PancakeSwap
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Strengths and Weaknesses
+ Strengths
- Earn interest on your cryptocurrencies
- The platform is driven by algorithms
- Perpetual trading
- Win section with competitions
- Easy to use
- Managed by community
- Marketing
- Weaknesses
- Risks with participating in DeFi
- Beginners need enough know-how to use
- Impermanent loss in pools
- A lot of new projects on BNB Smart Chain without foundation
Basic Information
PancakeSwap is a decentralized exchange (DEX) originally built on the BNB Smart Chain (BSC). It operates based on an Automated Market Maker (AMM) system and was created as a fork of SushiSwap. It has now expanded its business to other blockchains such as Ethereum and Aptos.
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Functioning of the Protocols
PancakeSwap is an open-source software that was created as a fork of SushiSwap and works on the AMM system. The platform is completely permissionless and the need to trust various intermediaries is removed from its functioning. Anyone can engage in cryptocurrency trading, liquidity provision, or various competitions.
PancakeSwap allows you to use your cryptocurrencies in three ways: trade, earn and wins.
Trading
Trading on PancakeSwap is done through a swap, limit, and perpetual markets. The swap market allows users to exchange one cryptocurrency for another at the current market price, while the limit market allows users to set a specific price at which they want to buy or sell a cryptocurrency. Perpetual markets allow users to trade derivatives of cryptocurrencies.
Swap
Token swaps on PancakeSwap are a simple way to trade one BEP-20 token for another via automated liquidity pools.
When you make a token swap (trade) on the exchange, you will pay a 0.25 % trading fee, which is broken down as follows:
- 0.17 % - returned to Liquidity Pools (LPs) in the form of a fee reward for liquidity providers
- 0.0225 % - sent to the PancakeSwap Treasury
- 0.0575 % - sent towards $CAKE buyback and burn
PancakeSwap uses a Smart Router, which is a routing algorithm that links the AMM and stable swap to provide better liquidity and pricing. It uses a smart order routing algorithm that executes trades across multiple pools to find the best price for traders.
Limit Orders
Limit orders allow you to get your swaps at desired prices by leaving instructions to fill buy or sell orders at specific prices. The trade will only be executed if the price on PancakeSwap reaches your limit price (or better).
Perpetual Trading
PancakeSwap in conjunction with ApolloX brought this new feature to PancakeSwap.
Perpetuals, perpetual swaps, or perps are a special type of futures contract without an expiration date. They offer functions like leverage, which is a trading mechanism. Traders can use it to increase their exposure to the market by allowing them to pay less than the full amount of the investment. In simple words, you borrow money to leverage your investment. Traders can choose from cross or isolated margin modes. Cross Margin means that all cross positions under the same margin asset share the same asset cross-margin balance. In the event of liquidation, your assets’ full margin balance, along with any remaining open positions under the asset, may be forfeited. Isolated Margin Mode means that you manage your risk on individual positions by restricting the amount of margin allocated to each. If the margin ratio of a position reaches 100 %, the position will be liquidated. Margin can be added or removed to positions using this mode. In perpetual trading, you can also use different order types.
Earn
Users can also earn on PancakeSwap through farms, liquidity pools, and staking.
Farms
Yield Farming is a great way to earn $CAKE rewards on PancakeSwap.
Unlike Syrup Pools, Farms require you to stake two tokens to get LP Tokens, which you then stake in a chosen farm to earn rewards.
Rewards calculation in farms
Yield Farm APR calculations include both LP reward: APR earned through providing liquidity, and farm base reward APR earned by staking LP tokens in the Farm.
Syrup Pools
Syrup Pools are the simplest way to earn free tokens on PancakeSwap.
Just stake your $CAKE, and earn free tokens. Some special pools let you stake other tokens besides $CAKE.
Win
PancakeSwap also offers users different ways to win. Trading competitions mean users can compete against each other to see who can make the most profit in a particular market. Predictions are events in which users can predict the price of a specific cryptocurrency and win rewards if their prediction is correct. Lottery and Pottery are other ways users on PancakeSwap can win rewards.
