Explained: What Is PancakeSwap? How Does It Works?

PancakeSwap (CAKE): Decentralized finance, or DeFi, aims to make society more financially inclusive by eliminating the need for intermediaries to facilitate transactions.

In the world of DeFi, users are increasingly engaging with autonomous markets powered by blockchain technology, i.e., decentralised exchanges (DEX).
 
In contrast to centralised cryptocurrency exchanges such as Binance and Coinbase, which are run by a single corporate company, decentralised exchanges (DEXs) enable trading without an intermediary.

While Ethereum is the main choice for developing DeFi protocols, a Binance-backed protocol called PancakeSwap has emerged as a competitor.

What is PancakeSwap?

PancakeSwap is a decentralised exchange (DEX) that allows users to swap cryptocurrencies and tokens without the need for a centralised intermediary while maintaining custody of their tokens. It is based on automated smart contracts deployed on Binance Smart Chain (BNB), Binance’s blockchain platform.

PancakeSwap is similar to UniSwap, a DEX based on the Ethereum blockchain. Since PancakeSwap is built on Binance Smart Chain rather than Ethereum, it has substantially lower trading fees.

PancakeSwap is used particularly for BEP-20 tokens operating on the Binance Smart Chain, while tokens from other platforms can be brought over via Binance Bridge and “wrapped” as BEP-20 tokens for use on the DEX.

PancakeSwap was built by anonymous developers, and despite the fact that it runs on Binance’s blockchain platform, Binance does not control or operate PancakeSwap.

How Does PancakeSwap Works?

It operates on the automated market maker (AMM) model, which relies on user-fueled liquidity pools rather than the traditional market model.

Users lock their tokens into a permissionless liquidity pool via smart contracts, rather than dealing with the traditional market model of an order book and finding someone else who wants to trade the tokens. This allows users to perform the desired swap while users who put their coins in the pool earn a share of the rewards generated by transactions.

Individuals who put money into these liquidity pools get an LP (liquidity provider) token in return. They also get paid to make their assets available for lending. People who want to access this liquidity pool, on the other hand, must pay a fee to the DeFi platform. This charge is then shared among those who contributed to the pool. A small portion of this amount is held in the PancakeSwap treasury to support the platform.

The more you put into pools, the more you get back. Profits can be made by trading LP tokens. Furthermore, they can be farmed in another form of liquidity pool to earn CAKE, PancakeSwap’s native BEP-20 token. Not only that, but another type of pool, known as SYRUP, is more rewarding than the others.

Also Read: Explained: What is NVIDIA Omniverse? Is Omniverse a Metaverse?

The post Explained: What Is PancakeSwap? How Does It Works? appeared first on CoinGape.