Résumé

  • PancakeSwap is a decentralized crypto exchange (DEX) available on multiple blockchain networks.

  • This platform uses an automated market maker model (AMM), which means that trades occur via liquidity pools rather than traditional order books.

  • PancakeSwap offers a wide range of products and features, such as token swaps, liquidity pools, yield farming, Limit orders, NFTs, Web3 games, etc.

Introduction

The decentralized finance (DeFi) revolution has redefined the way we trade and invest. Through the use of blockchain technology, DeFi platforms can provide increased transparency, autonomy and accessibility to financial services.

During the early years of DeFi protocols, we saw the emergence of many platforms and decentralized exchanges (DEXs). They were initially focused on the Ethereum blockchain due to its smart contract capabilities. But we now have multiple DeFi platforms on a variety of networks, including BNB Chain, Polygon, Solana and many others.

As blockchains supporting smart contracts, these networks have a growing community of users, developers, and tools to build powerful decentralized applications (DApps). In this article, we will look at PancakeSwap, a multi-blockchain decentralized exchange platform.

What is PancakeSwap?

PancakeSwap is a decentralized exchange (DEX) launched in 2020. Initially used to swap BEP-20 tokens on BNB Smart Chain (BSC), the crypto exchange has since expanded to other blockchains.

Today, PancakeSwap also supports ERC-20 and other token standards. Besides BSC, you can use PancakeSwap on other blockchains, such as Ethereum, Polygon, Arbitrum, etc.

The PancakeSwap crypto exchange platform

PancakeSwap uses an automated market maker (AMM) model. This means that you can trade digital assets on the platform without relying on a centralized exchange. There is no order book where you are matched with someone else. Instead, traders use a liquidity pool.

These pools are filled with funds from other users. Users deposit funds into the pool, and receive liquidity provider tokens (or LPs) in return. They can use these tokens to get their share back, plus a portion of the trading fees. In short, you can trade tokens or add liquidity to earn rewards.

PancakeSwap V3

Of note, PancakeSwap V3 was launched in April 2023, bringing new features and product updates including non-fungible liquidity positions, customizable price ranges, improved liquidity, and increased trading efficiency.

Let’s review some of the main features of the PancakeSwap crypto exchange platform.

Main features of PancakeSwap

Liquidity pools

PancakeSwap's liquidity pools play a crucial role in facilitating token swaps. Users can contribute liquidity to these pools and earn LP tokens in return, which not only represent their share of the liquidity pool but also grant them rewards in the form of trading fees.

Yield farming allows liquidity providers to earn additional rewards, like CAKE tokens, by locking their LP tokens into smart contracts. The introduction of Initial Farming Offerings (IFOs) provides users with the opportunity to purchase new tokens during limited-time events.

Token swap and smart router

Token swaps on PancakeSwap are streamlined with the Smart Router, which intelligently routes trades through various liquidity sources, such as PancakeSwap V3, V2, StableSwap, and market makers on BNB Smart Chain and Ethereum.

Users can customize their trades, choose liquidity sources and adjust their routing preferences. The intelligent router ensures optimal trade execution by finding the best prices among multiple pools.

Limit orders for desired prices

The introduction of Limit orders by PancakeSwap allows users to better control their trades. Users can set desired prices for buying or selling tokens when the market reaches a specific limit price or better.

Integration of Market Makers

PancakeSwap’s integration with market makers on Ethereum and BNB Smart Chain improves trading efficiency. This means that trades can be automatically routed to market makers, offering better execution prices compared to AMM. This integration aims to provide users with profitable trading options and better liquidity.

Zap function

Traditionally, users who want to provide liquidity to DeFi platforms must add a pair of tokens to the liquidity pool. On PancakeSwap, the Zap feature simplifies liquidity provision by allowing users to add or remove liquidity with a single token and with a single click.

Users can add liquidity with unbalanced token pairs, and Zap will automatically rebalance them to a 50/50 split. By removing liquidity, Zap allows users to receive a single token in the trading pair, simplifying the process.

