Innovation should never be limited to a single platform. However, much of the innovation in the DeFi has been taking place on the Ethereum blockchain. PancakeSwap is shaking things up by choosing to build itself up elsewhere.
Built on the Binance Smart Chain (BSC), PancakeSwap has been turning heads across the industry with the innovative features it brings to the table. This article would serve as a guide for those starting with PancakeSwap.
Before we get into the details, let’s take a brief look at everything you’ll find in the blog. As always, I would recommend the beginners to go through the entire blog to make sure you’re well-informed before you make any important financial decisions.
For those who are experienced in the DeFi space, feel free to skip to a section you like!
- What are IFOs?
- What is PancakeSwap?
- How are Farming and Staking carried out on PancakeSwap?
- How to use PancakeSwap?
- How to add liquidity on PancakeSwap?
- How to enter a lottery on PancakeSwap?
- Are there NFTs on PancakeSwap?
Without further ado, let’s jump right into it!
What are IFOs?
If you’ve heard of Initial Coin Offerings (ICOs), Initial Farm Offerings (IFOs) would be pretty easy for you to understand. We’ll come back to ICOs in a bit. But for now, I am going to assume that you don’t know anything about ICOs.
In that case, think of traditional farming—the one that involves planting seeds, nurturing the plant, and harvesting it when the time comes. Now, you might be thinking about how this is related to IFOs.
As it turns out, farming has a pretty similar meaning in the world of Decentralized Finance (DeFi). The concept is to lock in some of your crypto assets for a certain amount of time and then taking those assets back along with a certain amount of yield that your assets have generated over the time that you’ve had them locked.
Food-based farming has been doing great in the DeFi space. And over the last few months, the craze has grown stronger than it has ever been.
An increasing number of platforms have been emerging over these months that have been allowing users to go ahead and lock in their funds in return for some tokens of the platform. This process is called staking and we’ll discuss it in more detail later.
Now, you might be wondering what people do with the tokens they have on the platform. Well, they exchange those tokens back for their funds. On top of their funds, they get some extra funds that their funds have yielded over the period of time that they’ve been locked in.
Now that you know what farming is, it is time for you to get to know what Initial Farm Offering (or Initial Farming Offering as some call it) is. This is a new type of fundraising activity that many platforms have started doing. The way it works is that the platforms use farming events to raise the funds required for the participating projects to take off.
The digital exchanges (DEXes) are responsible for hosting the pre-sales for these IFOs. The pre-sales basically give users a chance to get the tokens they need before the said tokens are listed on these DEXes.
Much like how it happens in ICOs, the DEXes have teams that thoroughly vet the participating projects before they are approved to be hosted on the IFOs. That said, you should always remember to do your own research before investing even a single penny in any project.
Regardless of how strict and thorough the vetting process may be, there can always be projects that under-deliver. While the fact that the DEXes have systems in place for preventing any kind of scams from taking place provides some sort of relief, as an investor, you must make all financial decisions based on proper research.
What is PancakeSwap?
PancakeSwap is a decentralized exchange for swapping BEP-20 tokens. If you’ve used Uniswap and SushiSwap, you would be very comfortable using PancakeSwap since it is also built on the same principles that all automated market makers (AMMs) are built on.
If you haven’t used Uniswap and/or SushiSwap, here’s a basic rundown of how automated market makers work.
In traditional markets, trades happen only when there’s a seller quoting a certain price and a buyer willing to buy the seller’s item at the quoted price. But what if one of the parties feels like the trade is unfair—that the price should be higher or lower? That would prevent any trade from happening.
To help solve that, traditional markets have market makers who are willing to buy and sell certain items at any quoted price. These market makers enable a trade to happen. That’s the shortcoming of traditional markets, without market makers, there is no market. And then there’s the whole issue with order books.
Automated market makers solve this problem by relying on a mathematical formula to set a price for the assets. This way, you don’t have to rely on order books or traditional market makers.
In the case of automated market makers like PancakeSwap, you don’t trade against other traders. You instead trade against a liquidity pool (which is filled with funds locked in by other traders on the platform).
When you lock in your cryptos on PancakeSwap, you get liquidity pool tokens in return. These can be exchanged at a later stage to receive a handsome reward.
For different types of tokens that you choose to add to the liquidity pool, you are rewarded with different types of tokens. For example, if you choose to lock in your BNB tokens into the liquidity pool, you would receive BNB LP tokens.
Likewise, if you choose to lock in your BUSD tokens into the liquidity pool for BUSD, you get BUSD LP tokens.
How are Farming and Staking Carried out on PancakeSwap?
PancakeSwap has a governance token called CAKE which you can farm by staking your crypto assets.
On the farm, all you need to do is deposit your LP tokens (we discussed it in the previous section, remember?) and get CAKE tokens as a reward.
But what if you want to stake it further? Well, there’s provision for that too. You can earn more when you stake your CAKE in SYRUP pools. This way, you can make even more CAKE from your CAKE tokens.
How to Use PancakeSwap?
Using PancakeSwap is pretty easy. All you need to do is click on Unlock Wallet on https://pancakeswap.finance. Doing so would give you an option to connect MetaMark, Trust Wallet, WalletConnect, Binance Chain Wallet, and a few other wallets on the platform.
Once done, you can unlock your wallet and see additional information related to it. This additional information would help you understand which LP tokens promise the best returns and hence which ones you need to invest in.
How to Add Liquidity on PancakeSwap?
If you’ve already used an AMM, you know how exactly you need to go about doing it here.
To farm CAKE, you need to add liquidity to the exchange. Once done, you need to navigate to Trade on the left and then click on Liquidity. After that, you need to click on Add Liquidity and select the token pair you want to lock in.
Word of caution: be wary of impermanent loss before you add any liquidity to a pool.
How to Enter a Lottery on PancakeSwap?
To make things more interesting, PancakeSwap has lotteries that you can participate in.
Every lottery session lasts for 6 hours with every ticket costing you 10 CAKE tokens. These tickets give you a random 4-digit combination of numbers from 1-14. For example, it could be 2-9-8-12 or 14-5-8-1.
For you to win the jackpot, all of the four numbers in your ticket must match all of the four numbers in the winning ticket. Moreover, they should be in the same position. If that’s true for you, congratulations, you’ve won 50 percent of the entire lottery pool!
But if you weren’t lucky enough, you could still win rewards for two or more of your numbers matching with the winning ticket (in the same position).
Are There NFTs on PancakeSwap?
Yes, there are NFTs on PancakeSwap which can either be won or bought for their CAKE value.
For winning one, all you need to do is register to have a chance to win an NFT. To keep the system fair, winners are chosen at random.
Before You Go…
Being the biggest AMM project on the Binance Smart Chain (BSC), PancakeSwap is attracting a lot of people to BSC. And that is quite an achievement since DeFi has largely been on the Ethereum blockchain.
Initiatives such as PancakeSwap ensure that innovation is not limited to one blockchain. As of now, the platform’s community is still growing and it is expected that there would be a lot more innovation on the platform in due time. Thus far, the future of PancakeSwap looks bright.