What Is PancakeSwap and How Do You Use It?

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The rationale behind the origins of bitcoin and cryptocurrencies, in general, was to create a free environment for financial transactions to take place. Crypto enthusiasts have always argued in favor of a market that is free from the regulation of centralized authorities. This was how decentralized finance came into existence and PancakeSwap became a well-known name in this space.

Read: Looking To Diversify In A Bear Market? Consider These 6 Alternative Investments

What Is PancakeSwap?

PancakeSwap is a decentralized exchange on the BNB Smart Chain with some of the highest trading volumes in recent times.

Ethereum has been the biggest player in the decentralized applications sector with most of the DeFi applications and exchanges being hosted on this blockchain. Under the Ethereum blockchain, Uniswap and SushiSwap are two of the major decentralized exchanges. However, increasing dependency on the Ethereum blockchain was leading to network traffic and gas fees.

PancakeSwap was developed to cater to the increasing demand in this space. Apart from swapping BEP20 tokens in PancakeSwap, users can provide liquidity, conduct yield farming, stake their crypto and make predictions to earn rewards.

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How Does PancakeSwap Work?

Like all other decentralized exchanges, PancakeSwap follows the automated market maker mechanism. Contrary to a traditional setup, a trader on PancakeSwap does not transact with another trader.

If you want to swap coins on PancakeSwap, you will be dealing with a liquidity pool. For instance, you want to swap certain units of coin A for equivalent units of coin B. You need to find a liquidity pool that has a combination of coins A and B. Once you deposit the relevant units of A, you can withdraw the equivalent units of B from the pool.

This mechanism makes the entire process free from any individual trader because the liquidity pool is a collection of funds. PancakeSwap allows traders to access these pools from anywhere across the world and use smart contracts to transact from them.

PancakeSwap has several useful features that make it an attractive platform for traders and liquidity providers.

How To Start Using PancakeSwap

To start using PancakeSwap, you should have a BNB Chain-compatible crypto wallet. Some of the popular options include Token Pocket, MetaMask, Coinbase Wallet, Trust Wallet and SafePal.

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As a user, you must evaluate all these options and choose one that suits all your requirements. Once you have a wallet, you have to connect it to your PancakeSwap account to start trading. The wallet also needs to be funded with crypto for you to get started.

How Do You Trade on PancakeSwap?

PancakeSwap has a very simple interface in comparison to other exchanges. It is perfectly suited for beginners because PancakeSwap does not intimidate users with complex charts or jargon.

Trading on PancakeSwap starts with having a suitable wallet and then adding BEP20 tokens to it. Once you have connected your wallet with your PancakeSwap account, you can start swapping coins. You have to specify the coin pair that you wish to swap and ensure your wallet is funded with the token you will be depositing. After entering the relevant details, the swap will be confirmed and PancakeSwap will let you know about the details of the tokens that you exchanged.

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Will You Incur Fees While Trading on PancakeSwap?

Yes, there are fees involved when you are trading on PancakeSwap because it is a DeFi application and interacts with the wallet to execute the trade. The users will need to be aware of the gas fees that they need to pay for a transaction to go through on PancakeSwap.

Good To Know

To conduct a swap on PancakeSwap successfully, the user must have a sufficient BNB balance in their wallet. This will help them to pay the gas fees or any other transaction fees according to the requirements of the individual token.

Become a Liquidity Provider

A feature of PancakeSwap that users enjoy is providing liquidity in token pools. You need to deposit both sets of tokens in the pair to become a liquidity provider in PancakeSwap. Becoming a liquidity provider will also help you in yield farming and earning CAKE tokens.

Stake Tokens Using Syrup Pools

Staking is a great way to provide liquidity and earn rewards on PancakeSwap. Within a Syrup Pool, you can stake the native token of PancakeSwap which is called CAKE. Staking is a process where you can lock your crypto tokens in a liquidity pool to earn more tokens.

