PancakeSwap is a DEX — a decentralized cryptocurrency exchange — built on the Binance Smart Chain (BSC) and powered by its native BEP-20 Pancake token (CAKE).
CAKE is one of several tokens used within the PancakeSwap protocol that are made available for token swaps. Like Sushiswap and Uniswap, PancakeSwap is an automated market maker (AMM) that features liquidity pools where users can earn fees from staking, lending, and yield farming — in addition to other opportunities.
Learn more about the pros and cons of PancakeSwap, its native CAKE crypto, and how it works.
How Does PancakeSwap (CAKE) Work?
As more users seek out decentralized crypto exchanges, many people are asking: What is PancakeSwap and how is it different? PancakeSwap is an automated market maker (AMM) launched in 2020 on the Binance Smart Chain (BSC), a blockchain network which runs in tandem with Binance’s mainnet. Despite being a relative newcomer, PancakeSwap has become a leading decentralized exchange (DEX) that offers some innovative ways for users to earn rewards.
Its market entry was timely because the decentralized finance market was taking off and the Ethereum network, a competitor to BSC, was congested and charging high fees.
Some DEXs that are built on the Ethereum network use a proof-of-work model which contributed to these hurdles. PancakeSwap uses a delegated proof-of-stake (DPoS) model that can make transactions more efficient and less expensive. PancakeSwap’s fees are lower than many of its competitors. Other examples of AMMs are SushiSwap and Uniswap.
What Is an Automated Market Maker?
AMMs form the underlying protocol for all decentralized exchanges (DEXs); they eliminate the need for centralized crypto exchanges and related market-making techniques. That means that while you can trade a wide variety of crypto assets, DEX’s don’t rely on order books where you’re matched with other traders. Instead, you trade against a liquidity pool.
Liquidity pools are funded by users who deposit tokens into the pool and get liquidity provider (or LP) tokens in return. They can use those tokens to reclaim their share, plus a portion of the trading fees.
PancakeSwap’s appeal also lies in its range of rewards. For example, users can win non-fungible tokens (NTFs); gain entry into various lotteries with a reward of up to 50% of the lottery pool, and stake on the exchange.
What Is Farming?
Yield farming, or farming, is similar to staking in that you deposit or lock up crypto to gain rewards – sort of like an interest-bearing account. But yield farming on a DEX may require depositing sufficient quantities of token pairs. Users earn rewards based on the amount of liquidity they deposit. Some users switch frequently between yield farming pools, though this comes with additional gas fees.
On PancakeSwap, once you have LP tokens, you can lock them up and farm them for CAKE. PancakeSwap offers a number of tokens to trade. You can also stake your CAKE in Syrup pools to earn more CAKE, as well as other tokens.
Advantages and Disadvantages of PancakeSwap (CAKE)
Because the world of cryptocurrencies evolves so quickly, it’s important to ask, What is PancakeSwap and what are its pros and cons? PancakeSwap has attracted some attention due to its features, like lower trading fees and high returns for staking, but it isn’t without its drawbacks.
There are a range of ways to become a liquidity provider on PancakeSwap, with various ways to stake or farm different token pairs and earn CAKE coin.
PancakeSwap also offers users the opportunity to earn other rewards, like NFTs or join lotteries.
Because the exchange is decentralized, it has low transaction costs and doesn’t have Know Your Client (KYC) and/or Anti-Money Laundering (AML) processes unlike most centralized exchanges that trade cryptocurrencies.
Investors can be exposed to impermanent loss when the price of an asset rises or falls and the investor’s profits are lower than they would have been had they remained in a cold wallet.
Because PancakeSwap lives on BSC, you have to be careful when trading tokens that are only available on Ethereum. Knowing how to use binance bridge is key.
And while the concept of a lottery is fun, it’s basically a form of gambling, with the risks that can come with putting your money into games of chance (one lottery ticket currently costs 10 CAKE).
• High APR/APY returns for farming.
• Risk of impermanent loss in liquidity pools.
• PancakeSwap supports the exchange of several BEP-20 tokens.
• The process of trading on BSC is complex, and funds can be lost.
• Rewards can be generous: users can win NTFs; enter lotteries, farm, and stake.
• Gambling and games of chance can be risky.
Who Created PancakeSwap (CAKE)?
PancakeSwap does not reveal the names of the developers but states that the team consisted of “more than a dozen members (also known as chefs), including two co-leads (referred to as Hops and Thumper) and engineers.”
