This week Rimo will share a review on PancakeSwap, launched in September 2020, it is a decentralized exchange protocol (DEX) built on the Binance Smart Chain (BSC). As of 2021, the platform was the largest automated market maker (AMM) on the BSC network with over USD 6.5 billion in assets at year-end.
PancakeSwap facilitates BEP-20 token exchanges (BSC native), staking and farming but offers many other services. Let’s discover all the appetizing features offered by the platform and how you can use them.
- PancakeSwap is a decentralized exchange comparable to Uniswap on Ethereum that operates on the Binance Smart Chain (BSC).
- Although it operates on the BSC, PancakeSwap is not affiliated with Binance. The protocol is independent.
- PancakeSwap allows you to trade tokens without intermediaries, earn liquidity pool and staking rewards, but also participate in a lottery.
- The platform’s native token is CAKE.
What is PancakeSwap?
PancakeSwap is a decentralized exchange protocol (DEX) built on the Binance Smart Chain (BSC). Since its launch in September 2020 as the first trading platform on the BSC, PancakeSwap has become the largest automated market maker (AMM) on the network by 2021.
The total blocked value (TVL) on PancakeSwap reached $6.5 billion by December 2021, a figure that underscores not only the rapid growth of PancakeSwap but also the viability of the BSC as a DeFi-ready blockchain network.
Although Binance offers a centralized exchange (CEX), it does not control or operate PancakeSwap which was built by anonymous developers. The platform is used primarily for BEP-20 tokens running on the Binance Smart Chain.
PancakeSwap nevertheless prioritizes interoperability by supporting wrapped token deposits. Therefore, a liquidity pool can include digital assets like ether (ETH) and bitcoin (BTC) alongside BNB and BUSD.
How does PancakeSwap work?
Like many other DEXs, PancakeSwap relies on an automated market maker (AMM) system, which relies on user-fed liquidity pools to enable cryptocurrency exchanges.
Rather than dealing with an order book and finding someone else who wants to trade the tokens you have for the ones you want, some users lock their tokens into a liquidity pool via smart contracts. This liquidity then allows you to make the trade you want. The users who have provided these tokens (liquidity providers) are compensated through a percentage of the transaction fees that are paid.
PancakeSwap is part of the rising wave of DeFi (decentralized finance) services that allow cryptocurrency traders to make transactions without intermediaries.
Everything is managed via smart contracts.
It is one of the largest DEX of its kind on the Binance Smart Chain, although there are DEXs on Ethereum (like Uniswap) that have a higher average trading volume.
If you’re wondering about the security of PancakeSwap, you should know that PancakeSwap has been audited by CertiK. Does this mean that it is totally safe to use? No.
Depositing funds into a smart contract always carries a risk, even for audited and reputable projects. Never deposit more than you can afford to lose in the event of a hack.
How to use PancakeSwap?
The main feature of PancakeSwap, the swap, as its name suggests, is to exchange one token for another. You can easily exchange BNBs for other BEP-20 tokens like CAKE, BUSD or even other wrapped tokens.
To do so, you just need to connect your wallet (Metamask or other) to the exchange. Here is a tutorial if you haven’t set up the Binance Smartchain on Metamask yet.
For each exchange you will get the details of the transaction before you have to validate.
If the token you are looking for does not appear in the list proposed by PancakeSwap you can import it thanks to its contract address (available on the official website of the project or on CoinMarketCap). Be careful with this manipulation and make sure you have checked the authenticity of the contract address and the seriousness of the project.
Provide Liquidity and Farm CAKE
The second main feature of PancakeSwap is liquidity providing.
Here you will contribute to the good functioning of the decentralized exchange (DEX) by providing tokens. These tokens allow other users to trade. In return for your contribution you will receive another type of token – liquidity tokens (also called LP tokens) – which serve as proof of deposit.
These tokens not only allow you to retrieve the provided liquidity at any time, but more importantly to earn rewards in proportion to your contribution to the liquidity pool. As you will see in the next paragraph with Farms, you can store them to increase your earnings.
Once you have made your liquidity contribution (and collected your liquidity tokens) you can then stake them directly on PancakeSwap to earn rewards in CAKE. The rates for different farms can vary drastically depending on the pair initially provided.
Keep in mind that the higher the rate the higher the risk.
Again, you can easily unstake your LP tokens to get your liquidity back at any time.
If you have CAKE (or if you get them from the farms seen before) you can choose to store them to generate additional rewards either in CAKE, or on other tokens partners of PancakeSwap.
PancakeSwap also integrates a very classical NFT marketplace. You will find there some NFT collections approved by the PancakeSwap team.
Via PancakeSwap you have the opportunity to participate in Initial Farm Offering (IFO).
An IFO is a fundraising model that helps new DeFi projects to raise capital by participating in pre-sale events organized by DEX (after review).
With this feature you can therefore participate in these pre-sales organized by PancakeSwap.
If PancakeSwap is ranked in the top 3 of DEX (in volume) and as the number 1 of the Binance Smart Chain it is not by chance. As we have seen, the platform does not only offer basic functionalities but also several possibilities to invest in NFTs through its marketplace or through farms and IFO.
We can bet that the rise of the BSC as an alternative to Ethereum will take PancakeSwap to new heights.