PancakeSwap
PancakeSwap (launched in September 2020) is a decentralized exchange and finance platform allowing users to trade cryptocurrencies, earn rewards through staking and farming, participate in lotteries, and vote in governance decisions. It operates on 9 different chains, focusing on low fees and efficient transactions. [1][2]
Background
PancakeSwap was founded by a group of anonymous developers who had an apparent passion for pancakes. What made it different at the time of launch was that PancakeSwap was built on Binance Smart Chain (BSC), which offered faster and cheaper transactions compared to Ethereum which offered expensive and slow transactions at the time. PancakeSwap is now available on 9 different chains - Ethereum, BNB Chain, Arbitrum, Aptos, opBNB, zkSync, Base, Linea, and Polygon zkEVM. [1][2]
On the back of its low-fee model (v3 swap fees vary between 0.01% / 0.05% / 0.25% / 1%), PancakeSwap saw rapid growth in both trading volume and total value locked (TVL). It became one of the industry's largest decentralized exchanges by trading volume in February 2021. [1]
The primary selling point of PancakeSwap is that it is a fully decentralized exchange where deals and orders are carried out automatically by smart contracts.[11]
Overview
PancakeSwap is a Binance Smart Chain-based DEX with an automated market maker (AMM) model for swapping BEP-20 tokens. It offers its users various features such as Liquidity Pools, Swapping, Yield Farming, and an NFT profile system. [16]
According to Binance Labs, ever since it launched back in 2020, The exchange has been regularly audited by blockchain security companies, such as Slowmist and Certik.[9][10]
PancakeSwap has a native tokens called $CAKE, which is a BEP-20 standard token, and the token model involves using $CAKE as a utility cryptocurrency. [3][4]
On February 17, 2021, PancakeSwap became the first billion-dollar project on the Binance Smart Chain. [5]
On June 6, 2022, Binance Labs, the venture capital and incubation arm of Binance, announced its investment in PancakeSwap’s utility and governance token ($CAKE). The investment was said to be part of Binance Labs’ mission to facilitate the next wave of global blockchain adoption by providing technology development, marketing, community support, and enterprise solutions for Web3 transformation. [7][6]
PancakeSwap v4
On March 15, 2024, PancakeSwap introduced v4, an iteration of the PancakeSwap protocol, featuring a modular Automated Market Maker (AMM) architecture. This version introduces enhanced pool capabilities via hooks, supports a diverse array of pricing curves, and prioritizes gas efficiency for users. [20][21]
PancakeSwap v4 supports multiple pool types, including CLAMM (Concentrated Liquidity Automated Market Maker) with Hooks, LBAMM (Liquidity Book AMM) with Hooks, and any other future pool type with Hooks. [21]
The team also announced a Developers Program, an initiative to empower and support developers in the DeFi ecosystem. With $500K USD allocated, the program is designed to foster innovation, creativity, and collaboration within the developer community. [30]
Technology
PancakeSwap makes use of the AMM model, which employs an algorithm to set asset prices and enables permissionless trading through liquidity pools. Token swaps take place through PancakeSwap’s liquidity pools, enabling trades without an intermediary and allowing liquidity providers to earn a share of the transaction fees. [22]
v3 Concentrated Liquidity Pool
Concentrated Liquidity (from UniswapV3) enhances the traditional automated market maker (AMM) model. It allows liquidity providers (LPs) to concentrate their funds in specific price ranges within a pool, rather than evenly distributing liquidity across the entire trading range in v2. [33]
It results in a much higher relative liquidity level, and liquidity providers can earn more trading fees with the same amount of capital. [34]
Products
Exchange
PancakeSwap is an Automated Market Maker (AMM), and the Exchange is at the heart of PancakeSwap. The PancakeSwap Exchange offers several features that support decentralized trading including Swapping/Trading without needing to go through a Centralized Exchange, Liquidity Pools, Yield Farming, and Initial Farm Offerings. [14]
Token swaps on PancakeSwap are a way to trade one token for another via automated liquidity pools, and also with market makers when trading tokens on BNB Smart Chain and Ethereum. [14]
Yield Farming
Yield Farms allow users to earn CAKE while supporting PancakeSwap by staking LP Tokens.[14]
Farm Auctions
Farm Auctions are a highly effective way for project teams to boost token liquidity, increase trading volume, and draw in organic traffic/users. [23]
Initial Farm Offering (IFO)
An Initial Farm Offering is an event that lets users buy into a limited-time offer to purchase new tokens. [14]
Bridging
With PancakeSwap's multichain expansion and deployment on Ethereum and Aptos. CAKE is a multichain token that is native on BNB Chain, but also available on Ethereum and Aptos.
CAKE can always be bridged between Ethereum, BNB Chain, Arbitrum, Aptos, opBNB, zkSync, Base, Linea, and Polygon zkEVM chains with a 1:1 ratio and without any fee in CAKE. [24]
Simple Staking
In September 2023, PancakeSwap partnered with Binance Earn to offer Simple Staking. This allows PancakeSwap users to enjoy the single-sided staking of popular tokens such as CAKE, USDC, and USDT on the BNB Chain, supported by Binance Simple Earn.
