DeFi on the Ethereum blockchain has grown in popularity over the past year, but high gas fees have caused many users to be frustrated with the blockchain. This has led to the emergence of alternative blockchains with lower fees than Ethereum. One of those blockchains is Binance Smart Chain. And the most popular decentralized exchange on Binance Smart Chain is PankcakseSwap.
Unfortunately, many cryptocurrency users are blissfully unaware of PancakeSwap and the Binance Smart Chain, so this article will offer a comprehensive breakdown of PancakeSwap.
What is PancakeSwap?
In simple terms, PancakseSwap is a Uniswap clone that exists on the Binance Smart Chain. It has all the same basic functionality as Uniswap – it’s a decentralized exchange that uses an automated market maker (AMM) to allow users to swap tokens in certain pools.
However, it is a little more complicated than that as PancakeSwap has some extra functionality, which we will cover in this section.
PancakeSwap Yield Farming
PancakeSwap has a native token called CAKE. CAKE is earned by yield farming on PancakeSwap yield farming farms.
Basically, lock tokens into the farms and you will receive CAKE in exchange. Now, PancakeSwap is new and trying to attract users away from Uniswap and SushiSwap, so the APY on PancakeSwap farms is high.
PancakeSwap Liquidity Providing
It’s also possible to provide liquidity to the swap pools on PancakeSwap. This should not be too surprising because, well, PancakeSwap is a decentralized exchange.
The basics of liquidity providing are you lock your tokens into a pool and receive a token called FLIP in exchange. FLIP represents the rewards you earn for providing liquidity in the pool. It can be exchanged for the tokens it represents with the reward included for your staking.
PancakeSwap Syrup Pools
PancakeSwap also has something called Syrup Pools. These are pools that allow cryptocurrency projects to raise funds.
How does it allow this?
The Syrup Pool is a smart contract that allows CAKE holders to lock their CAKE to a certain project taking place on the Binance Smart Chain. In exchange for locking CAKE, the user receives a Binance Smart Chain token from the project in exchange.
This is a pretty similar concept to an initial coin offering (ICO), but it allows investment into the project at other times than just the beginning.
Finally, PancakeSwap has a lottery every 6 hours. Playing the PancakeSwap Lottery is as simple as using CAKE to enter the lottery and receiving your lottery “ticket.”
If two numbers match, then you win a percentage of the lottery pool. It’s random and on the blockchain, so you don’t have to worry about any issues with a rigged lottery.
This is simply a fun addition to PancakeSwap, but it’s one we like as it makes the exchange a little more fun.
PancakeSwap Financial Details
This section will cover some of the financial details of PancakeSwap with a brief analysis of them.
Total Value Locked (TVL): $10.8 billion
24 hour trading volume: ~$1.3 billion
Average Transaction Fee: ~$0.50
Top Trading Pair (24 hour trading volume): BNB/LEV (~$480 million)
Active Users: ~1.7 million users
As you can see, all those numbers are great. PancakeSwap actually recently overtook Uniswap for TVL. This is most likely driven by the insanely high gas fees on Ethereum that Uniswap users face. The average transaction fee on PancakeSwap is $0.50, which is much lower and a huge draw to the exchange.
Trading ERC-20 Tokens on PancakeSwap?
Yes, it is possible to trade ERC-20 tokens on PancakeSwap by using the Binance Bridge to swap ERC-20 tokens for the equivalent version on Binance called BEP-20 tokens. In fact, the most popular trading pair on the exchange is BNB/LEV. LEV is Leverj, which is an ERC-20 token for the Leverj exchange.
The only problem with the Binance Bridge, in our opinion, is that users will still have to deal with Ethereum’s high gas fees when they move BEC-20 tokens to their Ethereum equivalent. Granted, that is only a problem if you actually move BEC-20 tokens to their ERC-20 equivalent, which is not necessary to exit a position for fiat.
Is CAKE a Good Investment?
CAKE is the native token on PancakeSwap and the yield farming reward on the exchange. If you believe in PancakeSwap, then holding CAKE is a wise investment.
In our opinion, PancakeSwap definitely has some major advantages over other decentralized exchanges and the financial numbers to backup this superiority. This is not financial advice, but PancakeSwap appears soldily positioned as one of the top decentralized exchanges and CAKE will likely increase in price.
PancakeSwap vs Uniswap vs SushiSwap – Which is better?
PancakeSwap, Uniswap, and SushiSwap are the top three decentralized exchanges at the moment. Uniswap and SushiSwap are both on the Ethereum blockchain and have a problem with high fees. SushiSwap has the added problem of having an anonymous developer.
Anyway, in terms of decentralization, we would rank SushiSwap as the most decentralized exchange as the community is truly self-governed by token holders. Plus, it has yield farming of its native token SUSHI.
PancakeSwap, as great as it is, is not really decentralized as it is on the Binance Smart Chain. For those unaware, Binance controls all the nodes on the Binance Smart Chain, which means the blockchain is not truly decentralized.
Now, in terms of fees and rewards, PancakeSwap is the clear winner. The fees are so small that they’re almost negligible and the APY on many of the liquidity pools are quite high. The same applies to the yield farming rewards.
Low fees combined with higher rewards is certainly a winning combination, and explains the success of the decentralized exchange.
With that in mind, if you value decentralization, then PancakeSwap is definitely not the decentralized exchange for you. On the other hand, if all you care about is low fees and high rewards, then PancakeSwap is a great exchange.
That covers it for everything you need to know about PancakeSwap. It’s definitely a solid decentralized exchange with much lower fees than its Ethereum equivalents, which has led to its growing popularity.
However, doubts still linger about the decentralization of the exchange, but that has not been a problem as most users seem more interested in financial rewards than a truly decentralized exchange.