PancakeSwap: The Decentralized Exchange Based on the DeFi Ecosystem

Project Reviews / 19.04.2021

The decentralized financial system is home to popular protocols and decentralized applications running on a blockchain network such as Ethereum. These protocols include decentralized exchanges, which provide tools for converting and trading digital assets while excluding an intermediary’s involvement.

PancakeSwap (Official Website) operates as a DEX ecosystem enabling users to trade BEP-20 tokens. Unlike other platforms that run on the Ethereum blockchain, PancakeSwap exists on the Binance Smart Chain, leveraging its fast execution speeds and lower transaction charges. The DEX ecosystem also utilizes smart contracts that handle the conversion, trading, and staking of digital assets.

Binance Smart Chain

Launched in 2020, Binance Smart Chain is a blockchain network that allows developers to harness smart contracts’ power to establish decentralized applications. It’s an independent blockchain that uses the Proof-of-Staked-Authority to facilitate speedy transaction processes.

BSC’s architecture is compatible with Ethereum Virtual Machines; therefore, Dapp developers utilizing other blockchains can quickly shift over to BSC. As mentioned earlier, PancakeSwap uses BSC’s technology to create an efficient transaction system.

What Does PancakeSwap Offer?

Asides from being a decentralized exchange, PancakeSwap offers several products for its users.

Yield Farming

Yield Farming is an investment strategy that revolves around receiving the most out of a digital currency. Users venture into yield farming by locking up virtual assets in a liquidity pool or lending the assets.

In this case, PancakeSwap users have the chance to participate in adding liquidity for various pools and earn CAKE, the platform’s native token. Examples of LP tokens integrated into the yield farming operations include BUSD-BNB LP, BETH-ETH LP, CAKE-BNB LP, DAI-BUSD LP, and many more. Furthermore, it is important to keep in mind the 50-50 model whereby users are advised to add a value of 50% to one token and 50% to the other token in a liquidity pool.

Exchange Services

PancakeSwap provides traders with an avenue to exchange tokens through an Automated Market Maker solution. To date, centralized exchanges rely on traditional order books that require access to buyers and sellers.

However, the AMM feature prices assets depending on a particular algorithm, ultimately boosting liquidity from other digital assets in a liquidity pool. In essence, traders can easily swap tokens without the need for an order book.

What’s more is that users enjoy cheaper trading fees of 0.2%, out of which 0.03% goes to the PancakeSwap Treasury. The remaining 0.17% is deposited back to liquidity pools as rewards for the liquidity providers.

Staking with Syrup

Staking in the crypto-verse means holding digital currencies/tokens in digital wallets for lucrative rewards. Once users on PancakeSwap earn their CAKE tokens, they can opt to stake the same token in the Syrup liquidity pools. Syrup pools open up a way for users to gain more CAKE tokens asides from the farming venture.

Lottery

PancakeSwap welcomes users to a lottery program with worthwhile rewards once a user wins. To participate, users need to purchase the lottery ticket for approximately 10 CAKES and receive a four-digit combination ranging from 1-14.

One is declared the winner once he/she matches the four digits with the winning digits. Even without the four numbers, users can still secure rewards if two or more numbers are in the correct sequence. Matching all four numbers earns you a reward of 50% from the lottery pool.

Matching three and two numbers accurately earns you 20% and 10% of the pot, respectively. If there are no winners who matched three numbers, the 20% amount meant to reward users will be burned.

Non Fungible Tokens

NFTs are digital assets on a blockchain network possessing distinct identifications that separate one asset from another. For fungible tokens, users can easily leverage them to make payments as the tokens are identical.

Since NFTs are not identical assets, they are not tradeable with another NFT as each asset holds a different value from the other. At PancakeSwap, users can register for a chance to secure and earn NFTs, which can be swapped for CAKE tokens.

Initial Farm Offering

IFO rounds are fundraising activities meant to raise funds through farming events. It allows users to acquire tokens before listing them on various exchanges. IFO procedures are beneficial to new protocols because it offers them an incentivized liquidity pool via PancakeSwap’s ecosystem.

On top of that, users garner farming rewards through the IFO events. To take part in IFOs, traders are required to add liquidity on PancakeSwap using the CAKE-BNB pair. Afterward, traders can use the CAKE-BNB LP token to acquire the new token, taking part in the IFO sale rounds. The tokens are distributed to the respective users moments after the IFO event is over.

CAKE TOKEN

Running on the Binance Smart Chain, the CAKE token is the platform’s native digital asset. Out of the total CAKE supply, 60% of the token will be allocated to PancakeSwap farmers, while 40% goes directly to Syrup pools.

The platform designed CAKE to be a deflationary token whereby more tokens leave the market supply rather than generating more. PancakeSwap employs a token burning procedure as a deflationary method, eliminating 20% of CAKES used on lottery tickets, 9.09% CAKES spent on farms, and 100% of CAKES contributed during the Initial Farm Offerings (IFO).

As of this article’s writing, CAKE has a market cap of $6,117,476,063 and a price of $23.84 per token.

Takeaway

As technology continues to evolve, users continue to find meaning in the decentralized finance sector hosting exchange protocols such as PancakeSwap. The DEX platform offers a wide variety of products to suit different types of users.

More importantly, an incentivized space is created when users farm, stake or participate in the lottery programs. Integrating the BSC blockchain elevates PancakeSwap a step further as users are assured of a fast and cheaper transaction operation. As a bonus, security concerns are dealt with accordingly via constant auditing procedures with security Oracle and Skynet.

Adam is an outgoing young lad who likes adventures and discovering new things. Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.