CEX.IO Spotlight: PancakeSwap (CAKE)

Key information (August 18, 2022) 

• Circulating Supply — 146,045,553 CAKE
• Total supply — 319,812,724 CAKE
• Sector — DeFi, smart contracts platform
• Token Type — Native
• Token Usage — Governance, voting, yield farming, staking
• Launch date: September 2020
• All-time high — $44.18
• ATH Date — April 30, 2022 
• Market Cap —  $624,020,404 

What is PancakeSwap?

Considering the food reference, one might think that the person behind this crypto term is a world-famous TV chef, like Gordon Ramsay. But no, PancakeSwap (CAKE) is not a joke, despite its somewhat comical name. On the contrary, it is one of the most popular dApps of all time, thanks to regularly clocking in more than $100 million in 24-hour trading volume. 

PancakeSwap experienced unprecedented adoption following its meteoric growth in less than a year. Consequently, as it eclipsed even Binance’s own Binance DEX, it has become by far the most dominant DEX on BNB Chain.

Technically speaking, PancakeSwap is a decentralized finance (DeFi) application functioning as an AMM (automated market maker). It enables users to exchange tokens and earn fees in return, thereby providing liquidity via farming (the process of staking or lending cryptocurrency in exchange for interest or other rewards). 

Thanks to its sizeable user base, wide-ranging feature set, and massive liquidity, PancakeSwap has become a phenomenon in the cryptocurrency world in recent months. Its primary purpose is to protect users from losing control over their private keys by eliminating the need to rely on centralized services. Simultaneously, PancakeSwap enables users to securely trade Binance Coin (BNB) and numerous other BEP-20 tokens on its network.

Since PancakeSwap is a decentralized exchange, all trades are executed automatically through smart contracts, eliminating counterparty risks entirely. 

A brief history of PancakeSwap

The PancakeSwap smart contract code and website are open to public scrutiny, even though the team behind this DeFi is completely anonymous. Regardless, several prominent blockchain security firms like Slowmist and Certik have audited the platform. The scarce info that is available on the founders reveals that the team includes numerous “chefs” (as its members are called), various engineers, and two co-leads, Thumper and Hops.

United by their apparent passion for pancakes, the team launched PancakeSwap in September 2020. During its rise to crypto stardom, the platform has significantly increased its variety of features, attracting countless users and impressive liquidity of supported assets. Consequently, it is not an overstatement to say that this platform exists as an entire ecosystem of DeFi tools designed around the native utility token of this platform, called CAKE.

Understanding how PancakeSwap works

As mentioned above, PancakeSwap is an automated market maker, which is a type of DEX. If you’re new to the crypto world, you can think of PancakeSwap as having no limit/market orders, bid/ask system, or order books. 

So, how does this DEX work if that’s the case? Well, if you are a user trading on this platform, you draw liquidity automatically from one or several liquidity pools. Once the trade is complete, these pools rebalance (also automatically). 

Therefore, trades that occur on an automated market maker, such as PancakeSwap, draw liquidity from one side of the pool and add it to the other. Users known as liquidity providers, or LPS, contribute this liquidity in equal values to both sides of a pool. 

Their contributions grow the overall amount of liquidity available in the pool, and in return, users receive LP tokens proportional to their share. Conversely, retrieving a user’s fraction of the pool requires returning these tokens. 

Image source: cryptorobin.com

Regardless, the motivation for providing liquidity is that LPs claim a share of the transaction fees from the pools to which they contribute. Both makers and takers pay a flat 0.25% transaction fee, and liquidity providers share most of that amount amongst themselves.

Lastly, the PancakeSwap treasury funds its namesake platform, which is currently receiving 15% of all generated trading fees. 

Core use cases of PancakeSwap

PancakeSwap provides the ultimate trading experience to end-users by leveraging several of its unique properties. For instance, it ensures quick execution of trades, thanks to rapid confirmation times and low transaction fees. Simultaneously, PancakeSWAP boasts higher security than other AMMs on blockchains with slower block times. This is reinforced by the network rarely suffering from displacement attacks, such as front-running.

