Project Review — PancakeSwap (CAKE)
PancakeSwap is a decentralized exchange (DEX) built on top of Binance Smart Chain (BSC). It is the biggest automated market maker (AMM) exchange on BSC.
Most of us have probably heard of PancakeSwap’s competitor Uniswap, a leading decentralized cryptocurrency exchange. PancakeSwap is in fact a copy of Uniswap but with a difference, it was built on Binance Smart Chain whilst Uniswap was built on Ethereum. This difference has been the reason behind PancakeSwap’s phenomenal growth, something which we will touch on shortly.
PancakeSwap allows users to exchange tokens, providing liquidity via farming and earn fees in return.
It launched in September 2020 and is a decentralized exchange for swapping BEP20 tokens. PancakeSwap uses an automated market maker model where users trade against a liquidity pool. These pools are filled by users who deposit their funds into the pool and receive liquidity provider (LP) tokens in return.
These tokens can later be used to reclaim their share of the pool, as well as a portion of the trading fees. The LP tokens are known as FLIP. PancakeSwap also allows users to farm additional tokens such as CAKE. On the farm, users can deposit LP tokens and get rewarded with CAKE. Its Syrup Pools allow BSC based projects to bootstrap adoption by distributing a portion of their tokens to CAKE token holders.
PancakeSwap was launched by anonymous developers supported by Binance.
Analysis and Opinion
First let us explain a little about decentralized exchanges. They are a type of platform that allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need of an intermediary.
The growth in DEXs has been massive. Average daily trading was up 70% in June compared to the previous month. PancakeSwap has over $3.7 billion in value locked on its platform, a similar figure to Uniswap.
PancakeSwap was only formed in September 2020 and has since built a strong following offering a market in 290 cryptocurrencies at the last count. That compares to 5500 tokens by Uniswap. However Uniswap had a head start having formed back in 2018.
PancakeSwap’s amazing adoption in such a short period of time is partly due to its very cheap fees which are in the cents compared to Unswap where you can pay hundreds of dollars per transaction.
Whilst PancakeSwap’s cost advantage has been a key USP the high yields from its staking and farming pools has been a way of maintaining the loyalty of users and attracting new ones by the bucket load. With headline APRs of 409% on the face of it PancakeSwap seems an attractive proposition for investors looking to earn big returns from their cryptocurrency holdings.
However investors must always look at the story behind the headlines. In this case the 409% APR can be earned by farming the cryptocurrency pair Chess Coin (CHESS) and the stable coin USDC. CHESS is what you would describe as a total shit coin so in this case the high return is commensurate to the high risk.
Staking and farming is here to stay and PancakeSwap is one of the leaders in this space with its innovative products and the support of Binance, the leading central exchange. It is a platform worth using if you are looking to earn an income from your crypto holdings. But you must be aware of the high risks involved and ensure you invest no more than 1% of your investment portfolio in this volatile market.
You can read our in-depth article here on staking and farming and register for our weekly staking and farming review here.
Despite the anonymous team, PancakeSwap is a credible platform offering a range of useful products to its many users. As long as investors are aware of the mechanics and risks behind the high APRs then PancakeSwap is worth closer attention. But it is not for everyone.
PancakeSwap is for the adventurous investor looking for high returns and who are happy to take the high risk that goes along with it. Investors must consider the downsides of dealing with a decentralized exchange compared to a central exchange such as Coinbase et al. If a hacker compromises a DEX the losses are unlikely to be made up by shareholders, owners or insurers. DEXs are the wild west of cryptocurrency. Returns are high for a good reason. As long as investors understand this fact then PancakeSwap is one of the best options for investors looking for adventure.
No Financial Advice
This report does not constitute financial advice or a recommendation to buy in any way. Always do your own research and never invest more than you can afford to lose. Investing in cryptocurrencies is high risk, and you could lose 100% of your investment.