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What is Pancakeswap (CAKE)?
Luis Clark
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Luis Clark
What is Pancakeswap (CAKE)?
PancakeSwap is a decentralized exchange developed on the Binance Smart Chain BSC.
The exchange hosts the most users of any decentralized exchange in the cryptocurrency space and handles more than $3.8 billion in investor funds. Using the DEX, users can trade any token on the BEP Smart Chain in seconds by simply connecting their wallet.
The platform is a fork of SushiSwap and it has a similar codebase (almost identical). However, its transactions are faster and cheaper as it was built on BSC. It also offers features beyond trading tokens such as initial farm offerings (IFO), yield farming across different protocols, lotteries, etc.
PancakeSwap is powered by CAKE, the platform’s native token which offers holders voting rights in its ecosystem.
Who is the Founder?
PancakeSwap was built by several anonymous developers and launched in September 2020.
How does PancakeSwap (CAKE) Work?
The PancakeSwap decentralized protocol runs on the Binance Smart Chain and therefore facilitates the exchange of BEP-20 tokens. It uses the automated market maker (AMM) model rather than the traditional market model.
Here’s what this means. Typically, centralized exchanges work by utilizing an order book that requires market participants to post limit orders at which they want to buy or sell an asset. Market makers then fill these orders to earn returns on the spread.
Using the automated market maker, PancakeSwap, eliminates the order book entirely and rather opts to allow liquidity providers to deposit assets into liquidity pools that traders can trade against. In this automated market maker model, the price is then determined automatedly depending on the proportion of the assets traded.
PancakeSwap’s price mechanism utilizes the Constant Product Market Maker. This mechanism is built to constantly provide liquidity irrespective of the number of funds available in the liquidity pool or order size. To achieve this, it asymptomatically increases the price as the buy order rises. This results in significant slippage on big orders.
Trading pools feature 2 tokens with a constant product between both sums. All transactions increase one sum and decrease the other with the price changing based on the ratio between the 2 sums.
That said, as traders deposit their funds in the liquidity pools they receive a liquidity provider or LP Token in exchange. In addition to the Liquidity Provider LP tokens, they also receive fees for making their assets available.
At the opposite side, traders who utilize their funds pay a charge to the decentralized exchange. Later, this fee gets divided among the different people who have added to the pool of funds. A small amount is reserved in the PancakeSwap treasury for upkeep purposes.
The automated market model allows users to earn as they create liquidity for the pool. As users contribute more, they get more in return. LP tokens can also be traded for profits. Liquidity Provider tokens can also be farmed in another type of liquidity pool to receive PancakeSwap’s native token called CAKE. There’s also the Syrup pool that allows users to store their CAKE tokens for additional rewards.
Key Features of PancakeSwap (CAKE)
PancakeSwap Yield Farming
PancakeSwap Yield Farming is a great way for PancakeSwap users to earn CAKE rewards by providing liquidity to the liquidity pools on PancakeSwap while keeping a position in their other tokens.
With yield farming, users are required to stake 2 tokens to get LP tokens. The LP tokens are then staked on the farm to earn rewards. Yield farming gives PancakeSwap users more rewards than Syrup Pools.
There are many yield farms on PancakeSwap, each farm has its yield rate and multiplier but they all require you to stake 2 tokens to get the exact LP tokens that suit the selected farm. For instance, only CAKE-BNB LP tokens are accepted in the CAKE-BNB Farm but to get CAKE-BNB LP tokens, you will need to provide liquidity to the CAKE-BNB pair.
You can take out some LP tokens or add more to the farm whenever you wish.
You can begin yield farming on PancakeSwap with the following steps:
- Open the farm page on PancakeSwap.
- Scroll to the top-right corner and click on “connect wallet”
- After connecting the wallet, select the farm you wish to use.
- Go to the exchange page and click “Pool”.
- Click “Add Liquidity”
- Select the tokens you want to add and click “Confirm Supply”
- Go back to the farm page.
- Scroll to the farm you wish and click “Select”
- To stake your liquidity token, click the “+” button.
- Input the number of liquidity tokens you want to stake.
- Click “Confirm” to commence Yield farming
PancakeSwap Syrup Pools (Staking)
PancakeSwap Syrup Pools enables users to easily earn free tokens when they stake CAKE.