PancakeSwap Prediction is a simple decentralized prediction market.
Predict whether $BNB or $CAKE price will rise or fall, and if you guess correctly, you win.
It's easy to take part:
- Predict if the price of $BNB or $CAKE will be higher or lower than it was when the “LIVE” phase starts
- If you enter an “UP” position, and the “Closed Price” is higher than the “Locked Price” at the end of the 5-minute LIVE phase, you win and if it’s lower, you lose
- If you enter a “DOWN” position, and the “Closed Price” is higher than the “Locked Price” at the end of the 5-minute LIVE phase, you lose and if it’s lower, you win
Playing the PancakeSwap Lottery gives you a chance to win huge $CAKE prizes.
Specifics:
- cost for 1 lottery ticket: ~5 USD in $CAKE
- Lottery entry limit: no overall limit, but only 100 tickets can be bought at one time by individual user
- Paying for one ticket will give users a random 6-digit combination with each digit being between 0-9. Match numbers from the left to win prizes—the more numbers that match, the bigger the prize pool you'll share
- Lottery uses Chainlink's implementation of VRF for true, secure randomness
Pottery combines $CAKE lock-staking with lottery elements to give you a chance to win a bigger yield on your $CAKE deposit.
Specifics:
- Deposit $CAKE in the Pottery page with a minimum of 1 $CAKE
- Deposit closes on the first Monday of each month for a different Pottery cohort (23:59 UTC on that Monday) and is open from the Friday before that at around 10:00 UTC, unless there are special arrangements announced in advance (e.g.; “the first Pottery will close on Aug 8, 2022, 23:59 UTC”)
- During the beta stage of the product, there was a cap to the total $CAKE deposit for each Pottery cohort (the maximum deposit cap was 600 000 $CAKE)
- $CAKE deposited will be directed to the lock-staking pool and locked for ten (10) weeks, with 80 % of the total staking rewards being sent to the Pottery pool for drawing, and 20 % being reserved for your withdrawal
- For each Pottery cohort (one per month), there will be ten weekly draws on each Friday (at noon UTC) upon deposit, producing eight winners per week, each address may win more than once
- The larger your deposit in relation to the overall pool, the higher the chance of winning, winners can claim their prize right after each draw
- Each Pottery cohort conducts the draw separately
- $CAKE can only be withdrawn 10 weeks after the Pottery cohort lock date
- Pottery uses Chainlink's implementation of VRF for true, secure randomness
NFT
In the NFT section, users can buy, sell and trade Non-Fungible Tokens (NFTs) on PancakeSwap.
Initial Farm Offering (IFO)
IFO, which stands for Initial Farm Offering, is a way for projects to raise funds by providing tokens for private or public sale on PancakeSwap. This allows projects to raise funds by pre-selling their tokens.
Visit websites to find out more about IFOs.
Voting
PancakeSwap also allows users to participate in voting on various proposals and decision-making processes related to the platform. This gives the community a voice in the direction and development of the platform.
The PancakeSwap voting portal can be found here.
PancakeSwap is one of the few protocols in a decentralized environment that offers its users this amount of functionality in one place. Cryptocurrency traders in particular are coming into their own nowadays as centralized exchanges are proving to be insufficiently trustworthy. On PancakeSwap, they will find an almost identical and, at the same time, decentralized interface for perpetual trading. Traders just connect a Web 3.0 wallet and can then start trading without being forced to give their personal information to anyone, or to trust a third party that has full control over the security of their assets.
Governance
PancakeSwap is a community-driven project that is managed by the community through forum discussions and voting on the proposals themselves. Any $CAKE holder can participate in the governance of the PancakeSwap project by voting on existing proposals, or by creating their own proposals. Voting power is proportional to the number of tokens a user holds.
Core - proposals posted by the PancakeSwap team. The results will be actioned.
Community - proposals posted by the PancakeSwap community. These are used to propose ideas and show the community’s point of view. The PancakeSwap team reviews every community vote and will often cherry-pick any great ideas and designs with strong community support up to the coming product releases and / or core voting proposal level.
