- PancakeSwap (CAKE) is the leading DeFi hub on BNB Chain (crypto’s second-largest chain).
- It’s easy-to-use interface and many features appeal to new DeFi participants.
- It combines the perks of decentralization with the centralized power of Binance.
- These perks and the May 2022 tokenomics overhaul prime it for growth during the next bull market.
|Symbol||CAKE||Circulating Supply (estimated)||148,994,078|
|Rank (MCAP)||#75||Total Supply||305,508,426|
|Price (06/28/22)||US$3.32||Market Capitalization||US$494,609,987|
Complete historical CAKE price chart vs. USD. Source: CoinGecko
In this report, we’ll answer:
- What is PancakeSwap?
- How can you use and profit from its CAKE token?
- Why might the CAKE token become more valuable?
- What does the market think about PancakeSwap?
What is PancakeSwap?
PancakeSwap (CAKE) is a decentralized exchange (DEX) and automated market maker (AMM). It’s the BNB Chain’s biggest decentralized finance (DeFi) decentralized application (dApp).
It’s like Uniswap. PancakeSwap began as a Uniswap fork for BEP-20 tokens (a standard developed by Binance) on the BNB Chain.
PancakeSwap’s DEX allows its users to trade tokens. Users can also provide liquidity (LP) to yield farm and take part in many more features.
Decentralized exchange (DEX)
A centralized exchange (CEX) like Binance lets users trade tokens. Users can make similar trades by swapping between tokens listed on PancakeSwap’s DEX.
For example, on PancakeSwap’s DEX, you could swap your CAKE for BNB or BNB for BUSD.
Anybody can list their BEP-20 token on PancakeSwap without requiring centralized approval. All they need to do is add liquidity to a liquidity pool.
Automated market maker (AMM)
A CEX, such as Binance, requires a market maker to pair buy and sell orders. This market maker costs money and centralizes power. These requirements can lead to higher fees and price manipulation.
A DEX also requires a market maker. PancakeSwap provides an automated market maker (AMM) to make decentralized trades possible. This AMM performs the CEX market maker’s job without the downsides of centralization.
In this way, PancakeSwap’s DEX and AMM support the ideals of decentralization.
Liquidity provision and staking
PancakeSwap’s AMM requires liquidity (deposited tokens). This liquidity lets its AMM do the same job as a CEX’s market maker.
When traders place orders, the AMM buys and sells tokens to fill their orders. These tokens come from PancakeSwap’s liquidity pools. PancakeSwap rewards users for depositing their tokens (liquidity) into these liquidity pools.
These users are called LPs (liquidity providers) since they provide liquidity.
PancakeSwap offers a host of other features, including:
- Yield farming: LPs can earn rewards by putting their LP tokens into a farm.
- ZAP: simplifies the user’s experience by creating an LP token from an asset in one click.
- Trading competitions: teams compete for prizes by creating the highest trading volume.
- Prediction markets: users bet if the price of BNB will climb or drop from the start to the end of a timed phase.
- Perpetual swap trading: users trade a type of futures contract with no expiration date.
- Syrup Pools: a simple way for users to stake CAKE tokens to earn other tokens. Stakers can choose “flexible” or “locked” options. Flexible staking lets users withdraw their tokens at any time. Locked staking prevents withdrawals before a specific time but gives higher rewards.
- Lotteries: users buy tickets for approximately US$5 in hopes of winning a part of the prize pool.
- An NFT marketplace: users trade NFTs and list NFT collections. PancakeSwap provides some unique NFT collections.
- IFOs (Initial Farm Offerings): users buy new project tokens with CAKE/BNB LP tokens.
- Farm auctions: projects bid CAKE to compete for the right to host a week-long farm on PancakeSwap.
PancakeSwap release a new tokenomics model
On May 12, 2022, PancakeSwap passed a significant proposal. This proposal created important changes to CAKE’s tokenomics.
This change added a max supply cap (750 million) for CAKE tokens. There was no supply cap before.
The previous infinite max supply could result in unlimited inflation and lower token prices. This risk made some investors cautious.
The change also created new tokens and more use cases for CAKE, including boosted:
- Governance voting via the new vCAKE token
- Farm yields via the new bCAKE token
- IFO benefits via the new iCAKE token
These changes encourage users to lock more CAKE tokens. Locking tokens removes circulating CAKE from the market.
Less CAKE circulating on the market reduces selling pressure. This reduced selling pressure helps the price of CAKE rise.
Who’s behind PancakeSwap?
A team of anonymous developers created PancakeSwap. Its unusual name comes from the food-named DeFi project fad of late 2020. They dub themselves “chefs.”
Anonymous development teams can sometimes be a risk to a project. Investors can’t verify that the team has succeeded in the past. It can be hard to blindly trust that an anonymous team won’t sabotage or steal the project’s funds.
Yet, Binance’s CEO and founder, Changpeng Zhao, knows some of PancakeSwap’s developers. At least some of PancakeSwap’s anonymous development team are ex-Binance employees.