The different pools on PancakeSwap that CAKE holders can choose from include: IFO CAKE, Manual CAKE, Auto CAKE, etc. IFO CAKE and Auto CAKE automatically compound your rewards and CAKE tokens earned are harvested and reinvested for you. Manual CAKE, on the other hand, does not function like this. You will need to manually harvest and compound your earnings.
CAKE holders can choose between locked and flexible staking. The locked staking option requires assets to be locked for a fixed duration, but it gives a high APY. Flexible staking, on the other hand, gives a lower APY but the tokens can be withdrawn at any time.
Users can choose a lock duration of between one to 52 weeks.
You can not use both flexible staking CAKE and fixed-term staking CAKE at the same time. However, you can move from one to the other without any charges asides from the regular network fees.
At the end of each lock duration, you have about 7 days to either lock your CAKE to begin a new fixed-term staking period or convert your staked CAKE to flexible staking. During this period, you will still earn cake at the same APY. If you don’t do anything with the staked CAKE at the expiration of the 7 days, the staked CAKE will enter “After Burning”.
In After Burning, a portion of your staked CAKE will be set to burn at a decreasing APR for 90 days. At the end of the 90 days, all the CAKE rewards will be completely burned and the APR will be 0%.
PancakeSwap Prediction Market
PancakeSwap Prediction market is a decentralized prediction market that enables users to earn tokens by accurately predicting the price movement of CAKE-USD or BNB-USD.
Prediction market players can choose from 2 separate prediction markets. They can bet with CAKE and play based on the CAKE USD price or they can bet with BNB and play based on the BNB USD price.
If you predict that the price of CAKE-USD or BNB-USD is going up by entering a “UP” position, and the ” Closed Price” is higher than the “Locked Price” at the end of the 5-minute live phase, you win. If the reverse is the case, then you lose.
The payout ratio for the UP pool is calculated by dividing the total value of both pools by the value of the UP pool. The payout ratio for the DOWN pool is calculated by dividing the total value of both pools by the value of the DOWN pool.
There is no time limit to collect your winnings from the prediction market. 3% of each round’s total pot goes to the network’s treasury and is used to buy back and burn the CAKE token every Monday.
PancakeSwap Lottery
With PancakeSwap, users can buy lottery tickets and win prizes in the PancakeSwap ecosystem. Each ticket has 6 digit combination on them and each lottery lasts for about 12 to 36 hours. At the end of each lottery round, a random six-digit combination is generated.
The prizes from each PancakeSwap lottery round come from 3 sources:
- CAKE Injections
A total of 35,000 CAKE from the PancakeSwap treasury is added to lottery rounds for a week. This is in turn used to fund the prizes for the entire lottery pool. - Ticket Purchases
100% of the CAKE tokens paid to buy lottery tickets go back into the prize pools. - Rollover Prices
If nobody wins after a round, the unclaimed CAKE for the prize brackets is rolled over into the next round and redistributed among the prize pools.
Once you buy a lottery ticket, you cannot convert it back to CAKE. Lottery V2 tickets cost $5 in CAKE. To win a lottery round, the digits on your ticket must match in the correct order.
PancakeSwap’s Perpetual Futures Trading
PancakeSwap’s partnership with ApolloX Finance enables users to trade perpetual future contracts on the PancakeSwap interface.
Perpetuals are a type of futures contract without an expiration date. A futures contract is an agreement that enables users to buy or sell currencies, commodities, and other instruments at a preset price at a specific time in the future. Users do not directly sell or purchase the assets in a futures market, what they trade is a contract representation of the assets. The real trading of the assets happens in the future when the contract is executed.
Perpetual trading enables users to trade using borrowed funds (trade on margin) and be capital efficient. Users can deposit a part of the notional value in the margin and leverage their capital instead of needing the capital to trade a large notional value of the underlying asset. Simply put, perpetual trading enables users to use borrowed funds to bet on the future price of an asset.
PancakeSwap’s Perpetual Futures Trading enables the user to enter a position with a larger size than their account balance. For instance, a user can trade 200 CAKE for the price of 10 CAKE. Futures trading also enables users to trade in both directions i.e. buy and sell.
