DeFi is a term often considered an argument for legitimacy of cryptocurrencies of all sorts. DeFi describes decentralization and appoints itself a counter to the current fiat financial system by removing overseeing authorities confirming transactions. The basis for this system is a smart contract that verifies the validity of any given operation.
One of the advantages of DeFi is in transparency. Most of the projects are developed as open-source solutions meaning that most of them are quite similar to one another in terms of functionality and UI.
All these projects must have a place for their tokens to be traded while anonymity remains a huge concern. It is why many users prefer DEX (decentralized exchanges) and their satellites, lending and yield farming platforms that are usually pivoted towards increasing overall profitability. At the same time, limitations are nearly non-existent as users do not have to comply with any directives like confirming their identity. It is a free-for-all regardless of nationality, location, or credit history.
In the center of attention is PancakeSwap, a new DEX based on the BSC (Binance Smart Chain). Let’s have a talk about it.
What is PancakeSwap?
The main advantage of the platform is that it unites different services in one place – a decentralized exchange and a platform for profitability optimization. It appeared in the Binance ecosystem relatively recently, in 2020. It immediately issued the CAKE token used to increase liquidity on the market. BSC provides security and safety while commissions are paid in BNB.
Using BNB and the vast network of Binance as well as so-called bridges allow any project on the BSC platform to be financially efficient since all expenditures are lower while profits are higher. On top of that, Binance already has a huge audience that was detrimental to the success of PancakeSwap due to their cheap exchange rates.
One of the reasons for the popularity of BSC is that the whole ecosystem is quite productive and all participants are incentivized to reduce any fees to earn more and lose less on transactions. Working with crypto on the platform is a little bit more efficient.
PancakeSwap was initially conceived as a product capable of attracting a wide audience thanks to a better API, unorthodox marketing, creativeness of the developers, and overall efficiency from the user’s standpoint. The combination of these qualities made Pancake one of the fastest growing projects on BSC. In April of 2021, the total number of daily operations reached 2 million which is 1.25 more compared to ETH. The total volume of finances is evaluated at 7.7bn USD which is less only compared to Curve Finance, another large exchange. However, Curve is used for big transactions only while PancakeSwap is positioned on the market as a down-to-Earth platform for everyone.
What is a swap?
The PancakeSwap DEX allows users to engage in p2p exchanges using the BEP-20 standard (which is used all across the BSC network). At the same time, you can exchange using other tokens and standards with the Binance bridge service. Currently, you can use over 80 different cryptocurrencies from ETH, TRX, BSC, and Binance ecosystems.
The main focus of PancakeSap is on providing services anonymously without any preferences. You don’t need to expose your identity, you can use a variety of wallets including MetaMask and TrustWallet, while the minimum volume of assets must be only 0.05 BNB to cover transactions.
AMM stands for Automatic Market-Maker. It is a system that substitutes a traditional booking system by creating orders automatically and upkeeping high liquidity by interacting with assets directly as users’ deposits continue creating liquidity.
The while concept of DEX is in its independence from any regulatory government so anonymity is quite important as well as the ability of users to hold crypto on their wallets without ever giving them to the exchange. Additionally, you can quickly start supporting up and coming projects.
The world of crypto is dynamic. Many projects come and go. Some become market leaders but they can also quickly lose their attractiveness as investment options. To be ahead of competition and receive tokens of startups faster than others is quite good. PancakeSwap users can obtain tokens before they become actual assets on the market.
On the other hand, paying for these privileges is a responsibility since commissions are quite high. Yes, Ethereum DEX platforms have even higher commissions while centralized exchanges have much lower ones. For comparison, PancakeSwap’s fee is 0.25% while Binance charges only 0.075% which is 3 times less. There are other downsides to DEX. For example, sometimes there are price slips when the price at which you purchase is different from what you ordered, there are also privileges for ordering huge transactions.
The 0.25% commission is then distributed as follows:
0.17% is redirected to the liquidity pool to increase transaction speed.
0.03% is redirected to the PancakeSwap.
0.05% is removed from pool completely to reduce inflation.
While some people may think that the downsides above can negatively affect the popularity of DEX projects, the real situation is the opposite: these exchanges grow in popularity, liquidity is sky-rocketing, and lower commissions actually attract wider audiences of clients.
How to farm CAKE and is it profitable?
For any DEX platform, high liquidity is quite important to keep assets mobile and order execution at an acceptable pace. There different methods to creating liquidity. For example, an exchange may allow people who become liquidity providers to earn a small reward to motivate them to provide their assets for temporary use on the exchange.
You can provide liquidity on Pancake by connecting your wallet to the exchange, confirming the rights of smart-contract to conduct transactions with the funds on the wallet, and send a certain volume of assets to the pool. If you don’t have any of the tokens that are used in the pool, you can simply purchase it on the exchange.
After this simple operation, you will be awarded an LP which is a special token for liquidity providers. It will have a codified name that reflects which token you used to provide liquidity. This token is the evidence that you are the owner of the assets in the pool.
When any transaction affecting your share of the pool is conducted, you receive a small reward which is added to the value of the LP token you received. When you need to extract your money, you just exchange your LP that now has an increased price for another token. These commissions are not enough to cover risks related to issues with transactions but PancakeSwap has you covered. To reduce risks, you can move your tokens to the Yield Farming platform where you receive CAKE tokens for staking your assets. This system is the main attraction of the platform.
There is a whole list of farms in which you can put your tokens. These farms differ from one another slightly but in general they are quite similar. To estimate your revenues, use the ARP value and the corresponding multiplier. Note that APR may change over time. It may reduce or increase depending on the farm’s performance and the overall liquidity pool on the platform so check it out regularly.
What is Syrup?
If you have already made the steps described above and became a liquidity provide for the platform, you already have a steady revenue stream but you can further expand it by staking in Syrup Pools. You will be awarded additional rewards for staking.
There are three main staking options in Syrup:
The math can be both simple and complicated for the first option. For example, you can use the manual CAKE-CAKE system and tune staking while withdrawing earnings directly to your wallet. You can also automate the process and all earned assets will be redirected back to the pool. You will be awarded a Syrup token which will prove that you are the owner of CAKE in the pool. Withdraw funds using the two-step process: exchange Syrup for CAKE, then, CAKE for other tokens.
Note that there is a 0.01% commission for withdrawing Syrup meaning that frequent transactions reduce the overall profitability.
Another option is staking CAKE for other tokens. These are new tokens of up and coming projects that drastically require liquidity. These staking options should not be considered a conservative investment but more like a gambling feature since may of new projects will never gain any ground and you will lose your stake altogether.
The last method of staking is in staking other tokens to receive CAKE. The system will purchase your CAKE and reduce inflation by removing them from the overall pool of tokens.
Many rightfully believe that CAKE for CAKE is the safest investment option on the platform.
One of the more engaging features of CAKE is that you can actually win it in a lottery. To participate in a lottery, you need to buy a ticket. Each ticket costs $5 but you can get a 4.95% discount for buying 100 tickets. The more tickets you have, the higher your chances to win a 10 000 CAKE main prize. Each ticket is assigned a 6-digit number. You will win something if your tickets have several consecutive numbers from the winning combination.
This is an analog of a BNB future. The price of the token is tracked by the Chainlink system which will announce the price every 5 minute. You need to guess whether the price goes up or down.
The future of PancakeSwap
What is my personal most interesting part of the platform? Currently, most of the decisions on the platform are made using a consensus voting by anonymous holders of tokens. In addition to existing features, the platform plans to add marginal trading, lending, additional gamification options, and even NFT.