PancakeSwap: How it works, features and ways to make money on the popular DEX exchange

PancakeSwap is one of the leading decentralized exchanges (DEX) operating on the Binance Smart Chain (BSC) blockchain. The project offers users a wide range of services, including cryptocurrency exchange, adding liquidity, farming, and token staking.

The difference between DEX and traditional centralized exchanges (CEXs) is considered to be the absence of an intermediary in the execution of transactions and greater attention to the principles of anonymity and security. Users interact directly with smart contracts, which allows them to fully control their funds and do so without the involvement of third parties.

Source: pancakeswap

Content:

1. PancakeSwap in the Binance Smart Chain ecosystem
2. History and founders
3. Technical features

• Why Binance Smart Chain?
• AMM liquidity model
• Security on PancakeSwap

4. Main functions of PancakeSwap

• Token exchange
• Liquidity pools and their role
• Farming and staking on PancakeSwap
• Lottery and NFTs on PancakeSwap

5. CAKE token

• Main characteristics of CAKE token
• CAKE token burning mechanisms

6. Economic model and fees

• Fee structure on PancakeSwap
• Distribution of fees and incentivizing participation

7. Advantages and disadvantages of PancakeSwap

8. Market position and competitors

9. How to start using PancakeSwap?

• Adding liquidity and participating in farming
• Using the interface to exchange tokens

10. Marketing and community

• PancakeSwap promotion strategy
• Role of community and partnerships

11. Security and risks

• DeFi vulnerability analysis
• Security measures on PancakeSwap
• Tips for using the platform safely

12. Future of the project and prospects

• PancakeSwap updates and development
• Prospects for CAKE token

13. Short answers to the main questions

14. Conclusion

PancakeSwap in the Binance Smart Chain ecosystem

PancakeSwap plays a key role in the Binance Smart Chain ecosystem, providing high transaction speeds and lower fees than platforms running on the Ethereum blockchain.

With these benefits and tight integration with the coins and tokens available on Binance, the world’s largest CEX, PancakeSwap has become a popular tool among users and investors looking to optimize their operations in the field of Decentralized Finance (DeFi).

History and founders

PancakeSwap was launched in September 2020 by an anonymous group of developers motivated by the desire to create an efficient custom DEX on the fast-growing BSC blockchain platform. However, the exchange also works with other networks. Their main goal has been to provide tools for exchanging, earning, participating in lotteries, and other forms of interaction with DeFi to a wider range of users through low fees and ease of use.

Since its launch, PancakeSwap has seen rapid growth, regularly expanding its functionality. Even though the exchange suffered a phishing attack on its DNS servers on March 15, 2021, the team has been able to focus on further development.

Source: X.com

The platform has repeatedly updated its interface, it has also improved its farming and staking mechanisms, and is constantly adding new tokens to its liquidity pools.

PancakeSwap’s major achievements include launching its own token CAKE, introducing unique staking mechanisms (Syrup Pools), and optimizing the voting mechanism for the community.

Technical features

Why Binance Smart Chain?

The choice of the Binance Smart Chain blockchain network to launch PancakeSwap was dictated by its high performance and compatibility with Ethereum smart contracts, which facilitates project migration and integration of existing DeFi solutions.

BSC provides high throughput and shorter block confirmation times, which provides significant benefits for traders.

AMM liquidity model

PancakeSwap utilizes an Automated Market Maker (AMM) model to create markets for different tokens without a traditional order book. This model allows users to trade directly with each other through liquidity pools, where a liquidity fund backs each trading pair.

Users contributing funds to these pools receive a portion of transaction fees and other types of rewards.

Security on PancakeSwap

User protection on PancakeSwap is ensured by thorough auditing of smart contracts and regular security updates.

The project’s team takes interactions with liquidity pools and the execution of transactions on the platform seriously, partnering with leading blockchain security organizations including OtterSec, Zellic, Halborn, and Slowmist.

Main functions of PancakeSwap

Token exchange

On PancakeSwap, users can easily exchange tokens of the BEP-20 standard. The exchange process is conducted using AMM, eliminating the need for a second party to execute the order. Users simply select a token pair and execute the exchange directly through the corresponding liquidity pool.

Liquidity pools and their role

Liquidity pools are the backbone of PancakeSwap’s operation. They not only exchange but also provide liquidity to users.

When a user deposits funds into a pool, he receives Liquidity Provider (LP) tokens, which represent his share in the pool. With these, the user receives a portion of the fees and can participate in farming.

Farming and staking on PancakeSwap

Farming (Yield Farming) is a process where users invest their LP tokens to earn additional rewards, including CAKE tokens.

Staking involves locking a certain amount of CAKE on the platform to generate passive income, often in the form of additional CAKE or tokens from other projects on BSC.

Источник: pancakeswap

Lottery and NFTs on PancakeSwap

Lottery and collectible non-fungible tokens (NFTs) are innovative features of PancakeSwap that provide users with additional ways to play and earn on the platform.

Part of the revenue from the sale of lottery tickets goes to the prize pool, while NFTs find their use in various activities and events on the platform.