PancakeSwap Initial Farm Offering (IFO)
This is a new initial coin offering pioneered by PancakeSwap that enables users to get access to new tokens immediately after they are added to PancakeSwap’s ecosystem. Being one of the first to gain access to new tokens is often very rewarding in the long run.
To be able to participate in an IFO, users must first have a PancakeSwap profile created and commit CAKE tokens to the IFO pool to purchase the token being offered in the IFO.
iCAKE is a numerical metric that is used to calculate the number of CAKE staked in the fixed term staking pool. It is also used to calculate the total staking duration of a user’s current fixed-term staking position.
The number of iCAKE a user has acquired will determine the number of CAKE tokens they can commit to the IFO pool. If a user has 100 iCAKE they will only be able to commit 100 CAKE in any of PancakeSwap’s upcoming IFO public sales.
PancakeSwap Initial Farm Offerings usually last for about 1 or 2 hours and users have only 1 hour to participate. When the IFO ends you will be able to collect your new tokens. In most cases, the number of tokens you get is dependent on how many people took part in the IFO.
PancakeSwap’s NFTs and NFT Marketplace
PancakeSwap has its very own NFT collections and a special NFT Marketplace. This allows users to make their own unique profiles connected to special tokens on the platform. It also lets them exchange different sets of these special tokens.
Weaknesses of PancakeSwap (CAKE)
A major weakness of PancakeSwap is the impermanent loss faced by liquidity providers. A lot of decentralized exchanges on the Ethereum network are already solving this problem for users.
Other weaknesses associated with PancakeSwap include how easily the network gets congested and how users can easily lose their funds by participating in predictions and lotteries.
Further, when a user wants to flip tokens that have a very low liquidity provision, one has to change the slippage settings for the transaction being successful. This can then lead to huge buy-sell spreads which immediately cuts into potential returns.
How is PancakeSwap (CAKE) Created?
The native token of the PancakeSwap decentralized exchange is created via a mining process. At its initial launch, mined tokens were distributed 75% and 25%. 75% went to farmers and 25% to SYRUP token holders.
That said, PancakeSwap’s liquidity mining program offers an initial emission rate of 1.2 million CAKE tokens daily based on 30,000 blocks a day at 40 CAKE per block.
On the 28th of October 2020, the PancakeSwap ecosystem approved a proposal to decrease the CAKE emission rate for the lottery and farm by 50% (from 30 CAKE to 15 CAKE per block). Here’s how the mechanism works. 40 CAKE is emitted per block and then 15 out of the 40 CAKE is burned. This results in an emission of 25 CAKE per block.
There’s no supply cap for the CAKE token. But the PancakeSwap team intends to transition to a community approval emission model. With that approach, governance votes will be held at the close of every month which will enable CAKE token holders to determine how emissions are to be carried out the next month.
Mining PancakeSwap (CAKE)
You can easily mine CAKE on any computer. Here’s a detailed video that shows how to use Unmineable and Hive OS to mine the token.
Which Blockchain does PancakeSwap (CAKE) Use?
PancakeSwap uses the Binance Smart Chain BSC, a blockchain popular for its low transaction costs in comparison to Bitcoin or Ethereum. The Binance Smart Chain BSC is operated by Binance, the largest crypto exchange in the world.
How to Use PancakeSwap (CAKE)?
CAKE is the native token of the PancakeSwap ecosystem. Asides from being the main means of payment on the PancakeSwap platform, It is also both a governance token and a utility and rewards token.
Pancakeswap token holders can gain access to IFOs, vote on governance decisions, purchase lottery tickets, and claim discounts on trading fees in perpetual futures.
CAKE can also be staked to earn more CAKE tokens or non-CAKE tokens in the syrup pool.
How to Buy PancakeSwap (CAKE)?
CAKE can be traded on popular exchanges like Binance, Kucoin, Gate.io, Huobi Global, and Poloniex. CoinMarketCap has an updated list of all the exchanges that support the trading of CAKE.
Before buying CAKE, you need to choose the exchange that best suits you. Ensure you consider important factors like security when choosing an exchange.
Regardless of the exchange you choose, CAKE can be bought with the following simple steps:
- Choose a good exchange
- Create an account on the exchange
- Fund your wallet with fiat currency or a relevant cryptocurrency
- Buy CAKE with the balance from your wallet
How to Store PancakeSwap (CAKE)?
