In recent years, decentralized finance (DeFi) has transcended realms that traditional finance could ever imagine. As a result, DeFi has reached new heights of autonomy, speed and inclusion. In decentralized exchanges (DEX), users can participate in trading in autonomous markets like PancakeSwap, which brings us to the question at hand: what is PancakeSwap exactly?
An introduction to PancakeSwap
PancakeSwap is a decentralized exchange native to BNB chain (formerly known as Binance Smart Chain). It is used mainly for swapping BEP-20 tokens, which is a specific token standard developed by Binance.
How does it work
What is PancakeSwap and its uses?
Just like other decentralized exchanges (such as UniSwap or SushiSwap), PancakeSwap uses an automated market maker (AMM) model. When you trade digital assets on the platform, there is not an order book where you are matched with someone else, or a single intermediary company to facilitate trading. In essence, you are trading against a liquidity pool. For example, if you wish to trade one token for another, you can simply do so by depositing the token you have in the pool and withdrawing the other token you wish to receive. Do take note that only BEP-20 tokens can be traded on PancakeSwap.
Because of this mechanism, buyers need not wait for any other buyer to match with them. For instance, trading a particular BEP-20 based token like XRP to another like BNB would require buyers to find an XRP/BNB pool that has sufficient liquidity.
Besides trading for tokens, users can use PancakeSwap farm to earn its governance token – CAKE. Users can lock up tokens in the liquidity pools and be rewarded with CAKE. This is to incentivise users to deposit more coins in liquidity pools and ensure that the liquidity pools have sufficient tokens. Furthermore, users can participate in staking their CAKE in SYRUP pools to compound their earnings. By doing so, users can earn many more tokens. Note that users can withdraw their earnings and staked tokens at any point in time.
Other uses
PancakeSwap also gives users opportunities to participate in other fun activities like lotteries. Every six hours, the result of the lottery would be announced and the winner will win 50% of the entire lottery pool. Should two or more of your numbers be in the same position as the numbers in the winning ticket, you will win some rewards too.
In addition, PancakeSwap sheds light on NFTs. Users can stand a chance to win NFTs. Winners can choose to either trade the NFTs for CAKE, or keep the NFT as a collectible.
Getting Started
First and foremost, users would need a wallet compatible with BNB chain. Some options are Trust Wallet, BNB Chain Wallet, Coinbase Wallet, and MetaMask. Do note that if you are using MetaMask, you would have to configure the settings to start working with BNB decentralized apps like MetaMask.
In Conclusion
What is PancakeSwap? It is a decentralized exchange that facilitates trading between tokens of type BEP-20. Compared to other exchanges like UniSwap and SushiSwap, PancakeSwap is less expensive and faster to use.
For interested users, the transaction fees are extremely low, making it much more enticing for users with smaller amounts of crypto assets.
