PancakeSwap is a decentralized exchange (DEX) native to the BNB Chain, it’s easy to use and works with low fees. It’s similar to UniSwap or SushiSwap. Here you can swap tokens, win on lottery, stake for rewards and even more. So what is PancakeSwap? Let’s learn about PancakeSwap platform, how it works and how it differs from other DEXs.
What is PancakeSwap?
PancakeSwap is one of the most popular decentralized crypto exchanges. The platform’s main function is to make it easier swapping two tokens of BEP-20 tokens like BNB and CAKE, which are assets existing on the BSC (discussed later). Users can exchange one cryptocurrency for another through an automated market maker (AMM) model. This model differs from centralized exchanges as it removes the need for traditional order books and relies on liquidity pools, where users themselves provide liquidity and earn rewards in return.
PancakeSwap offers a suite of DeFi services. This includes yield farming, where users can stake their tokens to earn rewards, and liquidity sharing, where participants add tokens to liquidity pools and receive a portion of the transaction fees as well as CAKE tokens as an incentive. The platform also features a lottery system and NFT (non-fungible token) trading.
PancakeSwap’s governance is community-driven, with CAKE token holders having the right to vote on proposals that directs the platform’s future.
BSC vs BNB Chain
The PancakeSwap exchange built on BSC, but runs on BNB Chain. This may be confusing, but it’s because BNB Chain and BSC are related.
BNB Chain is the native blockchain of the Binance ecosystem, used for native token transactions, governance, and staking. It utilizes a Tendermint consensus mechanism that guarantee the consistency and integrity of distributed networks.
Binance Smart Chain (BSC), on the other hand, is a similar blockchain to BNB Chain. It’s EVM (Ethereum Virtual Machine) compatible, that means platforms on BSC can use Ethereum-based applications and tools. BSC supports smart contracts, decentralized applications (DApps), and token issuance. It uses a Proof of Stake Authority (PoSA) consensus mechanism. It’s a combination of Proof of Stake and Proof of Authority (PoA). The PoA is differs from PoS as there the validators selected by their reputation instead of their staked amount.
How Does Pancakeswap Work? – Features of PancakeSwap
PancakeSwap uses a series of smart contracts, self-executing agreements written in code, on the Binance Smart Chain. This setup allows for decentralized and trustless interactions between users.
Unlike traditional exchanges, PancakeSwap doesn’t use an order book to match buyers and sellers. Instead, it uses an AMM model where liquidity pools are used. In these pools, you can deposit any supported tokens, which are then available for others to trade against. Prices are determined algorithmically based on the supply and demand of the tokens in each pool.
Users can generate liquidity by depositing their tokens into these pools. In return, they receive liquidity provider (LP) tokens, representing their share of the pool. These LP tokens can be staked (locked up) in various farming options to earn additional rewards, often in the form of CAKE tokens.
PancakeSwap also offers staking options where users can stake CAKE tokens in “Syrup Pools” to earn rewards. These rewards can be in the form of new tokens from other projects, further motivating participation in the PancakeSwap ecosystem.
PancakeSwap provides the opportunity to the users to swap between various BEP-20 tokens. The AMM model provides the liquidity necessary for these swaps. But the key is that trading on PancakeSwap works with lower fees compared to Ethereum.
And finally the swap allows users participate in a lottery by purchasing tickets using CAKE tokens, so they can win more tokens. Additionally, the platform has entered in the NFT business, allowing users to trade and collect digital collectibles.
The Pancakeswap Token (CAKE)
PancakeSwap’s native token called CAKE. This BEP-20 token serves multiple purposes in the platform.
Rewards and Incentives
CAKE is used as a reward token. CAKE holders can earn PancakeSwap token by providing liquidity, staking in Syrup Pools, or participating in yield farming. These rewards motivate users to stake CAKE to provide liquidity and stability.
PancakeSwap users can stake their CAKE tokens in Syrup Pools to earn additional rewards. These rewards can come in the form of more CAKE or other tokens from projects that collaborate with PancakeSwap. Staking not only provides an opportunity for users to earn passive income but also helps in securing the network.
Governance
CAKE is also grants the token holders governance rights in the PancakeSwap ecosystem. They can vote on proposals that influence the platform’s development, such as changes in fee structures, feature additions, or partnerships. This democratic approach ensures that the platform evolves in line with the community’s interests.
Lottery Participation and Deflationary Mechanisms
PancakeSwap is also offers a lottery system where users can buy tickets using CAKE. Winners are rewarded with more CAKE.
To maintain the token’s value, PancakeSwap implemented various deflationary mechanisms. These include token burns, where a portion of CAKE is permanently removed from circulation. This is often done using a percentage of the fees generated by the platform.
CAKE can also be used in PancakeSwap’s NFT marketplace. Users can buy, sell, or trade NFTs using CAKE. So in summary CAKE is more than crypto assets for investment, it’s a token that powers and drives activity in the PancakeSwap ecosystem.
How to Deposit to PancakeSwap?
You need a compatible wallet with BNB Chain. Trust Wallet, Coinbase Wallet or MetaMask are good options. For example if you choose MetaMask you have to configure it before start using BNB Chain-based DApps. Just choose Settings, and then click Networks and finally the “Add Network”. Here you can fill in these informations:
- Network Name: BNB Chain
- ChainID: 56
- Symbol: BNB
- Block Explorer URL: https://bscscan.com
Now you are successfully connected to BSC’s mainnet and your wallet is ready to connect with BNB DApps. Good luck!