Source: pancakeswap

CAKE token

Main characteristics of CAKE token

CAKE is an own token of the PancakeSwap ecosystem, created using the BEP-20 standard on the Binance Smart Chain.

It fulfills the main role in platform management, farming, and staking. In addition, the token is used to vote on proposals related to the development of the platform, giving CAKE holders a real influence on the future of the project.

Source: pancakeswap

According to data from aggregator CoinGecko, at the time of writing, CAKE ranks 128th in the overall cryptocurrency market capitalization ranking with over $1,1 billion in market capitalization and is trading at $3,87, having lost 3,5% overnight but adding 111% over the month. There are 287 772 408 coins in circulation.

Source: Coingecko

CAKE token burning mechanisms

CAKE burning aims to control inflation and maintain the value of the token in the long term. Regular and transparent token burning helps to reduce overall supply and can potentially increase the value of remaining tokens.

Cryptocurrency burning is the process of removing a certain number of tokens from circulation, after which they become permanently inaccessible. Often burning is carried out in order to increase the rate of an asset or prevent it from inflation. Burning can be done by sending tokens to a wallet without a private key, by conducting a hard fork, using special software, or using algorithms that destroy some of the funds during transactions.

Economic model and fees

Fee structure on PancakeSwap

PancakeSwap performs transactions with relatively low fees, which makes the platform attractive to users. The fee structure is objectively transparent: part of the fees goes to support the stable operation of the platform, while the other part is distributed among users providing liquidity.

Distribution of fees and incentivizing participation

Fees from transactions on PancakeSwap are distributed in such a way that participants in the ecosystem receive the maximum possible incentives to maintain and increase liquidity. This creates a favorable economic environment where participants are not only rewarded for their contributions but can also influence the further development of the platform.

Advantages and disadvantages of PancakeSwap

PancakeSwap has established itself as a reliable and safe project trusted by hundreds of thousands of users. However, each platform has its own disadvantages. Let’s take a closer look at them.

The advantages of PancakeSwap include:

• Low fees compared to DeFi platforms running on Ethereum.
• Users do not need to transfer tokens to an account on the exchange to make transactions, just connect a wallet.
• High transaction execution speed provided by Binance Smart Chain.
• Multifunctionality, providing users with a wide range of opportunities to interact with DeFi products.
• The exchange has been audited by cyber security company CertiK.

The disadvantages of PancakeSwap include the following:

• Dependence on the Binance Smart Chain blockchain, which carries certain centralization risks.
• Risks associated with smart contract vulnerabilities, although audits minimize this threat.

Market position and competitors

In the world of DEXs, PancakeSwap holds a strong position thanks to its integration into the Binance Smart Chain ecosystem and constant development of functionality. The platform competes with projects such as Uniswap and SushiSwap, providing similar services but with its own unique features such as lottery and token farming.

PancakeSwap’s impact on the Binance Smart Chain ecosystem and DeFi as a whole cannot be overstated. As one of the largest players in the market, PancakeSwap attracts a significant volume of trades and users, thereby driving the development of the entire BSC network and strengthening its position in the decentralized finance industry.

How to start using PancakeSwap?

To get started with PancakeSwap, you will need a crypto wallet such as MetaMask, OKX Wallet, SafePal Wallet, or Trust Wallet. To connect to the platform, follow this algorithm of actions:

1. Installing a crypto wallet. If you don’t already have a wallet, download and install one on your device. You can start with MetaMask, which offers high security and a user-friendly interface.

2. Account Creation. After installing the wallet, create a new account by following the app’s instructions. Be sure to save your recovery phrase of 12 or 24 words in a safe place.

3. Connecting to BSC. By default, MetaMask works with the Ethereum network, so you need to add the Binance Smart Chain in the settings by entering the appropriate RPC data.

4. BNB top-up. Send some Binance Coin (BNB) cryptocurrency to your new BSC address in MetaMask to pay transaction fees.

5. Connecting to PancakeSwap. Go to the PancakeSwap website and click “Connect Wallet” in the top right corner, select MetaMask or Trust Wallet, and confirm the connection.

Source: pancakeswap

Adding liquidity and participating in farming

To earn from providing liquidity and participating in Farming on PancakeSwap, you need to follow these steps:

1. Selecting a token pair. Decide on the token pair whose liquidity you want to provide. Be sure to analyze the pair to ensure its potential and stability.

2. Adding liquidity. On the “Liquidity” tab, click “Add Liquidity”, select the tokens you want to share, and specify the quantity. After completing the operation, you will receive special tokens, so-called LP tokens.

3. Farming. Go to the “Earn” tab, then select “Farm/Liquidity”, choose a suitable farm, and place your LP tokens to receive rewards in CAKE and other tokens.

4. Staking. Click on the “Earn” tab, then select “CAKE Staking” or “Syrup pools” for staking within the pool. Lock your CAKE tokens for rewards in CAKE and other tokens.

