competitors in DeFi.
TVL tracking on defistation: https://www.defistation.io/pancake
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