Based on the Uniswap model, PancakeSwap (CAKE) is Binance Smart Chain's CeDeFi DEX and AMM solution. Read to learn about CAKE tech, exchanges, and wallets.
Decentralized exchanges and automated market-making (AMM) solutions have become a staple in the cryptocurrency industry, allowing any development team to list their project without third-party permission and for any user to provide trading pair liquidity and access assets seamlessly. These innovative platforms offer true distributed and decentralized access, taking power away from the gatekeepers who previously maintained almost complete control over this process.
With a current market capitalization of over $20 billion, Ethereum-based DEX and AMM Uniswap is the leader in this industry sub-sector, but its host network (Ethereum) causes one massive problem for users, unsustainably high fees. As more users flock to Uniswap, Ethereum blocks fill up faster and faster, causing fees to increase proportionally. Considering a Uniswap transaction typically requires the usage of multiple smart contract operations, fees can regularly reach $20 to $100+ depending on the time of transaction. Binance Smart Chain, created by Binance, the leading cryptocurrency exchange, offers a faster and cheaper (albeit centralized) solution with PancakeSwap, and it has taken the market by storm, quickly breaking the top 30 in the cryptocurrency market cap rankings.
If you understand Uniswap, you should understand PancakeSwap, as they do not have many inherent differences besides the networks that host them. Launched in September 2020, PancakeSwap offers permissionless access to the exchange of any BEP20 tokens, or tokens created on BSC. Users can trade, contribute to liquidity pools, and farm LP tokens to get the maximum advantage for providing liquidity to specific trading pairs, gaining additional asset rewards.
CAKE is the utility token of PancakeSwap, with the ability to stake it to earn more CAKE directly, or stake it in PancakeSwap SYRUP liquidity pools. When you stake CAKE in a SYRUP pool you earn SYRUP tokens, which can then be staked for additional rewards, creating a self-rewarding system for users. PancakeSwap offers low fees, fast transaction finality, no KYC, and was audited by Certik, one of the most prestigious auditing firms in the space, making it one of the ideal exchanges for trading BEP20 tokens.
PancakeSwap trading fees, which are usually significantly less than $1, pale in comparison to the fees on Ethereum-based counterparts, spurring many new projects to launch their tokens as BEP20 tokens instead of the traditionally used ERC20 token standard. PancakeSwap charges fees as low as 0.2% per trade, with 0.17% of the fee going to liquidity providers and the other 0.03% burned to lower the overall token supply over time. The team is entirely anonymous, but has gained the trust of many within the BSC and general blockchain community by providing a superior service to what is currently offered on other AMM-based DEXs.
A Short or Long Term Solution?
With Ethereum transaction fees at sky-high prices, PancakeSwap is an excellent alternative for the everyday trader looking to save on costs. If you are transacting with tokens in the thousands of dollars or more, paying $20-$100 is somewhat manageable, but if you are making smaller trades, it doesn't make sense to pay equal or more in fees than the actual tokens are worth.
PancakeSwap can offer these competitively low fees because of their centralized verification mechanism, Proof of Staked Authority (PoSA), which is extremely fast and effective, but presents drawbacks to users who want to utilize fully decentralized applications. This is why we call BSC a centralized, decentralized finance (CeDeFi) solution, as it's not DeFi in any sense of the word. Long-term, projects will most likely not want to be beholden to the wills of the BSC network validators, so if Ethereum 2.0 can lower fees to sustainable levels, PancakeSwap and other CeDeFi solutions may fall to the wayside.
Buying and Selling CAKE
Binance Smart Chain is a segregated chain, so if you are not using an interoperable exchange, you are forced to either purchase CAKE directly on PancakeSwap using a token such as BNB, or on a centralized exchange such as Binance, KuCoin, or Gate.io. However, there is an option for users who want to have multi-chain access and remain decentralized, as anyone can use Komodo's AtomicDEX for cross-chain transactions. This is one of the only current multi-chain solutions that allows for the safe purchasing of BEP20 tokens, making it a viable option for those who genuinely value the decentralized principles of blockchain technology.
Alongside CAKE, users can purchase different cross-chain assets with ease on AtomicDEX, such as Avalanche (AVAX), various ERC20 tokens, Bitcoin Cash (BCH), Zcash (ZEC), and many more. This offers a hybrid solution where you can purchase CeDeFi coins using a fully decentralized exchange platform.
CAKE Storage Options
Binance Smart Chain is compatible with a variety of browser cryptocurrency wallets, such as Metamask, Trust Wallet, Binance Chain Wallet, Wallet Connect, and more, giving users ample options regarding their storage capabilities. With Metamask and others, it is easy to configure the wallet to host tokens across multiple chains, although the tokens are not interchangeable in a cross-chain manner. For an option that allows for cross-chain storage of assets in one place, users can opt to store their CAKE tokens in the AtomicDEX wallet, an easily accessible multi-coin wallet that makes storage simple and straightforward.
For now and into the immediate future, PancakeSwap is one of several available decentralized excahnges for users looking to utilize a cost-effective AMM for trading and liquidity provisions. By cloning one of the most popular applications ever to hit the crypto market, Uniswap, and introducing it on a more 'user-friendly' network, PancakeSwap has carved out a massive niche that is continuing to grow as users look to maximize their trade value.
Long term, it is challenging to say if PancakeSwap will stand the test of time, as it is essentially centralized, but for now, it is playing a pivotal role in the market. If you are looking for a token that is directly tied to the progress and profit that this CeDeFi exchange offers, CAKE is an exciting option, but make sure you analyze your short and long term goals so you don't potentially end up holding onto a token that becomes less valuable over time. If fully decentralized DeFi applications can one day offer the same speed and cost of transactions that PancakeSwap currently provides, it might become more difficult for the platform to sustain its current adoption in the future.