Using the interface to exchange tokens

Exchanging tokens on PancakeSwap takes place on the “Trade” tab. The exchange process includes the following steps:

1. Selecting tokens. Specify a pair of tokens between which you want to make an exchange.

2. Setting the exchange rate. The system will automatically calculate the exchange offer based on current market conditions.

3. Confirmation of the transaction. Check the transaction details and confirm the transaction in your wallet by paying the fee to BNB.

Marketing and community

PancakeSwap promotion strategy

PancakeSwap uses various marketing strategies to attract users, including affiliate programs, social media, and participation in various blockchain events. Special emphasis is placed on unique initiatives such as lotteries, competitions, and NFT giveaways. These events not only attract new users but also help retain existing users by creating an active and engaged community.

Source: pancakeswap

Role of community and partnerships

A strong and active community is key to the success of any DeFi project. PancakeSwap actively works to engage with users through official social media channels and forums, providing support and receiving feedback.

Partnerships with developers of other projects and investors also play an important role in expanding functionality and attracting new users.

Security and risks

DeFi vulnerability analysis

PancakeSwap is a DeFi platform that, like all such projects, faces certain risks and security issues. The main risks are related to the possibility of liquidity loss or attacks on smart contracts. In order to mitigate these risks, PancakeSwap has implemented a multi-layered security system. The platform’s team publishes reports on audits on its blog.

The exchange has successfully passed CertiK’s audit and has been integrated with all its security tools, including Security Oracle, CertiKShield DeepSEA, and The CertiK Virtual Machine. In addition, the platform passed a security audit from Slowmist.

Security measures on PancakeSwap

To ensure the safety of users, PancakeSwap has implemented several important measures, including audits of smart contracts by leading cyber security companies, as well as the introduction of alert systems for unfriendly actions on the platform. Moreover, the project actively engages with the community to detect and address potential threats early.

Tips for using the platform safely

To maximize the protection of their funds on PancakeSwap, users should follow a few simple rules:

• Use complex and unique passwords.
• Do not share personal information or use unofficial websites.
• Perform regular backups and wallet updates.
• Always check the terms and conditions of transactions carefully.

Future of the project and prospects

PancakeSwap updates and development

PancakeSwap is actively developing, and introducing new features and capabilities. There are plans to improve the user interface, expand the list of supported tokens, and integrate with other blockchain networks to increase speed and reduce fees.

In November, PancakeSwap unveiled a Telegram bot that allows trading cryptocurrencies directly from the messenger. The bot currently supports more than 3000 tokens, making DeFi transactions potentially more accessible to a wider audience familiar with Telegram.

In August, the project team updated the roadmap, writing:

We don’t publicly commit to specific timelines, so we can organize our development priorities based on market changes and developer resources. Due to considerations of security and confidentiality, some items are not included in the ‘Cooking In’ section.

The following ideas ended up on the list:

• Release of the fourth version of the protocol (PancakeSwap v4)
• DEX: a new trading platform
• Expansion of veCAKE cross-chain support
• Web3 Quest platform
• UI/UX upgrade
• Simple multichain staking

Source: pancakeswap

In early December, the PancakeSwap team launched their own fee-free meme token creation platform called SpringBoard, to which the CAKE token reacted with a sharp rise.

PancakeSwap has launched a SpringBoard meme token launchpad. CAKE token rises by 44%

The platform takes no fees and allows any user without programming knowledge to launch their own asset in a few clicks

Read more

Prospects for CAKE token

CAKE token is a fundamental element of the PancakeSwap ecosystem and its future directly depends on the success of the whole project. Analysts and experts make predictions regarding its value, which are based on the current state of the DeFi market and the potential introduction of new features on the platform.

According to Crypto News Land analysts, 2025 will bring significant growth opportunities for the CAKE token. The token’s projected value of approximately $20,35 is a reflection of the growing confidence in the transformative potential of decentralized finance.

Despite market fluctuations, CAKE is expected to have a minimum price of $7,98 and an average trading price of $9,05, indicating a positive assessment of the project’s long-term prospects.

Short answers to the main questions

What is PancakeSwap in one sentence?

PancakeSwap is a decentralized exchange based on the Binance Smart Chain blockchain for trading cryptocurrencies as well as making money by providing liquidity, participating in farming, and staking.

How to earn on PancakeSwap?

You can earn on PancakeSwap by trading tokens, providing liquidity, participating in farming, staking, and winning lotteries.

Is PancakeSwap safe?

PancakeSwap takes all necessary steps to ensure security, including audits of smart contracts and the introduction of monitoring systems, but as with any DeFi project, users should be vigilant and follow security guidelines.

Conclusion

PancakeSwap continues to be a key player in the DEX segment due to its constant updates, efficient economic model, and commitment to improving user experience.

The platform successfully combines functionality and security, making DeFi accessible to a wide audience. Despite a number of issues and challenges, PancakeSwap demonstrates how decentralized institutions can not only adapt and grow in the rapidly changing world of blockchain technology but also actively shape it.

Be aware of possible risks and continually explore new opportunities, allowing you to stay at the forefront of innovative financial markets.