PancakeSwap: Decentralised exchange for BEP20 tokens

PancakeSwap is a decentralised exchange for swapping BEP20 tokens on Binance Smart Chain. It was launched in September 2020. The goal of the project is to provide liquidity via cultivation and earn fees in return. In this article, we will take a deep dive into the PancakeSwap project.

What is PancakeSwap?

PancakeSwap is an automated market maker - a decentralised finance application that allows users to exchange tokens, provide liquidity via farming and earn fees in return. The project's native token is CAKE. PancakeSwap's smart contracts are open source and audited by Certik. The platform uses the Binance Smart Chain (BSC), which is compatible with the Ethereum ecosystem and addresses its high gas fees.

PancakeSwap was created as a fork of the popular Chef Swap project. The team behind Pancake Swaps made several improvements to the original project, including lower fees, faster transactions, and increased security. As of March 2021, there is over $5 billion locked up in Pancake Swap contracts.

How does PancakeSwap work? 

PancakeSwap uses the Automated Market Maker (AMM) model to provide liquidity. The AMM model consists of three key components:

• A liquidity pool: This is a collection of funds from users who want to provide liquidity to pool. In return for their contribution, they earn interest on their investment. 
• An order book: this is a list of bids and requests from users who want to buy or sell a product. sell tokens within the pool 
• An exchange function: this allows users to exchange tokens within the pool with each other. 

The three components work together to create a decentralised exchange where users can purchase, sell or exchange tokens without having to go through a centralised authority like a traditional stock exchange. 

PancakeSwap uses a system called "liquidity mining" to incentivise users to provide liquidity to the platform. Liquidity providers earn rewards in CAKE tokens based on how much they have contributed to the pool and how long they have held their position. The more CAKE tokens you own, the greater your stake in the platform and the more rewards you can earn. Farming rewards are awarded daily and can be claimed any time after 24 hours have passed since your first deposit. In addition to farming rewards, liquidity providers also earn transaction fees when someone exchanges tokens within their pool.  

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Advantages and disadvantages of PancakeSwap

Just like everyone else crypto-related services there are pros and cons to PancakeSwap. Below we have listed the most important ones to know:

Advantages

• PancakeSwap has much lower fees than most other crypto exchanges
• They support many other BEP20 tokens.
• You can be rewarded by providing liquidity
• They offer users access to various lotteries
• You can create their own projects in their BSC community
• You can also win various NFT's

Disadvantages

• It is a complicated staking process
• The service is not very user-friendly
• There is no own wallet in their service, and the BSC is relatively complex.

Summary

PancakeSwap is a decentralised exchange that allows users to trade BEP20 tokens on the Binance Smart Chain. The platform uses an Automated Market Maker model to provide liquidity and reward users for their contribution with CAKE tokens. If you are looking for an easy way to trade BEP20 tokens or simply want to earn some CAKE tokens, Pancake Swap may be worth considering.