By far the most popular decentralized exchange (DEX) on Binance Smart Chain (BSC), PancakeSwap, has become somewhat of a phenomenon in the blockchain space in recent months, thanks to its massive liquidity, wide-ranging feature set, and sizeable user base.
The platform is designed to allow users to securely trade Binance Coin (BNB) and a massive variety of BEP-20 tokens without relying on centralized services or losing control over their private keys. As a decentralized exchange, all trades on PancakeSwap are automatically executed via smart contracts — completely eliminating counterparty risks.d
Although the team behind PancakeSwap is completely anonymous, the platform has been audited by several prominent blockchain security firms — including Certik and Slowmist. The platform is also completely open-source, since the PancakeSwap website and smart contract code are open to public scrutiny. Nonetheless, it is known that the team consists of more than a dozen members (known as chefs), including two co-leads (Hops and Thumper), and a variety of engineers.
Since the platform launched in September 2020, it has seen a dramatic growth not only in the number of users and the liquidity of supported assets, but also in the variety of features it offers. Now, PancakeSwap can be considered an entire ecosystem of DeFi tools, all of which are built around the platform’s native utility token — CAKE.
What is CAKE?
CAKE, a native utility token of PancakeSwap Exchange, is used for a variety of purposes within the growing landscape. Its main functions are yield farming, staking, participating in the PancakeSwap Lottery, and making and voting on governance proposals through the platform’s community governance portal.
How Does PancakeSwap Work?
PancakeSwap is a type of DEX known as an automated market maker (AMM). This essentially means that there are no order books, bid/ask system or limit/market orders.
Instead, users trading on the platform automatically draw liquidity from one or more liquidity pools, which then rebalance after the trade is complete. Trades conducted on an AMM, like PancakeSwap, subtract liquidity from one side of the pool and add liquidity to the other, thereby changing the weights of the assets in that pool and their relative values.
This liquidity is contributed by users, known as liquidity providers (LPs), who add equal values of both sides of a liquidity pool (e.g. BNB/USDC) to increase the total amount of liquidity available. Users receive LP tokens that represent their share in that particular pool. These tokens need to be returned in order to retrieve their fraction of the pool. In return for providing liquidity, LPs receive a share of the transaction fees generated by any pools they contribute. There is a flat 0.25% transaction fee for makers and takers, most of which is shared among the liquidity providers.
As a decentralized application (DApp), PancakeSwap is generally accessed through a supported Web3 wallet, such as MetaMask, TrustWallet, or WalletConnect. Once configured to support Binance Smart Chain, these wallets are used to interact with the PancakeSwap smart contracts via the intuitive PancakeSwap front-end.
The platform is funded by the PancakeSwap treasury, which currently receives 15% of all the trading fees generated. According to the official documentation, funds from the treasury can be used for a variety of purposes related to the upkeep and maintenance of the platform. These include salaries, audits, prizes, bounties, hosting, etc.
Updates on PancakeSwap
Since its launch in 2020, the platform has gone through several upgrades, each of which has seen the addition of new products and features. PancakeSwap upgraded to V2 in April 2021, giving the developers more freedom to improve the future functionality of the platform — such as auto-compounding in syrup pools and adding a referral program. This was subsequently followed by a change in the fee schedule (from 0.2% to 0.25%) with 0.05% of this used to buy CAKE from the public market before burning it to add another deflationary mechanic to the token.
The chefs behind PancakeSwap don’t currently maintain a concrete roadmap, but there is a public to-do list (without specific dates). Some of the major items on the list include adding fixed-term staking products, lending & borrowing features, and allowing users to earn NFTs by completing tasks and leveling up.
What Makes PancakeSwap Unique?
Built on Binance Smart Chain, PancakeSwap leverages a number of its unique properties to provide an excellent trading experience to end-users. For one, it benefits from extremely low transaction fees and rapid confirmation times — ensuring trades are executed quickly. It also doesn’t generally suffer from displacement attacks like front-running, making it safer to use than some other AMMs on blockchains with a slower block time.
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