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When you look at the name, at first glance someone who doesn’t have experience in the world of DeFi would be led to believe that pancake swap refers to a website for swapping homemade pancakes.

However this couldn’t be further from the truth. Could you imagine how weird that would be?

Thankfully, the name PancakeSwap is nothing but, well, a name. 

Pancake Swap is considered to be one of the most popular decentralized exchanges (DEX) that runs on the Binance Smart Chain (BSC). Despite it’s rather comical name, it is definitely no laughing matter as it rakes in over $100 million in trades over a 24 hour period. 

Thanks to its massive user base, liquidity options and wide-range of available features, Pancake swap has become somewhat of a phenomenon in the world of cryptocurrency. The platform itself allows people to trade Binance Coin (BNB) along with a wide variety of other BEP-20 tokens without relying on any centralized service, or even losing control over their private keys.

Thanks to it being decentralized, Pancake Swap executes all of it’s trades automatically through smart contracts, which eliminates any issues and risks involved with a counterparty.

The team that designed PancakeSwap are completely anonymous, however this does not cast any doubt on its legitimacy as several leading blockchain security firms have audited them. Not only this, but the Pancake Swap platform itself is completely open-source thanks to the smart contract and website code being available for any member of the public to view. 

Since its conception way back in September 2020, there has been significant growth in the amount of people using the platform, along with the liquidity and list of supported assets. Fast forward to 2022 and you will find an array of additional features you wouldn’t have seen in the original along with the fact it can now be considered its own entire ecosystem of tools, all built around their own token called CAKE. 

What Is Decentralized Finance?

As an alternative to traditional financial services, decentralized finance has quickly emerged as a more secure, transparent, and efficient option. We can create a more open and trustworthy financial system, and one that is more accessible, by eliminating the need for centralized financial institutions.

Decentralized finance is secured by blockchain technology, lowering the risk of corruption, fraud, and mismanagement. As a bonus, managing finance will become much easier and cheaper. Overdraft fees will disappear, wire transfers won’t be charged, and a transaction won’t need to be verified during banking hours.

Understanding decentralized finance

Decentralized finance, commonly referred to as DeFi, is a form of financial organization without the use of traditional and centrally controlled middlemen. DeFi creates a system that functions independently of banks and any other financial institutions, like global exchanges.

In addition to online transactions through the DeFi cryptocurrency, decentralized finance is also suitable for a number of other financial functions, such as investing, insurance, exchanging, borrowing, and lending.

What is CAKE?

With Pancake Swap, users have access to a native utility token named CAKE. Based on the Binance Smart Chain, this BEP-20 token offers many functionalities within their platform, although its primary purpose is yield farming, staking, and participating in the Binance lottery, among others. 

Read More: How To Learn About Cryptocurrency: The Ultimate Beginners Guide

How Does PancakeSwap Work?

Known as an automated market maker (AMM), pancake swaps are a form of decentralized exchange (DEX). This basically means there are no order books, bid/ask systems, limit/market orders, etc. 

Platform users have access to liquidity automatically via one or more liquidity pools, which are rebalanced after each trade is closed. PancakeSwap, for example, adds liquidity to one side of the pool, and subtracts it from the other, which affects the weights, as well as the relative values, of the assets. 

The liquidity providers (LPs) are responsible for adding identical values from both sides of the liquidity pools (e.g. BNB/USDC) to increase the total amount of liquidity. The LP tokens that a user receives represent their share of each pool. They will not be able to claim their fraction if these tokens aren’t returned. In return for providing liquidity, LPs receive a portion of transaction fees generated by any pools they contribute. A 0.25% transaction fee is charged both to makers and takers, and it is split among the liquidity providers.

Because PancakeSwap is a decentralised application (also known as a ‘DApp’), it is normally only accessible through a Web3 wallet or connecting to one, such as MetaMask, TrustWallet, or WalletConnect. 

When setup with Binance Smart Chain, these wallets can utilize the PancakeSwap interface to access PancakeSwap smart contracts.

PancakeSwap now earns 15% of all trading fees produced by its platform. According to official papers, the treasury can pay a variety of objectives relating to platform repair and maintenance. Salary, audits, awards, bounties, and hosting are all forms of compensation.

How Are Pancakeswap And Uniswap Different?

One of the primary differences between Uniswap and Pancake swap is the fact that Binance makes use of Binance Smart Chain (BSC) technology, this has much reduced transaction prices in comparison to Uniswap, which utilizes the Ethereum (ETH) blockchain. Uniswap using the ETH blockchain means that each transaction has a consequence of costing a hefty amount more than that of BSC.

As a decentralized exchange on the BSC blockchain, PancakeSwap makes full use of the available smart contract technology that can be employed on Binance Smart Chain. Introduced in September 2020, it is an automated market maker (AMM) which allows users to trade their crypto tokens as well as provide liquidity to other users. PancakeSwap was inspired heavily by the Uniswap platform, which is why it also provides all the same core features you can find on there.

However, Uniswap is the more famous of the two regardless of the transaction cost drawbacks, this is due to it being the first platform of its kind and more often than not is considered to be the best available among the crypto community. Uniswap uses automated solutions to solve liquidity problems.