Additionally, a wide range of secondary features awaits PancakeSwap users, some of which working to further boost the utility of CAKE tokens. Some examples include:

• IFOs (Initial Farm Offerings)
• Yield Farms
• Syrup Pools
• Lottery V2
• Prediction Markets
• NFT Collectibles

Initial farm offerings

PancakeSwap makes it possible for users to acquire new early-stage project tokens before their official public launch, which is similar to an IDO (Initial DEX Offering). The difference is that, in the case of an IFO, users acquire new project tokens in exchange for their CAKE-BNB liquidity provider (LP) tokens. 

This procedure also adds a deflationary mechanism for the token because half of the total funds (on the CAKE side of the equation) are burned as part of the process. Examples of projects that were launched through this method are Hot Cross, Soteria, and Ditto.

Yield farms

By using one of its numerous yield farms to encourage the staking of staking-supported liquidity provider (LP) tokens, PancakeSwap enables users to earn an additional yield. In other words, users earn a CAKE yield on their liquidity provider tokens by participating in a yield farm. Note that this yield is available on top of the yields users earn via transaction fees.

Although the APY can go as high as several hundred percent, the exact number usually varies from one farm to another. However, when engaging in this activity and attempting to calculate their overall yield, users should also factor in potential impermanent losses.

Syrup pools

Users can stake various BEP-20 tokens and earn a yield by using the platform’s Syrup pools — the equivalent of PancakeSwap’s straightforward staking functionality. The resulting yield is usually available in the form of reward tokens, typically CAKE, although others are available as well.

The APY per pool can vary, just like with the platform’s yield farms. Therefore, this activity also warrants the same caution: when calculating your true yield, it can be useful to consider the changing value of your staked assets.

Lottery V2

The lottery feature available in this decentralized exchange is yet another aspect that makes it stand out. It enables users to potentially take down a significant pot of CAKE by buying lottery tickets. 

At current rates, the price of a single ticket is approximately $5. However, purchasing 100 tickets simultaneously may allow users to claim up to a 4.95% discount. Consequently, users who successfully match all six numbers on their lottery tickets will receive a total of 40% of the prize pool. Winners will then share the prize equally amongst themselves.

Prediction markets

PancakeSwap also features a unique prediction market tool, which enables users to observe a five-minute timeframe and attempt to predict whether Binance Coin’s (BNB) price will rise or fall. On the one hand, unsuccessful predictors forfeit their bet amount, but on the other, winners share the prize pool funded by all participants.

NFT collectibles

PancakeSwap added NFT Profiles in February 2021 – a novelty feature allowing users to purchase one of the available Bunny NFTs and even choose an NFT profile picture. Those with a complete profile will become part of a special team to earn rewards by participating in network events. 

PancakeSwap token CAKE

PancakeSwap’s native utility token is called CAKE, and it serves various purposes within the DEX’s continuously growing landscape. Its primary functions include:

• Yield farming
• Staking
• Participating in the PancakeSwap Lottery
• Enabling voting on governance proposals via the platform’s community governance portal

Governance

The community partially governs PancakeSwap, meaning that individuals who own CAKE tokens can vote on governance proposals through the network’s native voting portal. Some of the proposals are tabled directly by the community, and others are proposed directly by the PancakeSwap core team. 

At CEX.IO, you can acquire CAKE and exchange it for USD (and, occasionally, see us use pop-culture references like Gordon Ramsay…but that’s a story for another time). In addition to benefitting from the features that PancakeSwap offers, you can also trade CAKE to take advantage of its widespread adoption potential.

Sources to learn more about PancakeSwap

• PancakeSwap intro documentation
• Tracking PancakeSwap metrics
• What are Syrup pools?
• What are AMMs (automated market makers)?

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