Why Does PancakeSwap (CAKE) Have Value?
PancakeSwap claims to offer additional and better features that add value to its competitor Uniswap, such as its Lottery and Initial Farm Offerings (IFOs).
PancakeSwap may be one of the more secure decentralized exchanges on the Binance Smart Chain, and claims that it has never been hacked.
Its value to users is that earned CAKE can serve as a long-term investment and can be staked for substantial rewards.
Price of PancakeSwap (CAKE)
What is PancakeSwap’s current market value? CAKE ranks #57 among the world’s cryptocurrencies, as of March 24, 2022, and it’s worth $7.06. It has a market cap of $1.9 billion, and a circulating supply of 277.7 million CAKE. CAKE doesn’t have a max supply; it’s a deflationary token, and tokens are burned regularly to manage supply.
Why Use PancakeSwap (CAKE)?
PancakeSwap is attractive to investors because of its liquidity, rewards, and its ease of integration with popular wallets. The current active market and high number of daily users means high daily volume with the opportunity to stake tokens.
In addition, because this DEX is built on BSC, it may offer users greater security thanks to the Binance ecosystem.
Lastly, staking and/or farming CAKE crypto on PancakeSwap may outperform traditional yield farming and liquidity pools.
How Can I Buy CAKE?
You may have to do a little research to find platforms that enable CAKE trades. And remember: CAKE is a BEP-20 token. Also, be sure to review how crypto exchanges work, as well as any fees that may apply.
Step 1. Choose an exchange and fund your account.
Set up a crypto trading account and then fund your account with a secure wire transfer from your bank, or even with a credit or debit card transfer (but check with your bank in the case of restrictions). Fees may apply.
Step 2. Set up a wallet to store your assets.
Just as you might keep money in a physical wallet, cryptocurrencies are held in digital “wallets.” Be sure to select a crypto wallet that supports CAKE.
Note that some crypto exchange accounts come with a custodial wallet, and there may be restrictions about moving your crypto off-platform.
Step 3. Trade CAKE.
Once you’ve executed the trade, you can transfer your holdings to your wallet. You may want to leave your holdings there if you plan to keep trading.
Sharing Personal Data
Depending on where you choose to trade your crypto, different platforms may require different forms of identification. Some exchanges adhere to Know Your Customer (KYC) rules, a common set of standards that require investors to disclose certain information. Others may allow anonymous or P2P transactions.
Similar to trading securities, there are crypto fees to consider when trading cryptocurrency. Be sure to understand the associated costs that may come with trading crypto on one platform versus another, or using one form of payment versus another.
How to Sell CAKE
Once you’ve decided to sell your CAKE, the next step is deciding whether you plan to cash out for a fiat currency like U.S. dollars (USD) or trade another type of crypto.
Step 1. Decide what to sell.
If you’re exchanging CAKE for USD, the steps may be different than if you’re buying another form of crypto — or you may have to complete a more extensive KYC identification.
Step 2. Find the best price.
Crypto prices fluctuate by the minute, so do your research beforehand so you know a good offer when you see one.
Step 3. Sell CAKE.
Complete the trade and move your crypto (or cash) to your wallet, unless you plan to keep trading on the exchange.
Step 4. Keep taxes in mind.
Remember that crypto gains are subject to taxes. Be sure to consider the tax implications of selling CAKE coin, and consult a professional as needed.
Does PancakeSwap (CAKE) Have Staking?
PancakeSwap has staking and the platform also allows its users to farm CAKE coin. Users deposit liquidity provider tokens on the farm to be rewarded with CAKE. Users can also earn even more by staking CAKE crypto in Syrup pools.
The crypto craze has delivered its share of meme-cryptos and food-themed coins, but PancakeSwap is more than a tasty name. This decentralized exchange (DEX) is one of the largest on the Binance Smart Chain, and it has emerged as a serious contender in the DeFi space thanks to the lower cost and efficiency of its network — and the versatility of its native token CAKE.
Similar to other DEXs, PancakeSwap functions as an automated market maker and decentralized application (dApp) that offers liquidity pools where users can earn rewards from lending, yield farming and staking. PancakeSwap also tries to incentivize users to contribute even more liquidity through its use of IFOs, NFTs, and a lottery system that offers a hefty jackpot. But there are risks inherent in some of these options, including impermanent loss – a common risk factor with liquidity pools.