Fixed-Term Staking

In fixed-term staking, PancakeSwap allows the users to lock in their CAKE tokens for a specified period. You can add more tokens during the holding period and maximize your yield when you hold the tokens for a long time. There are no performance fees involved in fixed-term staking.

Flexible Staking

Flexible Staking in PancakeSwap reinvests the tokens held by a user automatically and compounds the returns for maximum yields. You can withdraw the tokens anytime after the first 72 hours by paying a fee of 0.1%. PancakeSwap also allows the users to convert all the staked CAKE into flexible or fixed-term staking.

A 2% performance fee is charged by PancakeSwap which is deducted automatically from each yield harvest.

Yield Farming

Yield farming is another great way to earn rewards on PancakeSwap, but it takes some time to set up. To enter a farm in PancakeSwap, you must own “LP Tokens” of that specific farm. A user must deposit both the tokens in a pair to become owners of an LP token.

For example, if a user wants to enter a CAKE-BNB Farm, they will need CAKE-BNB LP Tokens. To get these tokens, they will have to deposit both CAKE and BNB and provide liquidity to this pair on PancakeSwap.

The first step of yield farming in PancakeSwap is to choose your desired farm and click on the “Get (your pair) LP link.” Once you have the LP tokens, you can put them on the farm and stake them to earn rewards.

Play the PancakeSwap Lottery

The PancakeSwap Lottery is a great way to earn huge CAKE rewards. You have to buy a ticket by spending around $5 in CAKE and you will get a random 6-digit combination in your ticket. Just like a regular lottery, if the numbers match your combination, you get a reward in PancakeSwap Lottery.

A user can buy a maximum of 100 PancakeSwap Lottery tickets at a time.

Predict Prices To Earn Rewards

PancakeSwap Prediction is a decentralized prediction market where users can predict the price movements of BNBUSD or CAKEBUSD. Here is how the predictions work:

  • If you enter an “UP” position in PancakeSwap, then you will win if the Closed Price is higher than the Locked Price.
  • If you enter a “DOWN” position in PancakeSwap, then you will win if the Closed Price is lower than the Locked Price.

NFT Marketplace in PancakeSwap

A user can buy and sell verified PancakeSwap NFT collectibles. PancakeSwap also supports personalized profiles for users to choose their name, join a team and choose from NFT profile images they have collected to use as their profile’s display picture.

Final Take

DeFi is all the rage right now and a platform like PancakeSwap can help you stay on top of that trend. PancakeSwap has many useful tools like yield farming and staking that are suitable for advanced users in the crypto space.

If you are looking to learn more about these advanced features, you should definitely check out PancakeSwap.

FAQ

  • What is the purpose of PancakeSwap?
    • PancakeSwap is a decentralized exchange based on the BNB Smart Chain. It is similar to Uniswap and SushiSwap but less expensive than these Ethereum-based exchanges.
  • How do people make money on PancakeSwap?
    • Apart from trading tokens, users can earn rewards in PancakeSwap by yield farming, staking tokens, taking part in lotteries and making predictions about token prices.
  • Is PancakeSwap a good exchange?
    • PancakeSwap is a good, decentralized exchange with low fees and offers features like staking CAKE tokens, yield farming and lotteries.
  • What coin does PancakeSwap use?
    • PancakeSwap only uses BEP20 tokens.
  • Is PancakeSwap a good investment?
    • The native token of the PancakeSwap platform known as CAKE can be a good crypto investment. You can use these tokens for a variety of purposes on the PancakeSwap platform.
  • How much does PancakeSwap cost?
    • The price of the native token of PancakeSwap has stayed around $5.
  • Do I need BNB to use PancakeSwap?
    • There is no need for a Binance account for using PancakeSwap. However, to trade on the PancakeSwap platform, you would need some BNB tokens.

Information is accurate as of Oct. 7, 2022.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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About the Author

Suchetana Bhattacharyea is a financial writer and has a master’s degree in this field from the University of Calcutta. She writes about personal finance, real estate, law, cryptocurrencies, banking, economics and marketing. Suchetana has been a freelance writer for the last few years and has ghostwritten several books on finance.
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