What is PancakeSwap
PancakeSwap is a decentralized exchange that allows you to trade Cryptocurrencies and tokens without a central mediator, maintaining your token custody at all times. It is built on an automated smart contract deployed on Smart Chain. Smart chain is a Blockchain platform that operates through Crypto exchange Binance.
Although Binance runs a centralized exchange service, it does not operate or control the PancakeSwap. Anonymous developers created it. The service is very similar to the famous Ethereum DEX and Uniswap. Already we discussed Ethereum in detail, you can read (What Is Ethereum?)
PancakeSwap is used primarily for BEP-20 tokens. It is running on the Binance Smart Chain, although it can bring tokens from other platforms through the Binance Bridge. If you want to study Binance in detail, you can read (Binance Exchange Review)
Like many other DEXs, PancakeSwap is built on an automated market maker (AMM) system. This system relies on user-fueled liquidity pools to enable Crypto trades.
Instead of handling the order book and looking for someone else who wants to exchange their tokens, users lock their tokens into the liquidity pool through smart contracts.
It allows you to exchange your preferences, and customers who keep their coins in the pool receive rewards at all times.
PancakeSwap is part of a growing wave of DeFi services. It enables Crypto traders to transact with trade tokens without significantly reducing the funds of an average person.
It is one of the largest DEXs on Binance, although DEXs on Ethereum (such as Uniswap) have significantly higher average trading volumes.
How Does PancakeSwap Work?
As mentioned above, token exchanges take place between token pairs through liquidity pools. Users can exchange one type of token without a mediator. On the other hand, other users who place their tokens in the liquidity pool receive a share of the rewards from the transaction.
However, this is only part of the overall PancakeSwap experience. DEX lets you deposit coins into so-called Syrup Pools that offer increasing rewards.
PancakeSwap offers game-like experiences, such as rioting over whether the value of a Binance Coin (BNB) will increase or in a limited window of time.
It also features a lottery that allows users to buy tickets in hopes of winning a significant CAKE windfall. It offers a wide array of rabbit-related non-fungible tokens (NFTs) for DEX purchases.
An initial form offering (IFO) sale lets you buy brand new coins from emerging projects.
PancakeSwap vs. Uniswap vs. SushiSwap
In today’s Cryptocurrency landscape, three major decentralized exchanges rule the roost.
Uniswap – Original DeFi Liquidity Protocol built on Ethereum. Today’s standard for easy Cryptocurrency trading is using ERC-20 tokens and most ETH pairs.
SushiSwap – A community that runs Uniswap fork that transforms into a DeFi hub. It is offering token exchanges, farming, and Crypto lending/ landing.
PancakeSwap – Uniswap clone built on BSC to provide cheap and fast trade using BSP Token and BSC → ETH Bridge.
Although all three enable community governance, decentralized exchanges, productivity farming, and LP (liquidity providers) opportunities. Only sushi and PancakeSwap reward token holders who place their tokens at stake.
How to Provide Liquidity to PancakeSwap
You can become a liquidity provider on PancakeSwap to win prizes. It is easy to do and keeps AMM liquid for exchange users.
Click Liquidity, then Add Liquidity and make sure your wallet is open. Now you will ask which token you are providing for Liquidity. Remember, giving Liquidity on a PancakeSwap is done in pairs, which means you have to deliver two tokens.
You Can Provide Liquidity To Either:
Existing pools
A pool created by you
Creating your pool is usually done by new projects who want to debut their Cryptocurrency tokens. If that doesn’t sound right to you, then liquidating the existing collection is a better option.
Once you select the pair for which you are providing Liquidity, go ahead and verify and submit the transaction. After depositing, you will receive a FLIP, an LP token representing your stake in the pool.
Related: How Bitcoin Transaction works?
The advantage of having a FLIP LP token is that whenever there is an exchange that tipped the Liquidity of your pool, you get a share of the rewards.
To claim these rewards, you redeem your FLIP token only for unlocking the underlying assets whose value has now increased.
What is Yield farming on PancakeSwap?
Providing Liquidity and Yield farming are two different things you can do on a PancakeSwap.
Providing Liquidity means increasing the number of your existing assets as the pools they use for exchange transactions.
Yield farming means that you collect one set of tokens to complete another token.
To get the form using PancakeSwap, select the Forms tab. Make sure the toggle has been converted directly to Forms. The page should be populated with a long list of options, including several forms with BNB and BUSD base pairs.
The PancakeSwap exchange
PancakeSwap uses an automated market maker (AMM) model. It means that while you can trade digital assets on the platform, there is no order book where you can match anyone else.
Those pools are full of other consumer funds. They deposit them in the pool, in return receiving Liquidity Provider (or LP) tokens.
They can use these tokens to reclaim their shares and a portion of the trading fee.
So, in short, you can trade BEP-20 tokens or add Liquidity and get rewards. There are other features that we will cover later.
Conclusion
PancakeSwap is the largest AMM project on Binance with some advanced features. Ethereum may have started the Defi trend, but measures such as the PancakeSwap show that the wave of innovation is intended to spread to other chains.
The platform is designed to enable users to trade a wide variety of Binance Coins (BNB) and BEP20 tokens without relying primarily on services or losing control of their private keys.
As a decentralized exchange, all trades on PancakeSwap are automatically processed through smart contracts.
Source: What is PancakeSwap