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What is PancakeSwap?

It is a decentralized exchange platform that allows the exchange of existing tokens within the Binance Smart Chain (BSC). In addition, PancakeSwap enables the sale of tokens without losing custody of the assets at any time (at least until the exchange is executed). Its operation is based on a series of automated smart contracts deployed on the BSC, Binance's blockchain.

PancakeSwap has many similarities with Uniswap; a DEX deployed on the Ethereum blockchain. This exchange has its token called CAKE, type BEP-20 (practically the same design as the EIP-20 tokens). It also allows to import tokens from other platforms through the Binance Bridge and "convert" them into a BEP-20 token used within the decentralized exchange.

This DEX is based on the Automated Market Making (AMM) system. It is a mechanism by which users can add liquidity to the exchange without losing ownership of the tokens at any time. It eliminates the order book, where we must find a seller to sell us the tokens we want to buy, and he sells us the tokens we want to sell. Here users add tokens to "use" them by creating a liquidity pool based on smart contracts. It allows the exchange of tokens to trade freely and for token holders to "lend" them and get rewarded for adding liquidity.

The DEX PancakeSwap is a solution developed for the Defi market. It allows traders to exchange tokens without the need for a middleman and high commissions. PancakeSwap is currently the most crucial decentralized exchange deployed on BSC, but it is not the most critical DEX at the moment.

How PancakeSwap works

For liquidity to exist, or in other words, for funds to exist on the DEX, it needs to be contributed by users. This is done through liquidity pools between pairs of tokens. To be able to trade tokens, other users are required to add liquidity with their tokens. Adding liquidity does not mean losing our tokens; they remain the property of the user who adds liquidity and can be withdrawn at any time. As an incentive to add liquidity, they receive a reward.

But this is just one of the many things we can do within the PancakeSwap platform. We can also add coins to so-called Syrup Pools, which offer rewards. For example, we can bet on whether the price of the Binance Coin (BNB) token will go up or down in a given time frame. It also has a kind of lottery where we can win a lot of CAKE tokens. Additionally, we have NFT and Initial Farm Offering (IFO).

Liquidity pool

For PancakeSwap to be liquid, users must contribute their tokens. The liquidity provider (LP) tokens in this DEX are called 'FLIP' tokens. These tokens may differ depending on the token pair to which we add liquidity.

Once we add funds to the liquidity pool, we will start getting rewards on the CAKE token. This is because there are many tokens in Syrup (as liquidity pools are called) that we can leverage to add liquidity. In exchange for this, we will receive a certain amount of CAKE tokens based on the Annual Percentage Yield (APY), which is the amount we can earn if we keep stacking for a whole year.


Yield farming is a solution that allows users to add tokens in exchange for a reward. These rewards can be combined and used in different protocols. This will enable users to increase the yield of their tokens thanks to the high commissions received.

Liquidity providers are incentivized to add their tokens to a liquidity pool that is based on smart contracts. The incentive can come from a percentage of transaction fees and interest on token loans, typically given on the CAKE governance token.


The maintenance of PancakeSwap is much lower than that of a decentralized exchange. The cost reduction is primarily due to a decentralized platform with no custody of the tokens. It also reduces the need for maintenance of the platform and servers to be operational. This set of points allows you to reduce transaction fees significantly.

PancakeSwap currently charges 0.25% for each transaction made on the DEX. 0.17% of the total is earmarked to be used as a reward in the liquidity pools. 0.03% of the fees are allocated to the DEX treasury, and in addition, 0.05% is used to buy back and burn CAKE tokens.


PancakeSwap has the remarkable peculiarity of having a lottery system that allows you to get great rewards. Every 6 hours, there is a draw based on large prizes. We can buy a lottery ticket for 10 CAKE, which generates a set of four digits ranging between the numbers 1 and 14. For example, 4-11-5-14.

The prize is only awarded if the four numbers that come up are the same as ours and in the same order. The amount of the award is 50% of what has been spent on buying the tickets.


This DEX adds a lot of atypical elements to encourage user participation. One of the most curious elements of PancakeSwap in the beta phase is the BNB token price predictions. This mechanism allows us to bet on a rise or fall in the price of the Binance Coin token. The process takes 5 minutes, and we can bet on the price rise or fall before the new period starts. If we win, we get the amount of tokens bet plus a percentage. For example, we bet 10 BNB that the price will go down, and it has a rate of x1.5, which means we get 15 BNB, the 10 BNB bet, and the 5 BNB reward for the bet.


This is not the end of the peculiarities of this decentralized exchange platform. In addition, PancakeSwap has a collection of cute NFTs that can be earned and exchanged for CAKE tokens or kept as a collectible item.


IFO (Initial Farming Offerings) is a mechanism that allows us to get a certain amount of a newly launched token available to users that makes use of yield farming.  PancakeSwap will enable you to add token liquidity in a supported pool to gain access to the sale of a newly launched token.

Why PancakeSwap on the Binance Smart Chain (BSC)?

Usually DEXs are launched on the Ethereum blockchain because of its great popularity. Ethereum's strength lies in its "simplicity" when it comes to deploying smart contracts to develop dApps. Even decentralized finance (DeFi) solutions have grown a lot in recent months.

Ethereum has a major problem: the cost of transactions. When there is no network congestion, fees are usually quite high due to high usage. These fees skyrocket when there is significant congestion in the network. Ethereum 2.0 is still a long way off and will solve this problem, which is why PancakeSwap has opted for Binance Smart Chain.

The Binance exchange's blockchain allows for the development of tokens that are virtually identical to those created on the Ethereum blockchain. This makes it very easy for developers to deploy new tokens. But the main reason to use BSC is that the fees are much, much lower than Ethereum. Something that allows users to get in at a lower cost.

What tokens does PancakeSwap use?

We can find three different tokens, one being the primary token of the platform, and the other two are somewhat secondary.

CAKE Token

It is PancakeSwap's primary token, used for the lottery and to reward those who add liquidity. There is no fixed maximum of CAKE tokens, which allows the supply to fluctuate according to need, making it inflationary. Although there is no limit, there is a block-controlled issuance mechanism and regular burning of tokens, which reduces token price inflation.

CAKE is a token that seeks to incentivize liquidity on the DEX. If this token did not exist, there would be no incentive for users to add liquidity.


We can add CAKE tokens within the SYRUP Pool, allowing us to earn SYRUP tokens. SYRUP holders will earn a 25% share of rewards from each CAKE block, in addition, entitling them to acquire tickets from new BSC projects.

FLIP Token

It is a token specifically for liquidity pools. Users who add liquidity to the DEX are rewarded with the FLIP token.

Is PancakeSwap safe?

Like any other code, a smart contract can have sure security holes that can lead to its exploitation and, consequently, to the theft of tokens. To ensure the security of smart contracts, the security firm Certik has been asked to audit them. The auditing of the code has been passed with flying colors.

Final words about PancakeSwap

Second and third-generation decentralized exchanges have proliferated quite a bit in the last couple of years powered by decentralized finance (DeFi). Defi and DEX are constantly feeding back into each other for the expansion of cryptocurrency options and functionalities. Pancakeswap is betting on a blockchain less used than Ethereum to gain certain competitive advantages over other DEX.

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