The PancakeSwap team’s connection to Binance helps reduce concerns over the team’s anonymity.
It’s also clear that the team can deliver working products. They proved this by making PancakeSwap the leading DeFi dApp on the BNB chain.
How are PancakeSwap tokens distributed and released?
PancakeSwap released the first CAKE tokens in a fair launch on September 20th, 2020.
This fair launch means that CAKE’s supply started at zero tokens. There was no token sale.
Instead, users who supplied liquidity received the first CAKE tokens. Farmed received 75% of CAKE token emissions. The remaining 25% of emissions went to SYRUP token holders.
This distribution also means that there will be no large token unlocks.
Token unlocks can be dangerous for investors. For example, suppose many pre-sale tokens unlock at the same time. This unlock floods the market with selling pressure that can crash the token’s price.
CAKE’s lack of presales and early investors eliminates this risk.
Currently, PancakeSwap distributes CAKE through token emissions.
- Syrup pools receive 25%
- Farms and the lottery receive 10.62%
- It burns the remaining 64.38%
The burn address receives all CAKE marked for burning. Once per week, PancakeSwap burns this address’s CAKE tokens.
These burns help reduce the circulating supply of CAKE. A lower circulating supply helps the token’s price climb.
CAKE’s new tokenomics aim to create a three-year runway until supply reaches its max cap (750 million). The team considers this cap as a conservative fair-market valuation for the project.
The runway, longer than some DEXs, allows time to fine-tune sustainable practices. This focus on sustainability signifies the team’s long-term commitment.
CAKE emissions and burns. Source: CAKE Tokenomics – PancakeSwap
Why could PancakeSwap be valuable in the future?
PancakeSwap rides the decentralization narrative
A dominant narrative since the dawn of crypto is decentralization.
Decentralization has its challenges. Yet, it reduces some risks. One risk is a centralized authority forcing rules, such as requiring real-life identities. Centralization can also throttle innovation or shut down a project.
PancakeSwap’s decentralization capitalizes on the core crypto narrative of freedom. Any project can list tokens on PancakeSwap’s DEX. PancakeSwap’s features are accessible to any anonymous person.
As a decentralized platform, PancakeSwap is also exposed to the upsides of centralization. Its centralized benefits come from connections to Binance, the largest centralized crypto platform.
PancakeSwap is the dominant DEX on BNB Chain and has Binance connections
Every ecosystem needs a DEX, AMM, and hub for activity. PancakeSwap has dominated this niche in the BNB Chain, with over 400,000 daily unique users.
It’s often difficult to overcome the leader. Competitors will find it challenging to take PancakeSwap’s throne.
Also, PancakeSwap is becoming more integrated with Binance. This integration is significant.
In June 2022, Binance’s venture capital and incubation arm invested in PancakeSwap. In March 2022, Binance added a PancakeSwap Mini-Program to its app. This mini-program makes it easier for Binance users to start using PancakeSwap.
Binance is the largest CEX and a starting point for many crypto market participants. PancakeSwap offers Binance users an accessible entrance to DeFi.
PancakeSwap Mini-program in Binance App
PancakeSwap’s size and Binance connections position it for massive growth. More users will likely arrive from Binance when the next crypto bull cycle begins.
These new users will create demand for CAKE and reduce supply by increasing burns. Increased demand and reduced supply help the CAKE token become more valuable.
PancakeSwap’s team continues to deliver for the community
Although anonymous, PancakeSwap’s team has made the platform easy to use. They’ve added many features that keep users coming back.
The community can vote on proposals that decide which features the team will add. This governance voting helps users make the exchange more beneficial for themselves.
PancakeSwap’s team often adds new features for the community. For example, the team implemented major changes in May from the recent tokenomics-changing proposal.
This proposal makes PancakeSwap more useful for its users. It also makes it easier for the token’s price to climb. It does this by creating incentives to remove CAKE for circulating supply. This removal reduces sell pressure on the token, which makes it easier for the token’s price to climb.
In April, the team migrated to a new MasterChef v2 contract. The original contract was an MVP (minimum viable product) with some limitations. The new contract allows the team to add new advanced features.
The consistent updates and progress show that the team has, and can continue, to deliver for its users.
What’s next for PancakeSwap?
PancakeSwap has many features planned that make the platform more enticing for users. These features include:
- IFO (initial farm offering) participation by holding tokens
- A prediction market update that adds more currencies
- Lottery participation via staking
- Gamification with mini-games such as bunny racing or gamification of DeFi elements. The team has hinted at an upcoming partnership with a third-party game project.
Long-term, the community decides what’s next for PancakeSwap by voting on governance proposals.
What is the market saying about PancakeSwap?
Investors trust PancakeSwap with their money
Users trust PancakeSwap with over US$3.65 billion of their funds – a significant amount of money. It’s more significant considering the current (June 2022) crypto market downturn.
This bear market drained many projects of their TVL (total value locked). Meanwhile, PancakeSwap has retained a large amount of its TVL.