Connecting to PancakeSwap

You will notice if you check out PancakeSwap that many features are inaccessible until you connect your wallet. Click on connect your wallet and you will be presented with several options: MetaMask, Trust Wallet, WalletConnect, Binance Chain Wallet and other options.

If you are unsure how to connect your MetaMask to the BSC network, please refer to this guide: Connect MetaMask to BNB Smart Chain.

3. If you have successfully logged in, you should see your wallet ID in the upper right corner.

Add liquidity

Again, if you've ever used MAID, you'll know the process. To farm CAKE, you must first add liquidity to the exchange.

1. Go to Trader, click Liquidity, then click Add Liquidity.

2. Select the pair of tokens you wish to deposit (e.g. BNB and CAKE). Make sure you understand the risks of non-permanent loss before adding liquidity to a pool.

3. The platform will automatically select the most popular fee level.

4. Define the price range at which you want to provide liquidity. You will not provide liquidity to trades outside of the selected range, so a smaller range tends to be safer.

5. Enter the deposit amount and click Add Liquidity when ready.

6. You will need to confirm a few transactions on your wallet to allow the platform to use your tokens, and finally add liquidity to the pool.

Please see the official PancakeSwap documentation for more details on adding and removing liquidity.

Farming

You can also stake your LP tokens to earn CAKE or other assets. Go to the farms tab and select the option that corresponds to your LP tokens.

You will need to approve the movement of tokens, which allows the contract to withdraw them on your behalf. When you click "Approve Contract", a pop-up will ask you to confirm the transaction and view the fees.

Once this transaction is confirmed, simply select the amount you wish to stake and confirm. You can close the page and come back at any time to check how many CAKEs you have earned. If you want to collect your rewards, you can click Collect at any time and confirm the transaction.

Lottery

Another thing you can do with your CAKE is enter the PancakeSwap lottery, which is controlled by a smart contract.

Each lottery ticket costs around $5 in CAKE and will give you a random combination of six-digit numbers (eg: 9-1-3-9-6-2). To win the jackpot, the numbers on your ticket must match the numbers in the same position as the winning ticket.

What happens if you don't match all six numbers? Don't worry. You also win rewards if two or more of your numbers are in the same position as the numbers on the winning ticket.

Lottery prizes are defined by the amount of CAKE used to purchase tickets + unclaimed CAKE from previous lottery rounds. There is also a periodic injection of CAKE from the PancakeSwap treasury.

Tokens non fongibles (NFT)

PancakeSwap also has a marketplace for non-fungible tokens (NFTs), where you can buy, sell and collect unique assets on BNB Smart Chain.

Gaming Marketplace

PancakeSwap also has a Web3 games marketplace, which is a game publishing platform offered by PancakeSwap in partnership with third-party game developers. For example, the game Pancake Protector was published by the Mobox team.

Although the platform is open to game developers looking to publish games, games are selected based on certain criteria, such as prior experience, relationship with PancakeSwap assets, development roadmap and l technical and community assistance.

Is PancakeSwap safe?

PancakeSwap has been audited by CertiK and is one of the leading platforms in the DeFi space. Does this mean it’s completely safe to use? Not necessarily. Depositing funds into a smart contract always carries a risk of bugs, even for audited and reputable projects. There is also a risk of financial loss that may arise when trading or providing liquidity. Never deposit more money than you can afford to lose.

Conclusion

Ethereum may have started the DeFi trend, but initiatives like PancakeSwap suggest the wave of innovation is destined to spread to other blockchains.

PancakeSwap has become a versatile and community-focused platform, cementing its position as a key player in the decentralized finance landscape.

Whether through AMM, liquidity pools, yield farming, market maker integration, Zap functionality or the introduction of Limit orders, PancakeSwap offers a diverse and friendly.

More information

  • What is yield farming in decentralized finance (DeFi)?

  • What is an Automated Market Maker (AMM)?

  • What are smart contracts and how do they work?

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