PancakeSwap is a decentralized exchange (DEX) that works under the automated market maker (AMM) model. Thanks to this, its users can exchange tokens in a completely decentralized way, since liquidity pools are generated that enable these exchanges.
LUsers can add liquidity to these pools and, consequently, receive interest for said contribution.
This DEX works on the Binance Smart Chain network and uses BEP-20 tokens (an identical standard to Ethereum's ERC-20 token). It has been in operation since September 20, 2020 and since then it has become one of the most important DEXs in the crypto world, only behind the giants Uniswap and SushiSwap.
How does PancakeSwap work?
The operation of PancakeSwap is possible thanks to smart contracts built on the Binance Smart Chain (now BNB Chain) blockchain. These smart contracts are used to build an AMM or Automated Market Maker, which allows markets to be generated in a decentralized way, managing the liquidity necessary to carry out exchanges and other financial functions in a totally autonomous way. In this sense, PancakeSwap and its competition (UniSwap and SushiSwap) have many points in common. In fact, reviewing a little the smarts contracts of this DEX, it can be clearly seen that it derives from an old UniSwap V2 code, so, basically, the operation of this exchange is the same as that of this one and than that of SushiSwap (which is also a derivative of UniSwap).
In any case, how PancakeSwap works is quite simple and familiar. Smart contracts are responsible for creating liquidity pools that hold a pair of currencies (eg: B2M/USDT), these currencies are supplied by liquidity providers, people or entities that have these currencies and put them in the PancakeSwap pool, in order to enable an exchange pair, with a price adjusted by supply and demand and for which they obtain a return thanks to exchange commissions. So, basically an AMM like PancackeSwap is a means that allows token holders to earn additional profits by using their money as a bridge for making trades.
The positive thing about DEX and AMM systems is that there is essentially no need for an order matching system like the one that exists on centralized exchanges. This is because the operation is carried out between the user of the DEX and the liquidity within the pool, which makes the operations very fast to carry out, especially if we are talking about widely used pairs and pools (eg: ETH/USDT) . The drawback in any case is that there are pairs that may not be available directly and therefore several exchanges are required to carry them out, which makes this type of operation more expensive and late.
However, PancakeSwap does not have those problems of high costs and slow operations, due to the use of BNB Chain, a high-speed, low-operation-cost chain that rivals sidechains such as Polygon or Arbitrum. A great advantage that has led it, despite its short life, to be one of the great DEXes in the crypto world.
beyond the exchange
Of course, PancakeSwap has come a long way in the two years of its existence. In addition to the exchange functions that this exchange has, PancakeSwap has very useful options for its users. For example, their swap has the ability to perform “Limit Order” type trades, thus giving advanced functionality to users who want more granular control over the trades they make and their prices. Another power option that PancakeSwap offers is related to the launch of “Perpetuals”, a powerful advanced trading option for the most demanding users.
Another powerful option that we have is the option to perform cross-chain bridging. Thanks to this capability, PancakeSwap allows us to move our tokens from EVM-compliant chains to the BNB Chain quickly and securely. This option offers support to chains and sidechains such as Ethereum, Polygon, Arbitrum, Optimism, Fantom and Avalanche, spaces where the development of DeFi ecosystems is strong and consolidated.
Finally, another of the great options within PancakeSwap is staking. This is possible thanks to the use of the platform's native token, CAKE, a BEP-20 type token, which you can stake to generate SYRUP tokens, which you can then exchange for other cryptocurrencies to obtain rewards.
Farming within PancakeSwap
Another functionality within PancakeSwap is Farms, with which we can participate in farming strategies from this DEX. Farming within PancakeSwap is known to offer excellent APR levels on supported tokens, something that enables the option to generate good rewards at times when markets are weakened by bear markets. To participate in PancakeSwap farming, all you have to do is choose a farm pool, make the necessary changes to have the tokens to participate, and select your level of participation in it.
Another option similar to Farming, but aimed at financing new projects and participation within them, is the IFO of PancakeSwap. IFOs or Initial Farming Offerings are a form of farming created by PancakeSwap with which new cryptocurrency projects can request an initial offer for financing, allowing its users to participate in it through a farming offer. in which they can start generating rewards while obtaining tokens from a new project with great prospects for growth and revaluation.
On the other hand, PancakeSwap also offers such curious options as a prize and lottery system within this DEX, which allows its users to enjoy other options to obtain rewards within it.
NFT Marketplace
With the boom in NFTs, PancakeSwap has also offered means for collectible holders to trade their collectibles within this DEX. The limitation of this space is that it is focused on the NTFs generated within the BNB Chain, which, although numerous, are not as well known as those of Ethereum or Polygon.
However, this space does not stop having great activity, since the community within the BNB Chain is enormous and this has generated large volumes of mobilization within this chain, with PancakeSwap being the main origin of all this.
Governance of the protocol
Finally, PancakeSwap is a DEX that features decentralized governance that is powered by the platform's native token: CAKE. Any CAKE holder can participate in the governance of PancakeSwap by voting on existing proposals or creating their own proposals. Voting power is proportional to the number of tokens a user owns.
How to connect to PancakeSwap?
Connecting to PancakeSwap is quite simple, since it is a DApp under the well-known Web3 standard. To interact with it, all we need is a Web3 wallet (eg: MetaMask) and make the connection with said DApp. However, since PancakeSwap is on top of the BNB Chain, an intermediate configuration step is required in order to add the BNB Chain network to our wallet. To do this, the easiest way is to go ChainList and add the BNB Chain network to our wallet:
You just have to connect to it and add the “Binance Smart Chain” network and with that you can connect to PancakeSwap:
And with it you can unlock all the power that this DEX has to offer you.