PancakeSwap's governance token protocol is $CAKE.
$CAKE usage:
- Staking in Syrup Pools to earn other rewards tokens
- Using $CAKE in Yield Farms, for which users earn additional $CAKE
- Purchasing lottery tickets
- IFOs
- Voting on PancakeSwap project management proposals
Revenue and Tokenomics
Revenue
PancakeSwap generates revenue through a 0.25 % fee on all trades executed on the platform. This trading fee is distributed to the liquidity providers as a reward for providing liquidity to the platform. In addition, PancakeSwap also uses a portion of the trading fee to buy back and burn the CAKE token, which helps to increase the value of the token over time, A portion of this is sent to PancakeSwap's treasury.
When you exchange tokens (trade) on the exchange, you pay a 0.25 % trading fee, which is broken down as follows:
- 0.17 % - Returned to the liquidity pool in the form of a reward to the liquidity providers
- 0.0225 % - Sent to the PancakeSwap treasury
- 0.0575 % - Sent to CAKE for buyback and burning
Tokenomics
PancakeSwap has undergone modifications to its tokenomics from v1 to v2. Compared with v1, the $CAKE supply has been capped at 750m, whereas in v1 it was unlimited. You can see a comparison of the changes in v2 versus v1 in the image below.
The total supply of $CAKE is limited to 750 000 000 tokens and there are currently 164 761 704 tokens in circulation.
You can see the detailed workings of the $CAKE emission and how the deflation mechanism works in the image.
The Uniqueness of the Protocol
PancakeSwap takes advantage of BNB Smart Chain, which enables fast and cheap transactions. It is one of the main sources of liquidity for the BNB Smart Chain by providing a wide range of liquidity pools, thus increasing the number of available trading pairs. It offers traders a perpetual trading interface, almost identical to the one on a CEX, whereby users can trade using limit orders or leverage when trading. PancakeSwap has great marketing and are always coming up with new features. They have created a very user-friendly interface and tried to make it more enjoyable for users, including various competitions. The expansion to new blockchains in the form of Ethereum and Aptos will also add to its uniqueness.
Development History
PancakeSwap was founded by a group of anonymous developers in September 2020. PancakeSwap is a fork of SushiSwap, so it has an almost identical codebase. However, PancakeSwap differs in that it was built on the BNB Smart Chain (BSC), which offers faster and cheaper transactions compared to Ethereum. At the time of PancakeSwap's launch, Ethereum suffered from slow, expensive transactions due to massive demand during the period.
In addition to BNB Smart Chain's cheaper network fees, PancakeSwap also offered a lower swap fee of 0.2 %, while the standard was 0.3 %. Based on its low-fee model, PancakeSwap saw rapid growth in both trade volume and total TVL. In February 2021, it became one of the largest decentralized exchanges (DEXs) in the industry by trading volume. But it has not slowed down even after this success, and thanks to great branding, marketing, and the constant provision of new and innovative features, it saw a huge growth in TVL as well.
PancakeSwap was one of the first DeFi protocols I started using to provide liquidity in decentralized finance. In the biggest DeFi bull market, it was the BNB Smart Chain that suffered from a lot of scams or pump and dump projects, which discouraged me personally from using this chain and meant that I switched to other blockchains that offered potentially better return opportunities. However, it turns out that consistent work like PancakeSwap's approach pays off. It still holds the top rank in TVL, has great marketing, and is coming out with many new innovations. I believe that going forward, the quality of new projects on BNB Smart Chain will improve, which will benefit PancakeSwap itself.
Road Map
Road Map published on 11 October 2022.
2023 Plans:
- Market Maker integration
- Expansion to at least 1 or 2 more chains
- V3 launch by end of Q1 will provide a new trading and liquidity experience
According to the PancakeSwap Road Map, it has already delivered the promised expansion to other blockchains when "the Aptos deployment vote" passed back in October 2022, and the first farms on the Aptos blockchain were officially launched in December.