CAKE can be stored in the wallet on the exchange where you purchased the tokens. CAKE can also be stored on various software wallets like Metamask, Trustwallet, Binance, etc.
Hardware wallets like Ledger Nano S, Trezor One, Ledger Nano X, and Trezor Model T also support the storage of CAKE.
If you intend to store a large number of CAKE tokens for an extended period, it is best to store them in a hardware wallet. These are more secure than online or software wallets. If you are storing your CAKE or other tokens in a software wallet or an exchange wallet, ensure that the wallet you choose has good security.
Best Place to Stake PancakeSwap (CAKE)?
The best place to stake CAKE is on the PancakeSwap platform itself. There are 2 options for staking on PancakeSwap; the syrup pools and yield farming.
For the syrup pool, go to https://pancakeswap.finance/pools. Next, choose a pool with a preferred APY. Locking up your CAKE tokens offers higher APY with some pools offering up to 63%. However, flexible staking offers lower returns like 2% APY and only 1 pool.
On the farm, you need to stake LP tokens to earn rewards. For example, CAKE-BNB, CAKE-USDT, and CAKE-BUSD. You can get an APR of up to 46% on the platform.
What do You need to Know about the Future of PancakeSwap (CAKE)
PancakeSwap is currently the largest decentralized exchange on the planet and its native token, CAKE, is getting more and more use cases. The good news is that users can expect CAKE to be listed as one of the top 20 cryptocurrencies by market cap soon.
That said, the Binance Smart Chain in recent times has been exploited by a lot of scam projects, which can lead to a growing number of crypto enthusiasts being wary of projects on the blockchain. This can ultimately affect continual acceptance of the project, which will result in a drastic price drop.
Conclusion: Should You Put Your Money in PancakeSwap (CAKE)?
CAKE is the native token of the platform and its value is dependent on the continual acceptance of both the PancakeSwap project and the decentralized space. So before putting your money in CAKE ensure that you’re knowledgeable about PancakeSwap’s objectives in the DeFi space. Some questions to ask would be: Does the project look sustainable in the long run? Will decentralized projects gain more acceptability in the coming years? Etc.
Risk in Investing in PancakeSwap (CAKE)?
Just like any other cryptocurrency, CAKE is a high-risk investment. This means that the token is extremely volatile and investors can lose their entire investment. So ensure that you only invest money that you’re willing to lose in the worst-case scenario.
Our extensive analysis of the different Cryptocurrencies doesn’t stop here. You can also check out our “What is Tenset?” guide to know more about another huge project.
FAQ
Most frequent questions and answers
What stood PancakeSwap out at the time of its launch was that it was developed on the Binance Smart Chain BSC, which provided cheaper and faster transactions in comparison to projects built on Ethereum, such as Uniswap. In fact, at the time of the project’s launch, Ethereum’s major con was its slow and expensive transactions. And at the time, almost all DeFi apps were built on Ethereum.
Beyond the cheap network fees made available by the Binance Smart Chain, PancakeSwap also provided a lower swap fee of 0.2%. At the time, the industry standard was 0.3% for swap fees.
Due to its low trading fees, PancakeSwap grew rapidly in total value locked and trading volume. PancakeSwap eventually became the largest decentralized exchange by trading volume in the crypto space by February 2021 surpassing competitors like Uniswap.
So, PancakeSwap stands out due to its cheaper network fees, fast transactions, and innovative features made possible by the Binance Smart Chain.
CAKE is the native token of the PancakeSwap exchange.
When users perform a token trade or swap on the exchange, they will have to pay 0.25% in trading fees. The trading fees paid by users are shared between the treasury and the liquidity pools. 0.17% is returned to the liquidity pools as a fee reward for liquidity providers, while 0.03% of the trading fees are sent to the network’s treasury.
CAKE has a circulating supply of 139,202,100 tokens.
CAKE has a maximum supply of 750,000,000 coins.
PancakeSwap is currently not supported on Coinbase.
Yes, CAKE is a BEP-20 token on the Binance Smart Chain BSC.
The token address for CAKE is 0x0e09fabb73bd3ade0a17ecc321fd13a19e81ce82.
MetaMask and Trustwallet work very well.
Yield farming is staking or lending crypto in exchange for rewards such as interests.
Faster and cheaper transactions.
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