What is PancakeSwap? How Does PancakeSwap Work?

PancakeSwap is one of the Binance-backed decentralized exchanges that has put existing DEX choices like Uniswap and Sushiswap to the test. Binance is the world’s largest cryptocurrency exchange, offering to trade in various cryptocurrencies. However, because Binance is a centralized exchange, many investors avoid it. As a result, shortly after the debut of its smart chain, Binance developed a decentralized exchange PancakeSwap.

PancakeSwap offers a quick and low-cost way to trade between different crypto assets. As a result, it puts Ethereum and Uniswap to shame. According to the data, PancakeSwap may even outperform Binance if its volume expands over time.

What is PancakeSwap?

PancakeSwap is a DEX that allows crypto trades to take place without the use of an intermediary. The majority of the functionality of this decentralized exchange is very similar to the popular Ethereum decentralized exchange, Uniswap. PancakeSwap is constructed by anonymous developers and operates on Binance Smart Chain; however, Binance does not influence its operations.

Since PancakeSwap is based on an Automated Market Maker (AMM) system, it relies on user-generated liquidity pools. As a result, users can instantaneously trade their crypto tokens for the locked tokens without waiting for a vendor. However, PancakeSwap compensates users for storing their tokens in the liquidity pool.

Since it’s built on Binance Smart Chain, PancakeSwap is ideal for BEP-20 tokens. Users who bring tokens from other platforms must wrap them as BEP-20 tokens using Binance Bridge.

PancakeSwap vs. other decentralized exchanges

The two most popular DEXs built on Ethereum’s Smart Chain are Uniswap and Sushiswap. PancakeSwap was created specifically to compete with these exchanges. The most crucial element that makes PancakeSwap a top choice for traders is the lower trading fee. Even though PancakeSwap was created over two years later than Uniswap, it has surpassed this major exchange in terms of trade volumes multiple times. However, it was unable to maintain its position constantly.

However, the rapid expansion of this new exchange demonstrates that it has the potential to outperform the main DEXs in the future. In contrast to Uniswap, PancakeSwap compensates token holders for staking their tokens. As a result, it has grown in popularity in a short period.

How Does PancakeSwap Work?

Users must sign up for a digital wallet such as MathWallet, Trust Wallet, or Binance Chain Wallet. Since PancakeSwap doesn’t accept fiat currency, they must keep CAKE and BNB tokens in their wallets. Users can also join the platform through the Ethereum Wallet MetaMask.

To connect their wallet to the platform, consumers must go to the official website www.pancakeswap.finance. They can choose between trading, farming, and liquidity based on their choices.

Adding liquidity

The user becomes a liquidity provider by depositing the tokens in the accessible liquidity pools. When they successfully lock the tokens, the system rewards them with a Liquidity Provider (LP) token. Customers’ trading fees while swapping the cryptocurrencies on the PancakeSwap exchange are used to generate these tokens.

Users typically pay a transaction fee of roughly 0.2% of the total transaction amount. 85% of the entire transaction cost is transferred to Liquidity Token holders, with the remainder retained in the local treasury to fund the network’s growth regularly.

Trading

Users can exchange the LP tokens they received as rewards. They can exchange it for any other crypto token on the PancakeSwap network. The transaction is complete after the user verifies the transaction in their wallet.

Staking

Staking is another form of passive income for those who are not skilled at trading cryptocurrencies. Users must deposit their tokens in the SYRUP Pools to participate in this procedure. Staking is similar to farming in some ways, but the main distinction is that users must lock their tokens for a set length of time. And they can only receive the prizes after the staking period has ended. Another key point is that users can choose to receive other cryptocurrencies instead of the Cake Token as a reward.

Yield Farming

Users can farm their LP tokens using pairs that match their existing tokens. It’s the most effective way to make money on PancakeSwap. When users farm their LP tokens, they earn the governance token “Cake” as a reward. Users can instantly collect rewards anytime they wish, which is the best part of farming on PancakeSwap.

Lottery

The lottery is another significant way to gain rewards on PancakeSwap, although it’s a bit pricey because users must trade 10 Cake tokens to participate. The site runs four lotteries daily, with each session lasting about six hours.

NFTs

Users can also acquire special NFTs by using PancakeSwap’s gamification technique. They can then exchange these NFTs on the market or keep them in their collections.

Initial farm offerings (IFO)

One of the most crucial parts of PancakeSwap is IFO; it allows users to purchase newly issued farm tokens with their LP tokens. The advantage of investing in these tokens is that they can provide relatively large profits after they are listed on other exchanges.

Pros of Using PancakeSwap

PancakeSwap is specifically built to address issues in Ethereum-based decentralized exchanges. As a result, it offers a variety of features that make it a superior choice for DEX users.

Easy to use

PancakeSwap offers a friendly UI that allows users to do operations like trading, farming, and staking effortlessly. This platform is simple to use, even for beginners.

Numerous earning opportunities

As previously said, PancakeSwap offers a wide range of income opportunities, such as staking, NFTs, farming, lotteries, and more. It’s one of the primary reasons PancakeSwap has received more attention than other decentralized exchanges.

Interconnectivity

PancakeSwap creators were worried about interconnectivity since they understood they needed to draw Ethereum investors to their network. As a result, they enabled popular wallets like Metamask to connect to their platform. They also built a bridge to help users switch between the two blockchains.

Cheap and fast transactions

Since it is built on Binance Smart Chain, PancakeSwap has the best transaction speed compared to other DEXs. Furthermore, the transaction charge is as little as $0.08 for each transaction. On the other hand, Ethereum-based DEXes levy a gas price of roughly $20 for each transaction.

Conclusion

PancakeSwap is a Binance Smart Chain-based decentralized exchange. It has emerged as a formidable competitor for Ethereum-based DEXes such as Uniswap and Sushiswap. We’ve gone into great detail about how PancakeSwap works. If you have any further questions about PancakeSwap, please get in touch with us.