Impact
PancakeSwap on BNB Smart Chain has attracted thousands of new traders and investors. Thanks to its constant progress and addition of features, it is increasingly popular with traders who want to trade in a decentralized environment. New projects can advertise through PancakeSwap when they offer their tokens to Initial Farm Offerings (IFOs). New users are also attracted to the ecosystem thanks to the various competitions that can be found on the platform. Nowadays, other blockchains that PancakeSwap has expanded its operations to, can also benefit from these features.
Team
Team PancakeSwap consists of several pseudonymous members. They are called chefs.
Snowball - Head Chef, Mochi - Product Manager, Cadbury - Product Manager, Bun - Product Manager, Pepper - Business Dev, Icy - Business Dev, Lime - Ops/Data Analytics Dev, Mustard - Ops, Kiwi - Data Analytics, Jojo - Frontend Dev, Momota - Frontend Dev, Yogi- Frontend Dev, Snoopy - Solidity Dev, Cupcake - Solidity Dev, Huan - Solidity Dev, Rabbid - Solidity Dev, Ruby - QA, Cecy - 3D Artist, Yuna - UI/UX designer, Salade - UI/UX designer, Fran - Community Manager, Oreo - Community Manager
Community and Marketing
PancakeSwap has one of the most active Discords, even in today's Bear Market (January, 2023). Members actively participate in the discussions, which are supported by regular replies from admins and other members of the PancakeSwap team. There are over 30 000 users on Discord. The Twitter account is also very active, with tweets being posted regularly, even several times a day. There are around 1.6 million followers on Twitter who actively interact with the tweets. The marketing strategy is clearly at a very high level, with quality graphics and regular AMAs for the community.
Investors and Partners
Strategic partners and investors include Genting Ventures, Warner Music, Infinity Ventures Crypto, Arcanum Capital, and Binance Labs.
PancakeSwap also has partnerships with LayerZero, Oddz, Binance, Venus Protocol, Aptos, Dogaliens, Celer Network, and many others.
Risks and Decentralization
Like any decentralized exchange, PancakeSwap is at risk of smart contract errors and hacker attacks. In addition, the value of $CAKE is directly linked to the success of the platform, so if the platform were to fail, the value of the token would likely drop. The liquidity pool system can also be affected by market volatility, which can cause a high impermanent loss for liquidity providers. It is important that users thoroughly research and understand the risks before using the platform.
PancakeSwap is a community-managed platform that provides a high level of decentralization. The PancakeSwap is designed to be permissionless, meaning anyone can deploy a liquidity pool. To use the PancakeSwap platform, users do not need KYC.
Protocol Security and Audits
The protocol is ensured by the use of the "Chefs’" multisig on all contracts. Contracts have time locks, which adds to the level of security.
PancakeSwap has been audited by multiple companies:
A detailed list of audits carried out can be found here.
PancakeSwap Bug Bounty program.
Company: PancakeSwap
Analyst Opinion
If you've read this far, you've learned about the detailed workings of the PancakeSwap protocol, its pros and cons, how governance works, tokenomics, platform security, and much more. PancakeSwap provides users with a decentralized environment for trading and investing in cryptocurrencies. Before you use the platform, it is important that you think about choosing a suitable strategy, which we write more about in PancakeSwap - Opportunities & Risks.
PancakeSwap is an ideal choice if traders are looking for a decentralized environment and want to leave centralized exchanges, as it offers an almost identical perpetual interface as on CEXs. The customization of the tokenomics and the limited supply has added to the scarcity of $CAKE. Traders and investors can take advantage of the many benefits of the protocol, whether this is through trading, where traders pay a lower swap fee compared with competing DEXs, perpetual trading, or the user-friendly interface for providing liquidity, yield farming, and syrup pools. The core developers have been working on the project with enthusiasm, which can be seen in the regular delivery of the protocol’s new features. Although the project is very well secured, it is always necessary to think about potential vulnerabilities in its smart contracts code. Overall, investors need to do their own research (DYOR) and consider the potential risks before investing in PancakeSwap.
René Užovič
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