A major innovation that has followed the rise of crypto is decentralised finance. It makes traditional financial services available to a wider audience and the entire system more accessible. This trend has also made its way into crypto exchanges. PancakeSwap is one such decentralised exchange (DEX) leveraging the power of Defi to simplify the process of swapping tokens.
Most DEX providers opt for Ethereum as their blockchain of choice. However, this leads to increased load and higher gas fees for the whole network. The PancakeSwap exchange, on the other hand, is powered by the BNB Chain. The platform allows you to swap BEP-20 tokens with ease. The upgrade to PancakeSwap v2 has only made it faster and more reliable. So how does it work and how to use PancakeSwap?
How Does PancakeSwap Work?
In traditional exchanges, buyers and sellers are matched by an intermediary to ensure trades go through. However, decentralised exchanges do not require such order book systems. Instead, they operate through an “automated market maker” or AMM model. Under this model, traders exchange their digital assets using liquidity pools.
Liquidity pools are simply digital tokens stored in a smart contract. Users can deposit their tokens into such liquidity pools and earn rewards for doing so. In return, traders using the liquidity pool pay a fee to the platform. Later, this fee is distributed among liquidity providers as an additional reward for providing their assets. A portion of this fee is also sent to the platform’s treasury to sustain it.
Unique PancakeSwap Features
The crypto and Defi landscape are dominated by Ethereum. The platform has thus built several features to simplify the process for Ethereum users.
Firstly, PancakeSwap supports many wallets like MetaMask that allow users to store ERC-20 and BEP-20 tokens. Additionally, the Binance Bridge makes it simple for Ethereum users to swap their assets to BEP-20 tokens and begin trading on PancakeSwap.
There are many different ways to earn on PancakeSwap. From farming and staking tokens to lotteries and NFTs, you can have your pick on how you wish to earn more income from the platform.
Cheaper Than Alternatives
The main competitors for PancakeSwap exist on the Ethereum network. While they have much more liquidity thanks to the size of the network, they also have high transaction fees thanks to Ethereum’s congestion. The average gas fees on Ethereum DEXs can be between $1 and $3.
On the other hand, PancakeSwap has much lower gas fees. On average, a transaction is just a few cents. This is one of the main advantages of the platform.
What is PancakeSwap Farming?
Once you become a liquidity provider on PancakeSwap and earn LP tokens, you can begin “farming” them. When you deposit your LP tokens into a farm, you begin to earn CAKE tokens. CAKE is the native token of PancakeSwap.
Providing liquidity increases the total balance of the asset you invested. However, yield farming means investing one set of tokens to earn a completely different kind of token.
To start farming, head to the PancakeSwap homepage. Clicking on the Earn tab and choosing the Farms option will show you a list of all available farms. Pick the one best suited for your token and approve the action in your wallet. You can now deposit as many LP tokens as you wish to farm.
Once you are satisfied with your earnings, simply click the “harvest” button to withdraw your CAKE and LP tokens.
What is PancakeSwap Staking?
After you have successfully farmed some CAKE tokens, they can further be staked to earn even more interest on your investment. To do this, you simply have to deposit CAKE tokens in the platform’s Syrup pools.
Similar to farming, you can complete this by going to the Earn tab of PancakeSwap. From here, click on pools to see a list of all available syrup pools along with their average returns and total tokens staked. Choose the best option for you and click confirm. Some pools can even automatically compound your investment by harvesting and re-staking the assets.
How Much Money Can You Make On PancakeSwap?
Can you make money on PancakeSwap? As you have seen above, the opportunities to earn from the platform are endless. It all begins with providing liquidity on the platform. This leads to farming CAKE and earning interest on it through staking. The loops of earnings are highly rewarding for investors.
Finally, there is also the option of participating in lotteries. If you buy a ticket with CAKE, you get a chance to participate in a lottery draw and earn NFT rewards.
PancakeSwap is a fantastic option for users looking for cheaper alternatives to decentralised exchanges. It also provides users of the BNB chain an avenue for investments. Through its many different earning opportunities it is very rewarding for its users. To get started with trading or earning simply head to the website and connect your crypto wallet.