PancakeSwap total value locked (TVL). Source: PancakeSwap: TVL and stats – DefiLlama
PancakeSwap has a massive social community
A strong community helps crypto projects stay alive – especially in a bear market.
PancakeSwap has a significant social following:
- Over 1.5 million Twitter followers
- Over 81,100 subreddit subscribers
- Over 14,867 Discord members
- Over 84,643 Telegram discussion channel members
- Over 51,599 Telegram announcement channel subscribers
- Over 42,700 Instagram followers
Uniswap is the largest crypto DEX and operates on Ethereum. It offers a reasonable benchmark for comparing PancakeSwap’s community numbers.
PancakeSwap has a more extensive Twitter following than Uniswap (approximately 897,300 followers).
Uniswap has more Discord members at around 91,731. Yet, PancakeSwap’s users appear to prefer Telegram. Its Telegram and Discord members combined exceed Uniswap’s Discord members.
Despite Uniswap being the largest crypto DEX, PancakeSwap’s community is larger. This comparison shows that PancakeSwap has an unusually loyal and dedicated community.
Total social volume for PancakeSwap. Source: Santiment
Social volume has been increasing since PancakeSwap’s launch. It remained high even as the bear market began in December 2021.
There was some social volume decline as Bitcoin plunged near its 2017’s high. Yet, social volume remains relatively high. It’s close to its Q1 2021 bull run levels.
This social volume shows users remain interested in PancakeSwap while other projects struggle in the bear market.
What are the risks for PancakeSwap?
Every project has its risks, and PancakeSwap is no exception.
The BNB Chain could lose popularity
The BNB Chain’s initial surge in popularity came during the summer of 2020. DeFi was a new concept that attracted many new users.
Most DeFi activity began on Ethereum. This activity overwhelmed Ethereum’s chain, causing congestion and high fees. These made Ethereum too expensive for many typical users.
The BNB Chain, and PancakeSwap, offer a fast, low-fee alternative to Ethereum. These features made the BNB Chain popular at the beginning of the DeFi craze.
Almost two years later, many fast, low-cost alternative DeFi chains co-exist. Ethereum also planned changes in 2022 that make it more accessible for the typical user.
These changes may steal participants away from the BNB Chain. Fewer users on the BNB Chain reduce activity on PancakeSwap. Fewer users can mean less demand for the CAKE token. Less demand would encourage the token’s price to drop.
Yet, DeFi’s complexity can deter many new users. PancakeSwap has simplified the DeFi user experience, making it an attractive starting point.
PancakeSwap’s connections to Binance make it an easy leap for users starting in DeFi. As the DeFi landscape evolves, this ease of use and access could help the BNB Chain and PancakeSwap stay popular.
Exploits and bugs
It’s reasonable to assume that all technology is prone to hacks and exploits. A significant one on PancakeSwap could scare users away from the platform or even destroy it.
Several exploits have occurred. These include a DNS hijack in March 2021 and a late 2020 bug that affected SYRUP token holders.
Yet, if another exploit occurs, PancakeSwap has an advantage over other DeFi platforms. The BNB Chain is more centralized than some other blockchains. This centralization makes it easier to freeze funds and trap hackers.
PancakeSwap does have many audits that reduce the risks of an exploit.
- CertiK’s security audit
- CertiK’s shield insurance
- Slowmist’s security audit
- Slowmists’ Auto-CAKE Pool security audit
- Peckshield’s Lottery V2 Audit
- Slowmist’s Lottery V2 Audit
PancakeSwap’s code is also open-source. This open-source code lets anyone verify PancakeSwap’s smart contract code’s safety. More eyes mean fewer bugs and safer investor funds.
PancakeSwap wraps many attractive features together under one user-friendly umbrella.
As the BNB Chain’s prominent dApp, it’s a logical next step for new crypto users venturing out from Binance.
The recent tokenomics overhaul and the team’s consistent delivery of features position it for massive growth in the next bull run.
What can I do from here?
- Buy and hold CAKE. [Difficulty: Easy]
- Trade perpetual swaps on PancakeSwap [Difficult: Easy]
- Trade NFTs on PancakeSwap’s NFT marketplace. [Difficulty: Easy]
- Stake your CAKE in a Syrup pool to earn other tokens. [Difficulty: Medium]
- Provide liquidity to yield farm rewards. [Difficulty: Medium]
- Take part in trading competitions to win prizes. [Difficulty: Medium]
- Make BNB price predictions to win prizes. [Difficulty: Medium]
- Buy lottery tickets for a chance to win a part of the jackpot. [Difficulty: Medium]
Who should I follow?
- PancakeSwap’s Twitter, Instagram and Telegram Announcement Channel – Follow updates on the platform
- PancakeSwap’s Medium – Dive into updates in more depth through PancakeSwap’s articles
- PancakeSwap’s Discord, Telegram Discussion Channel and subreddit – Discuss PancakeSwap with the community