With an increasing demand for DeFi products comes intense competition between platforms offering a plethora of secure financial services with no third-party involvement. Hence, the growing popularity of DEXs - an abbreviation for decentralized exchange platforms.
In this guide, we will focus on Binance’s very own PancakeSwap, talk about the basics of the BNB Chain’s decentralized exchange, and how its yield farming protocol works.
What is PancakeSwap?
PancakeSwap was launched by BNB Chain (formerly known as Binance Smart Chain) in September 2020. The DEX is known for its wide range of affordable services and lower fees. PancakeSwap deploys BEP20 tokens - therefore all tokens produced via the BEP20 standard are fully compatible with BNB Chain-based dApps.
Source: PancakeSwap
How PancakeSwap works
Before we dive into the basics of the popular DEX, let’s take a quick look at the technology integrated by DeFi products. First and foremost, while traditional exchanges are operated by centralized entities, decentralized technology allows for no intermediary involvement with the help of automatic market makers (AMM) and liquidity pools.
Thanks to the special AMM system, DEX users trade against liquidity pools - in this sense, liquidity pools represent deposited digital funds. In case a user wants to trade a token, he/she does not have to wait to get matched with a buyer or seller. All DEXes utilize this technology, and PancakeSwap is no exception.
However, PancakeSwap offers significantly lower fees, unlike its main competitors. For instance, swapping a token on PancakeSwap will cost an additional 0.25% transaction fee. The revenue collected from trading costs is distributed in the following way:
- Treasury: 0.03%
- Buyback and burn: 0.05%
- Liquidity pools return: 0.17%
N.B. Some tokens may have additional “tax” added to a 0.25% fee.
How to use PancakeSwap
Currently, PancakeSwap supports the following services (the list does not include all services offered by the platform):
- Spot trading (token swapping)
- Liquidity providing
- Yield farming
- IFO - Initial Farm Offering
- Binance bridge
- NFTs trading
- Lottery
- Syrup pools
- Market prediction
- Perpetual trading
Let’s deep dive into some of the most popular features utilized by DEX’s users on a global scale.
Bridge to Binance
Source: PancakeSwap
Let’s say you want to convert your EVM-compatible assets into BEP-20 tokens, you can deploy the Binance Bridge to perform a low-risk asset conversion from Ethereum. All you have to do is to connect your wallet to the Binance Bridge. The bridge works vice versa, meaning you can send your tokens back to Ethereum. Besides, PancakeSwap offers lower fees in comparison to other similar platforms.
Exchange tokens
Source: PancakeSwap
PancakeSwap DEX works with BEP20 tokens; however, you can still use your ERC-20 token. In order to do that you have to bridge your funds from Ethereum to Binance.
To start using PancakeSwap, head over to Pancakeswap.finance and click Trade on the main landing page.
Select Swap.
Fill in the inputs of the command and select the crypto assets you wish to exchange.
Press the Swap button and confirm the command. Now you’re all done.
The amount of swapped tokens depends on the current exchange rate.
Provide liquidity
Source: PancakeSwap
That being said, PancakeSwap can be utilized by liquidity providers as well. In order to become an LP, all you have to do is deposit a certain amount of tokens into a liquidity pool. You have an option of earning passive income each time users trade against your pool.
Providing liquidity on PancakeSwap is easy. You can find an existing pool you want to provide liquidity for or create your own pool. It is important to note that you must have two different tokens to become an LP as providing liquidity is performed in pairs.
Yield farming
Source: PancakeSwap
Yield farming is a form of generating income in the Decentralized Finance sector, which is significantly different from liquidity providing.
Via PancakeSwap users are allowed to farm CAKE - the platform’s native token. CAKE is a BEP20 token initially launched on Binance Chain.
Apart from farming, users can also participate in a lottery and win a number of CAKE tokens for free. Farm auctions, where projects can compete for the right to host a seven-day farm, are held on a weekly basis. In order to win the jackpot, each participant is randomly assigned a four-digit number combination after purchasing a lottery ticket for ~10 CAKE. Your four-digit number has to repeat the winning combination. If only two or three of your numbers match, you are still eligible for a reward.
You can check more information by following this link.
How to yield farm on PancakeSwap
If you want to start yield farming via PancakeSwap, head over to Farms, Live Farms. Now you can see a list of farm options and select the ones you like.
Once you’ve made your choice, click details to see how much revenue in CAKE each farm makes.
Connect or unlock your Wallet to start depositing funds. Once you’ve deposited your tokens, PancakeSwap will show you how much CAKE you’ve earned.
Overall, PancakeSwap farming may be a great opportunity for some users to generate additional income -you can withdraw your earned interest at any moment by clicking on Harvest.
PancakeSwap key benefits
- Less expensive trading expenses in comparison to market rivals
- Earned yield reaches higher numbers than other DEXs
- Community lotteries held for participants
- PancakeSwap supports NFTs
- Guaranteed rewards for active liquidity providers
- Works with converted ERC-20 tokens
- Users can launch BSC community projects
Drawbacks and risks
- Arguably too tech-savvy for beginners
- Staking is fairly complex
- Currently, no native wallet supported
Frequently asked questions
What is a farm auction on PancakeSwap?
A farm auction is an opportunity for whitelisted projects to bid CAKE in return for hosting a seven-day liquidity farm on PancakeSwap. Learn more info here.
Is staking on PancakeSwap profitable?
Staking CAKE on PancakeSwap may be profitable due to the high security and popularity of the platform. Besides, participants are met with user-friendly requirements, therefore the staking process is known to be fairly easy.
How do you farm on PancakeSwap with MetaMask?
Before you can begin to farm CAKE with the help of MetaMask, you have to set up a MetaMask wallet and connect it to BNB Chain. Add liquidity to pools and stake tokens on PancakeSwap. Confirm on MetaMask. Go back to your PancakeSwap page to see how many CAKE tokens you have earned from staking/farming.
Is PancakeSwap good for staking?
Generally speaking, PancakeSwap is a low-risk platform for staking. Both tech-savvy experts and beginners may benefit from staking on PancakeSwap.
Is PancakeSwap better than Uniswap?
Experts are divided in their opinions as both DEXs are established platforms offering top-notch services for crypto holders; however, most recommend resorting to PancakeSwap in the case you generally prefer BEP-20 standardized tokens, whereas Uniswap is fully compatible with the Ethereum network.
Final thoughts
The PancakeSwap DeFi protocol is a great and well-designed choice for all types of users offering reliable and robust services. Through PancakeSwap users are able to benefit from the crypto market as the platform provides various services which can be effectively utilized even in times of market volatility. PancakeSwap is a great addition to BNB Chain's top-tier infrastructure. Check out PancakeSwap’s info page to check the current metrics.
Source: GetBlock
If you wish to integrate BNB Chain nodes’ endpoints today please log in to your GetBlock account and choose our shared or dedicated nodes solution. You can also utilize nodes from projects mentioned above via GetBlock - a pioneer blockchain node provider for 40+ leading networks.
If you require custom settings, please reach out to our customer care team.
