Currently, it accounts for ¼ of all crypto trades in the world. No wonder that the blockchain with EVM-compatible smart contracts got so much attention - it has cheap transactions and issuing BEP-20 tokens simplifies the process of listing on Binance Launchpad and Binance. BSC was launched in September 2020, and since then, more than 125 tokens were issued. So, being a very popular chain, it was expected that sooner or later, users would need a decentralized exchange to swap all these tokens and stake them in liquidity pools. PancakeSwap became such an exchange. Quick fun fact: it was created by anonymous developers, so nobody knows who’s behind it.
How does it work
Traditional exchanges are usually maintained by centralized teams. These teams decide which assets should be listed on their exchanges and which shouldn’t. Every trading pair has two parties - a buyer and a seller. Both parties leave orders in the order books, bids from buyers and asks from sellers, and an exchange matches them. If a bid and an ask match on the same price, the trade gets executed. Thus, each trade requires having a trader on each side.
Decentralized exchanges are based on a different principle. They work using automatic market makers and liquidity pools. That means that the second party in every trade is an exchange itself. To execute the trade, the automatic market maker, a set of smart contracts, accepts funds from the trader, adds them to a liquidity pool and sends back the asset that the trader requested according to the current ratio for that trading pair in the pool. All DEXes work this way and PancakeSwap isn’t an exception.
Image by PancakeSwap
In terms of the user interface, PancakeSwap is similar to Uniswap or Sushiswap, the main difference is the chain it’s connected to. To start trading, it’s necessary to connect a BSC wallet. There’s a total number of 8 wallets available, MetaMask and TrustWallet included. After connecting a wallet, it’s time to start using the exchange.
How to use it
PancakeSwap offers 26 liquidity pools with 17 tokens available for trading, and 26 pools combining these tokens. The list includes such popular tokens as BNB, BUSD, UDDT, and of course, CAKE, the native token of the platform. Different pools give different rewards for staking, but all liquidity providers get LP tokens for providing liquidity.
At first glance, the interface might be confusing. What’s the difference between “liquidity”, “farms” and “pools”? Once you get used to it, it becomes simple.
- Liquidity in the “Trade” section means that you can provide your tokens to liquidity pools to allow other users to exchange funds in that token pair. It’s possible to add liquidity to any trading pair on the exchange. In return, liquidity providers get their portion of trading fees for that pair and receive special LP tokens they can stake.
- Farms allow to put these received LPs to good use and get CAKE tokens, the platform’s native token, in addition to trading fees. Every trading pair has its own LP token, thus if you provide, let’s say, BUSD-CAKE liquidity, you’ll get BUSD-CAKE LP tokens, and you’ll be able to farm yield by going to the “Farm” page and staking these LP tokens.
- Pools is a simpler staking method for CAKE tokens - instead of two, it requires only one token to stake, and allows to get various tokens in return, more than 30 various token types, including TUSD and BTT. You can stake only the CAKE token here.
To cut it short, it’s a three-step process: 1) add liquidity and 2) receive a part of trading fees and CAKE tokens, which 3) can be also staked or spent.
There are several ways to spend CAKE on PancakeSwap aside from trading. The first one is to participate in a lottery with large CAKE prizes. The lottery ticket costs 5$ in CAKE, every user can buy only 100 tickets for each lottery round. The second way is prediction markets, where people can bet on the price movement of the BNB token in the timeframe of the next 5 minutes. The prize pool is comprised of all bets for this timeframe. Users have to choose between two options, “Up” and “Down”, casino-style. Anyway, that’s a good option for those who like the thrill of risk.
Overall, PancakeSwap is currently the top BSC exchange, and we see that it will keep the top position in the future. If you need to exchange your BEP-20, it’s the best place to go. Also, if you plan to build your own applications on Binance Smart Chain, you might need a node. You can get a dedicated node at GetBlock.io that contains all data from mainnet and testnet and allows you to use various interfaces to connect to it. No need to set up your own node - just lease it while you need it.