Instead of the usual staking in Farms and liquidity pools with pairs of assets, Simple staking allows users to earn yield by staking a single type of asset. Simple Staking offers a variety of popular tokens to earn yield. [25]
Liquid Staking Integration
PancakeSwap partnered with Binance Earn to offer the liquid staking integration for WBETH (Wrapped Beacon Ethereum) token. This allows PancakeSwap users to convert and swap ETH to WBETH easily on the Ethereum Network and BNB Chain. [26]
Gaming Platform
PancakeSwap Gaming MarketPlace is a game publishing platform by PancakeSwap which aims to bring fun and engaging games to the PancakeSwap community by working with established 3rd-party crypto game developers. [27]
Lottery
Playing the PancakeSwap Lottery gives users a chance to win CAKE prizes. [28]
Pottery
Pottery combines CAKE lock-staking with lottery elements to give users a chance to win a bigger yield on their CAKE deposit. [14]
NFT Profile System
PancakeSwap supports personalized profiles for users. These profiles allow users to choose a name, join a team, and choose from NFT profile images collected to use as their profile's display picture. [16]
PancakeSwap Mini-Program
The PancakeSwap Mini-Program in the Binance application is a collaboration with Binance. The Kitchen aims to provide a seamless experience for Binance’s centralized exchange users to experience the revolution of DeFi and PancakeSwap. [29]
Options
Options are derivative contracts that provide the buyer with the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) within a specified period (expiration date). [14]
PancakeSwap has partnered with Stryke (formerly Dopex) to introduce CLAMM Options Trading. This product enables on-chain options liquidity, allowing users to trade options, earn premiums, and collect swap fees. This collaboration advances decentralized finance (DeFi) by combining PancakeSwap's platform with Stryke's options protocol. [37]
CAKE Token
$CAKE is a BEP-20 token available on all nine chains supported by PancakeSwap: Ethereum, BNB Chain, Arbitrum, Aptos, opBNB, zkSync, Base, Linea, and Polygon zkEVM. PancakeSwap employs the LayerZero v1 OFT standard for cross-chain bridging. [13][35]
$CAKE functions as the governance token of the PancakeSwap protocol, which ensures that users can influence policy changes and developmental implementations. It is also used to incentivize the liquidity providers of the PancakeSwap platform. [13]
By depositing and locking Liquidity Provider tokens, users can stake their tokens to gain incentives. This refers to Farming and the system awards CAKE tokens for it. [13]
Utility
$CAKE token is used to govern the PancakeSwap Ecosystem. It is used in yield farming, in PancakeSwap Lottery, it can be staked to earn rewards, it can be used to participate in IFO token sales, and can be used to create a Pancake Profile and mint NFTs. [13]
Tokenomics
$CAKE has a hard cap set at 450M. A proposal for the cap adjustment was put forward on December 28, 2023. This proposal aimed to further decrease the cap from 750M to 450M. It was subsequently presented to the community for voting and was successfully passed. [13]
The team aims to make deflation higher than emission by building deflationary mechanisms into PancakeSwap's products. The goal is for more CAKE to leave circulation than the amount of CAKE produced. [13]
PancakeSwap regularly conducts token burns every week. For example, on March 18, 2024, PancakeSwap announced the burn of about 8.9 million CAKE tokens, worth $37 million. The announcement came with a breakdown of the token burn showing that trading fees from crypto swaps and perpetual in PancakeSwap’s V2 saw 188,000 tokens worth $780,000 burnt which is a 5% increase. Predictions and lottery services saw the burn of 46,000 and 30,000 CAKE respectively. The DEX also revealed burns of trading fees derived from PancakeSwap’s V3 which were 129,000 CAKE equivalent to $536,000. [31][32]
veCAKE
veCAKE stands for vote-escrowed CAKE. veCAKE tokens serve a crucial role in PancakeSwap's governance, enabling users to actively participate in PancakeSwap’s governance proposals and Gauges Voting system. This allows users to vote on broader governance proposals and influence the allocation of CAKE emissions within liquidity pools. [36]
veCAKE is not transferable, and the only way to acquire veCAKE is by staking $CAKE. The maximum lock time is 4 years; the longer a user locks CAKE, the more veCAKE they will receive. [36]
veCAKE Utility
veCAKE is used for weekly rewards where users can claim CAKE rewards regularly through CAKE Staking and Revenue Sharing. It is used in Gauges Voting Participation whereby users can influence and boost CAKE emissions in their preferred pools, by engaging in Gauges Voting every 2 weeks, with results applied bi-weekly. [36]
veCAKE is also used as a Vote Incentive, in Governance whereby users can vote on governance proposals for matters related to gauge approvals, protocol changes, and emission adjustments. It can be used as Liquidity Rewards, and finally, in IFOs (Initial Farm Offering) whereby veCAKE balance gives users iCAKE to participate in PancakeSwap IFOs. [36]
Binance Bridge
Pancakeswap through the help of Binance offers its users a way to bridge their non-BEP 20 tokens. If a user wants to trade ERC-20 tokens on PancakeSwap, they can wrap them on the Binance Bridge to turn them into BEP-20 assets. This allows the movement of tokens from the Ethereum network to the binance smart chain network and back. [18]
The Binance Bridge is not only for cross-chain assets used in trading; users can also utilize it to bridge Ethereum assets for providing liquidity and yield farming on PancakeSwap.[18]
