We take a deep dive into PancakeSwap in 2022 — the leading decentralized exchange on BNB Chain.
PancakeSwap (CAKE) is the leading decentralized exchange on BNB Chain. By trading on PancakeSwap, you can trade from your wallet without using a centralized exchange. On this exchange, you can swap BEP-20 tokens, stake CAKE in Syrup Pools, lend and provide liquidity on the automated market maker (AMM), participate in IFOs (Initial Farm Offerings), engage in perpetual trading and buy or sell NFTs via the NFT Marketplace
You can use PancakeSwap with a few easy steps:
1. Get a BNB Chain-compatible wallet like MetaMask.
2. Get BNB BEP-20 and send it to your wallet (need BNB BEP-20 for all tx fees).
3. Connect the wallet through the PancakeSwap connection guide.
4. Choose the tokens you want to trade in the dropdown menu.
5. Click Swap and confirm the trade on PancakeSwap.
All trades on PancakeSwap are automatically executed via smart contracts. Users need to remember to always research the tokens they are buying and selling, since PancakeSwap is a DEX and anyone can list a token and provide liquidity for it. The platform has grown to over $4 billion in TVL since its launch in September 2020 due to the number of users and the quantity and liquidity in the tradable assets.
The completely anonymous team of PancakeSwap has built an ecosystem of DeFi tools based on the CAKE token. The platform is open-source and has been audited by multiple reputable blockchain security firms like Certik and Slowmist. In total, about two dozen people are part of the team. They are called “Chefs,” working in the PancakeSwap “Kitchen.”
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How Does PancakeSwap Work?
PancakeSwap has eight different products:
1. Exchange
2. Yield Farming
3. Syrup Pools to stake CAKE
4. Lottery V2 version
5. Predictions market
6. NFT Marketplace
7. NFT Profile System
8. IFO (Initial Farm Offerings)
9. Perpetual trading
On the exchange, you can swap and trade BEP20-tokens. Furthermore, you can add your token to a liquidity pool to receive liquidity provider tokens. LP tokens provide you with a share of the trading fee — 0.17% on PancakeSwap. However, liquidity providers are at the risk of impermanent loss. Users need to remember to always research the tokens they are buying and selling. Since PancakeSwap is a DEX anyone can list a token and provide liquidity for it.
You can also trade perpetual or swap tokens at your desired price with a limit order.
With yield farming, LP token holders can earn CAKE by providing liquidity to any of the pairs listed on the PancakeSwap Farms page and staking your LP tokens. The farming reward is calculated as the sum of the Farm Base APR and the LP Rewards APR. The Farm Base APR is calculated according to the farm multiplier and the total amount of liquidity in the farm: this is the amount of CAKE distributed to the farm. The LP Reward APR is the LP rewards for providing liquidity (0.17% trading fees) and is calculated as the yearly fees divided by a pool’s liquidity. You can provide liquidity to any pool listed on the PancakeSwap Farms page you like and harvest your rewards for a small fee.
In the Syrup Pools, you can stake CAKE to earn more CAKE or to earn other free tokens. When staking CAKE to earn more CAKE, you can choose between either flexible staking or fixed-term staking. With both, you can simply stake your CAKE tokens to earn more CAKE tokens with no deposit fees — both staking options auto-compound CAKE rewards for you.
Flexible staking allows users to stake CAKE and earn rewards with the ability to unstake whenever they please. You can harvest rewards at any time, withdraw at any time and if you want, convert all your staked CAKE to fixed-term.There is a 0.1% fee for unstaking in the first 72 hours and a 2% performance fee for each harvest. Both are burned to reduce CAKE supply.
Fixed-term staking allows users to maximize their yield and earn even more CAKE by locking their staked CAKE for a period of time they choose, earning a linearly boosted APY compared to flexible staking. There are no performance fees, and you earn a higher APY if you lock up your CAKE longer (maximum 52 weeks). You cannot withdraw your CAKE or rewards until your initial CAKE unlocks. You can add more CAKE or extend the lock period if you choose. Additional benefits are being added for users locking their CAKE in fixed-term staking including IFO credits, locked governance voting, and more.
With the Lottery V2, you can win prizes in CAKE by buying lottery tickets (one ticket is approximately $5 USD in CAKE) for a chance to win. Each ticket has a six-digit combination, with each digit being between 0-9. To win, your numbers need to match the drawn numbers in the same order as the lottery balls, starting from the left of the ticket. The more numbers you match, the more you win. The draw takes place every 12 or 36 hours, and there is a maximum of 100 tickets per purchase (multiple purchases are allowed). The lottery uses Chainlink’s implementation of VRF for true, secure randomness.
