- You want to enter the decentralized exchange market, we present you a guide to PancakeSwap, one of the main DEX currently available in the crypto market.
As the crypto market has developed, decentralized crypto exchanges (DEX) have become popular, especially as decentralized finance (DeFi) has matured. However, it is essential to fully understand what they are, their advantages and disadvantages before to start using them.
Here you can find a detailed guide on PancakeSwap, one of these DEXs that have gained significant traction in the crypto market.
Decentralized exchanges are a branch of the crypto ecosystem characterized by freedom and a wide variety of options to choose from.
In this sense, a DEX is a peer-to-peer market in which crypto traders carry out transactions directly, without the presence of an intermediary, this is one of the fundamental differences with respect to centralized crypto exchanges such as Binance or Coinbase.
But, how are these transactions carried out without the presence of an intermediary? Then they are facilitated through the use of self-executing agreements written in the Smart Contracts.
in addition, DEXs generally have no custody, This means that the crypto user is solely responsible for maintaining control of the private keys of his wallet. This is a feature that should be paid close attention as it adds a higher degree of responsibility than, for example, centralized crypto exchanges.
It is precisely this decentralization that allows users not to have to provide personal information such as names or addresses. As there is no intermediary, there is no one who must comply with the KYC regulations that centralized exchanges must comply with.
There are three main types of DEX: automated market makers, DEX order books, and DEX aggregators.
What is PancakeSwap?
PancakeSwap It is one of the main DEX currently available in the crypto market. Like any other DEX, it allows crypto users to trade cryptocurrencies without a centralized intermediary who keeps their tokens in custody all the time.
All DEXs are built on blockchain networks that allow Smart Contracts. PancakeSwap is built on top of Binance Smart Chain (BSC), the blockchain managed by the centralized crypto exchange Binance. Although Binance manages BSC, the crypto exchange does not control or operate PancakeSwap.
Details about the AMM on Pancakeswap
PancakeSwap was launched in September 2020 and quickly became one of the biggest automaker market makers (AMM) on the network as of 2021. DEXs often face liquidity problems, so PancakeSwap uses a system based on Smart Contracts to solve this.
The AMMs are based on blockchain services that provide information on exchanges and other platforms in order to establish the price of the traded assets. These are called blockchain oracles, so instead of matching buy orders with sell orders, Smart contracts use liquidity pools, which are a group of pre-financed assets.
How are these liquidity pools established? Then the funds are financed by other users who, subsequently, have the right to the transaction fees charged by the protocol for executing the operation. Basically they are users who provide liquidity and, in return, receive interest.
Since BSC uses the BEP-20 token, PancakeSwap prioritizes interoperability by supporting deposits of wrapped tokens, that is, a liquidity pool can include Ethereum (ETH) and Bitcoin (BTC) along with BNB and BUSD, it is so precisely PancakeSwap You can operate without intermediaries in a “no trust” environment.
With this in mind, these types of DEX are generally classified by the amount of funds locked in their Smart Contracts, called the total locked value (TVL). Under this metric, according to Dapp Radar, PancakeSwap is currently at number 8 with a TVL of $ 6.9 billion USD.
How does it work?
One very important aspect to consider is that PancakeSwap does not support fiat currencies. therefore, you must have cryptocurrencies, especially CAKE, along with BNB, these two cryptocurrencies are essential to start using this DEX.
CAKE is a native BSC BEP-20 token. In this sense, the main function of CAKE is to encourage the provision of liquidity for PancakeSwap under the previously explained mechanism.
At the time of writing, CAKE is worth US $ 12.35 and with a TVL of US $ 5.7 billion, according to CoinMarketCap.
In this way, These cryptocurrencies can be stored in crypto wallets such as Trust Wallet, Binance Chain Wallet or even the Ethereum wallet, Metamask. In case of Metamask, it will be necessary to configure the wallet to work with Binance Smart Chain, and you can review the next tutorial.
Additionally, PancakeSwap offers a tutorial for each of the available wallets that you can connect.
Both CAKE and BNB are cryptocurrencies that can be acquired on centralized crypto exchanges such as Binance. Once acquired, they are transferred to the previously mentioned wallets that can be connected with PancakeSwap.
A very important aspect to keep in mind is to always make sure that you are on the official PancakeSwap website, as the Internet is full of phishing. Therefore, to prevent funds from being stolen, you need to make sure you are in https://pancakeswap.finance/
What Makes PancakeSwap Special?
The growth it has experienced eThis particular DEX is backed by a number of attractive and useful features for the crypto community, which we list below.
Initial Agricultural Offers (IFOs)
This service consists of a decentralized fundraising model, therefore, it helps new projects to put their tokens in the hands of users through ‘yield farming’.
Briefly Yield farming is a crypto investment strategy that offers the possibility of obtaining higher returns. This activity involves the loan of cryptocurrencies, in exchange they grant interest and, sometimes, fees. However, the higher return mainly comes from the possibility that the cryptocurrency will appreciate.
It is worth adding that it is a risky practice when dealing with nascent projects that could fail. Certainly The Binance team examines the projects that appear on this platform with the aim of limiting risk; however, this does not mean that it eradicates it.
PancakeSwap Syrup Pools
Through these Pools, users of this DEX can amplify their earnings by staking their CAKE token rewards. It differs from the rest is that the Syrup Pools since they do not function as dynamic markets.
This means that users have a single token with which they earn a compound annual percentage rate, so they are staking CAKE for more CAKE.
Staking can be done in two ways: Auto CAKE or Manual CAKE. The first option automatically combines the rewards, so the CAKE rewards are automatically collected and reinvested in the same pool. Whereas, in the CAKE Manual traders must manually collect the rewards to increase their earnings.
PancakeSwap Lottery
Users can to buy a ticket that includes a random four-digit combination of numbers between 1 and 14. As with many other lotteries, the numbers can be chosen randomly or manually. If someone matches all six numbers on the ticket (they must be in the same order as the winning ticket) they get the lottery jackpot (40% of the lottery total).
However, even if ticket holders miss all six numbers, they can still earn partial rewards if two or more of their numbers are in the same position as the winning ticket numbers.
NFT Collections on PancakeSwap
Recently PancakeSwap has also dabbled in the world of NFTs by enabling a non-fungible token market on your platform.
Like any other NFT marketplace, at PancakeSwap you can buy NFT with CAKE.
PancakeSwap vs Uniswap
Uniswap is another of the most important DEX in the market, in fact, it is currently above PancakeSwap in terms of TVL. However, this does not mean that Uniswap is superior to PancakeSwap.
Currently it is complex to define precisely which DEX is better than another, since each one has characteristics that differentiate it according to the needs and preferences of the user.
In particular, PancakeSwap surpasses the rest of DEX in terms of fast and cheap transactions, this is thanks to the fact that it is in BSC, since, for example, Uniswap is on the Ethereum blockchain, therefore its transaction costs are higher
However, in Uniswap will be able to find a greater number of listed tokens compared to those available on PancakeSwap.
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