What Is PancakeSwap ? All You Need to Know About CAKE

What Is PancakeSwap (CAKE)?

The introduction of the concept of Decentralized Finance (DeFi), which was an absolute novelty in the financial sector, opened many doors to anyone who might not have had access to traditional finance before. This revolutionary idea seeks to make society financially inclusive without the need for any intermediaries to facilitate transactions. Decentralizing the world of finance refers to imagining a system, in which there would be no need for centralized exchanges but in which everyone can access numerous financial instruments only by using private wallets, without having to expose private keys to third parties.

Ethereum gave the world its first Decentralized Exchanges (DEXs), which have been enormously successful in confirming the demand for alternative financial solutions to traditional ones. Decentralized exchanges like Uniswap and SushiSwap emerged as the market leaders, and are still at the top in terms of trading volumes. Unfortunately, the congestion problems of the Ethereum network and the consequent slowdown in the speed of transactions and high gas fees have prompted many developers to adopt alternative chains. The result was that many other DEXs, which were built on chains faster than that of Ethereum, were born and were consequently considered valid competitors. PancakeSwap, a Binance-backed protocol, is one of them.

PancakeSwap was created by a group of anonymous developers, thanks to funding from Binance’s Accelerator Fund, although it is known that the team consists of more than a dozen members. It was finally launched on September 20th, 2020, during a period when the transaction costs on Ethereum were growing exponentially. PancakeSwap offers itself as a convenient alternative to DEXs on Ethereum, being based on the Binance Smart Chain (BSC) blockchain, which is known for its low costs. The platform is partially governed by the community, and the users can vote on governance proposals. PancakeSwap offers a similar operation to that of the aforementioned UniSwap and Sushiswap, with the difference that the standard of tokens exchanged on PancakeSwap must be BEP-20 (instead of ERC-20), which is the native standard of the BSC.

How Does PancakeSwap Work? AMM Model, Farming, and Staking

As already mentioned, PancakeSwap is a decentralized exchange (DEX) that runs on the Binance Smart Chain. A DEX is an exchange that does not hold private keys and is defined as ‘non custodial’. This means that in order to interact with it, users only need to connect their private wallet to the exchange. A DEX like PancakeSwap works on the automated market maker (AMM) model instead of the traditional one, and exploits the so-called liquidity pools.

The AMM exchange is a type of automatic market price exchange that does not require you to set a limit buy/sell. The currencies required for exchanges are provided by liquidity pools, which usually consist of two coins in equal proportion (50/50). People deposit their funds in these liquidity pools and receive back incentives and trading fees, for making their assets available.

Users can play two fundamental roles within PancakeSwap: a basic user, which is the one who makes simple exchanges, or a liquidity provider, which is the one who gives liquidity to the platform. If a user wants to put some of his or her coins to work, he or she can put liquidity into a pool, thus become a liquidity provider and earn rewards in two ways:

1. Earnings from trading fees on the pool: once liquidity is injected into a pool, any person wishing to trade the coins that are inside it will pay a fee to all participants in the pool.

   In addition, when the liquidity is deposited, the so-called LP (liquidity provider) tokens are obtained from the platform. These tokens represent the share of the pool that each user holds, and are used to calculate the final liquidity that can be withdrawn at the time of redemption.

2. Earnings from farming & staking: LP tokens can be ‘farmed’ in another type of liquidity pool to earn PancakeSwap’s native BEP-20 token, known as CAKE. In a nutshell, the representation of the liquidity that has been lent can be blocked within the platform, which in turn rewards the user with additional tokens.

   But that is not all: users can stake their CAKE tokens to earn even more rewards from the so-called ‘SYRUP pools’. The best part is that these rewards are no longer in the form of CAKE coins only, but by locking CAKE tokens in specific pools for a certain period, users can earn other BEP-20 tokens, which can be traded or withdrawn.

Note: When depositing funds into a 50/50 liquidity pool, there is a risk of impermanent loss. This event occurs when the price of the provided tokens changes from the time they were deposited. The greater this change, the more one is exposed to impermanent loss. The loss is realized permanently when the tokens are withdrawn from the pool, and does not occur in pools consisting of non-volatile coins (e.g. two stablecoins, USDT/USDC).

What Is the CAKE token?

CAKE is PancakeSwap’s BEP-20 native token that powers the PancakeSwap ecosystem. Its maximum supply is 750 million units, of which 144 million (19%) are already in circulation (October 2022).