PancakeSwap Prediction is a decentralized prediction market where you can guess whether the price of BNB will rise or fall. Each round lasts for five minutes, and there is a 3% transaction fee. For guessing correctly, you can win a proportional share of the payout pool (the more you bet, the bigger your share).
The NFT Marketplace is what it sounds like — an NFT marketplace for PancakeSwap and other BNB Chain collectibles. The NFT Profile System allows you to create a personalized profile on PancakeSwap, where you can share your achievements with friends and join other teams. The set-up costs 1.5 CAKE.
With IFOs, you can buy new tokens using CAKE. IFOs work like initial DEX offerings, where users can participate in raises of new tokens in exchange for committing their CAKE. Some of the projects that were launched using this method include Mines of Dalarnia, Froyo and Hot Cross..
In cooperation with Apollo X, PancakeSwap started offering perpetual trading. Perpetual trades, perpetuals, perpetual swaps or perps are a special type of futures contract without an expiration date. Users can trade their favorite pairs in a decentralized way, all without intermediaries, fast and safely. Trading pairs offered are, for example, BTC/USDT, ETH/USDT, DOGE/USDT and dozens of others.Futures trading allows users to enter positions on margin (leverage) using borrowed funds to optimize capital. Using leverage allows for a user to enter a position with a larger size than their account balance.
In addition to leverage, futures open the possibility of trading in both directions, buying (long) and selling (short) perpetuals
Unique Features of PancakeSwap
PancakeSwap has become the biggest DEX on the BNB Chain and one of the biggest decentralized exchanges overall by leveraging several strengths.
Retail Focus
The BNB Chain ecosystem is second-most popular behind Ethereum, with over $8 billion in total value locked. PancakeSwap has consistently had the highest user engagement of any decentralized exchange, with 400,000 DAU in recent months and a massive social following (1.6 million followers on Twitter, 160,000 on Telegram as of August 2022).
Constant Innovation
PancakeSwap has repeatedly innovated and consistently ships new products for its users. For example, the platform upgraded to a V2 exchange in April 2021 and a V2 MasterChef in May 2022, allowing for fixed-term staking and the ability to implement the new CAKE use cases. Another example is its prediction market, Lottery V2, and release of perpetual trading. Furthermore, PancakeSwap offers a roadmap with details about future development plans like upgrades to the lottery and prediction and additional fixed-term staking benefits.
Community Governance
PancakeSwap has a voting portal, where the community can vote on proposals posted by the team. The community can also put forward proposals themselves, which are reviewed by the team and can be moved up to the voting level.
PancakeSwap Tokenomics V2 2022 Update
PancakeSwap published an updated V2 of their tokenomics in May 2022 with the following changes:
- A cap on the maximum total supply of CAKE at 750 million.
- Additional utility for the CAKE token: weighted voting, boosted farm yields, boosted IFO allocations, and future use cases.
- No change to the burn mechanism.
Based on this set-up, this total supply cap, at a very conservative estimate, will give the team a minimum of three years of emissions. With this three-year runway, the Chefs will aim to implement sustainable and effective ways to reduce emissions further, with the goal of being deflationary, or at the very least, emissions neutral. And the runway gives the Chefs adequate time and space to engage with the community, implement (and battle-test!) DeFi innovations to safely bring the latest and greatest to the PancakeSwap community.
Furthermore, CAKE will be used for boosted governance voting for users that lock up their tokens via fixed-term staking. They will also benefit from boosted IFO benefits and boosted farm benefits. By introducing these new features, PancakeSwap incentivizes staking CAKE for longer periods. This creates additional incentives for a smaller circulating supply.
CAKE also retains all its previous utility:
- As a liquidity provider reward
- As a lottery reward
- As the governance token
- As the utility token for lottery tickets and IFO token sales
PancakeSwap Price Prediction and Future Outlook
PancakeSwap is currently trading around $3.84, down significantly from its all-time high of over $40. This is the result of two factors: a wider market correction that pushed all cryptocurrencies into a bear market and the lack of a fixed token supply. CAKE will fall like all other cryptocurrencies if there is a bear market, but the new improved tokenomics are a significant positive change for PancakeSwap.
By introducing a fixed token supply, it will be easier for CAKE to go higher in value. Furthermore, if all CAKE’s max supply equals circulating supply in three years, tokens will gain value due to scarcity. Finally, the added utility to the CAKE token and the improved lock-up incentives should lead to less CAKE circulating, making the token even more valuable.
If the bear market continues, CAKE might fall in value further in the near term. But in the long term, CAKE should appreciate from current levels and move closer to its valuation in 2021.
With contribution from Chef Xander.
With contribution from Chef Xander.
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