The initial CAKE distribution was 75% to farmers and 25% to Syrup token holders. PancakeSwap’s liquidity mining program has an initial emission rate of 40 CAKEs per block (1.15 million CAKEs per day based on 30,000 blocks per day). Following some proposals passed by the community, the CAKE emission rate has been drastically lowered. Due to a complex token burn mechanism, from the 40 CAKEs emitted per block about 28 are burned, and the actual issue is therefore approximately12 CAKEs. The burning mechanism affects almost all the activities carried out within the platform in different percentages, including farming and trades.

Source: docs.pancakeswap.finance

CAKE, in addition to being the yield farming reward token, can also be used in other ways, as listed below.

• Governance: CAKE holders can vote on the proposals for the improvement and development of PancakeSwap.
• Lottery: Users have the option to use CAKE tokens to purchase lottery tickets and try their luck. The prizes are generally high, and the draw mechanism is provably fair.
• NFTs: With 1.5 CAKE it is also possible to create a personal profile in the form of NFT and join a Team. Being part of a team allows you to participate in Team Battles, which are trading battles in which you win prizes in CAKE or the ownership of an NFT.

Other PancakeSwap Features: IFOs

PancakeSwap is offering users a new ICO model called Initial Farm Offering (IFO). This offering is a type of fundraising model that helps new DeFi projects raise capital by participating in pre-sales events hosted by decentralized exchanges/applications. An IFO on PancakeSwap lets users obtain early access to PancakeSwap’s new tokens as soon as they are added.

In order to participate in an IFO, a user must lock CAKE tokens in the Syrup Pool to obtain iCAKE, which determines the maximum CAKE commit limit in the PancakeSwap IFO public sales. At this point, the user can decide how many CAKEs he or she wants to commit in order to obtain the new IFO tokens, after the completion of the offering.

Is CAKE a Good Investment?

Since the day of its release, the PancakeSwap platform has not stopped developing and innovating, managing to offer more and more features to its users. For many retail users, PancakeSwap was a viable alternative to platforms built on Ethereum, which had become extremely expensive to use at the time. To date, according to DefiLlama, the platform is in the eighth position in terms of TVL (total value locked), with 2.83 billion locked. The CAKE token still manages to give high returns within PancakeSwap, which makes it very attractive. But it is not to be considered the classic ‘Farm & Dump’ token: thanks to the complex token burn mechanisms recently adopted and the numerous use cases, the demand for CAKE still manages to be quite stable, despite the current bear market period. Usually, it is during the bear market when the solidity and validity of a project are being noticed, so soon we will probably see if it could be a good idea to hold CAKE in a crypto wallet.

How to Own CAKE?

You can own CAKE via a crypto centralized exchange, so you can begin by creating a Gate.io account. Once the account is verified and funded, find out the steps to buy CAKE. In a nutshell, you can do this via flash swap, trading the spot market or even using leverage.

News on PancakeSwap

On October 20th, developers of PancakeSwap proposed deploying its mainnet on the brand new layer-1 blockchain Aptos, a project founded by two former Meta employees who were also working on the Diem project, Facebook’s controversial stablecoin. The team behind PancakeSwap aspires to complete the transition from the BSC chain to the new one as soon as possible, in order to establish PancakeSwap as the leading exchange on Aptos and gain a larger market share through early deployment. The voting process for the new proposal started on October 21st, and the whole community is invited to participate. Should the proposal pass, developers will deploy four main features of the DEX: swaps, farms, pools, and initial farm offerings. CAKE will also natively be available on the Aptos blockchain, and that would mark the first time this token was available as a native token on another chain.

This change would not be a good thing for the Binance Smart Chain, as it would partially lose one of its most successful DEXs. So far, the PancakeSwap team justified this proposal with the following statements: “Aptos is a next-generation L1 with low transaction costs, high transaction throughput, and fast transaction speeds, utilizing a novel and developer-optimized approach to parallel execution. PancakeSwap has developed a strong relationship with the Aptos team, and a large number of its developer ecosystem are suitable for PancakeSwap partnerships and products”.

Useful References

For the latest updates about PancakeSwap, you can visit:

• The official website
• Twitter
• Reddit
• Discord
• GitHub
• Telegram

Take Action on CAKE

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• CAKE/USDT
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