The crypto space offers different ways for investors to grow their wealth. Even though its market is highly volatile, it has options where an investor can earn steadily. Such choices include yield farming, liquidity mining, staking, liquidity staking, etc. These investment options are crucial to investors as most of them give returns more significant than the traditional financial systems ever will.
However, before learning how to earn from cryptocurrencies, an investor should know about using the infrastructure available in the crypto space. The crypto space is a self-sustaining financial system where investors can access all services offered by traditional finance from anywhere in the world linked by an internet connection.
Its assets are tradable through exchanges and peer-to-peer transactions. Peer-to-peer transactions involve the exchange of cryptocurrencies between two individuals without a third party. These transactions are generally hard to track as they are registered only on the public blockchains that collect alot of information. However, exchanges offer safer P2P transactions to connect users more easily.
The other method involves the use of exchanges. There are centralized and decentralized exchanges. Centralized exchanges (CEXs) are governed by specific individuals or groups and operate similarly to a private institution. On the other hand, decentralized exchanges (DEXs) hand over the governance roles to their users, meaning that a consensus is mandatory for decisions regarding the platform’s future. PancakeSwap is one of the most popular DEX in the DeFi sector and the whole crypto space. Below is more information on it
Pancake Swap was launched in 2020 (the DeFi year) as the first and has grown to be the most significant crypto DEX protocol on the Binance Smart Chain (BSC). The DEX has an AMM, too, which facilitates token exchanges, yield farming, and staking. It also has a native token, CAKE, that acts as its governance token. Investors can swap the CAKE token with other cryptos on the platform or other exchanges.
It leverages the BSC network to capitalize on interoperability with other DeFi and crypto projects through supporting wrapped tokens, swapping, and trades.
However, in contrast to other popular AMMs like Uniswap and SushiSwap, PancakeSwap utilizes Centralized DeFi (CeDefi) infrastructure that underpins the BSC to offer low-cost transactions to its users consistently. CeDeFi is one of a kind innovation that integrates the centralized and decentralized infrastructure to improve the user experience.
Pancakeswap’s Best Features
PancakeSwap crypto DEX has many unique and attractive features. However, the greatest one is probably the ability to swap tokens anonymously. This functionality also allows the tokens to trade at lower fees, adjustable slippage, and a faster rate than most exchanges.
These are some of the best features of the PancakeSwap platform:
Syrup Pools and Farms
PancakeSwap uses syrup pools to allow for staking. It enables the users to stake CAKE in return for more CAKE or other tokens in different pools, mostly from partnerships. Syrup Pools are risk-free in terms of losing locked assets. They also have an auto compounding feature for CAKE to allow a user to stake the asset without continuous harvesting and re-staking process.
The syrup farms are the platform’s version of liquidity mining. They allow users to add liquidity by locking assets in pairs and receiving liquidity tokens. Once a user deposits the tokens in the pool, they receive payments in CAKE but can be subject to impermanent loss (IL).
PancakeSwap is different from its competitors due to features like its lottery system. It allows users to buy tickets and win an entire pool if they get the collect numbers or win a portion of the pool when some numbers are correct.
It also has a prediction feature that lets a user guess if the price of BNB will go up or down within a specified amount of time. If the user gets it right, they get rewards depending on what was best in the opposite trend.
Initial Farm Offerings(IFO)
Similar to Initial Coin Offerings, pancakeSwap has initial farm offerings that are the first step of introducing new farms to the community. A user can lock CAKE and BNB on the farms before making them public, thus earning more rewards.
How Does PancakeSwap Work?
Like its competitors, UniSwap and SushiSwap, PancakeSwap leverages a native token. Its token is called CAKE which also serves as its utility and governance token. CAKE can be used for different purposes, including:
- Yield farming
- PancakeSwap staking
- The PancakeSwap lottery
- PancakeSwap Governance
When a trade is made on the exchange, it draws from the liquidity pools and is followed by a rebalancing process. To add liquidity in the PancakeSwap pools, a user must have wallets supported by the BSC network, like Trust Wallet and Binance Smart Wallet.
The trades that occur in PancakeSwap subtract liquidity from one side of the pool while providing liquidity to the other, which necessitates a rebalancing as the pool changes in its relative terms. Each time a trader makes a successful exchange, they need to pay a fee/commission. A part of this commission goes to the liquidity providers. The other part goes to the maintenance budget of the platform, including processes like burn proposals and CAKE buybacks.
The commission also allows the protocol to offer gifts and rewards through different systems. As a result, it keeps attracting new users. Another functionality of the protocol which makes it popular is not asking for any KYC/AML requirements. Therefore, it is much easier to get started on the platform as it allows operation in a highly anonymous way.
The platform also has low gas fees and transaction fees due to the underlying BSC network with lower gas fees than some popular ones like the Ethereum network that most of its competitors rely on.
How CAKE Gains and Sustains Its Value
CAKE token is the utility and governance token of the PancakeSwap crypto DEX. It has different uses throughout the platform and can also be traded on other exchanges. As a result, it has real-life use and thus maintains its value in a better way.
Currently, the CAKE token is at number 50 on CoinMarketCap. CAKE also allows PancakeSwap users to earn from multiple opportunities on the platform, including Staking, Yield farming, and the lottery.
PancakeSwap Cake Staking
As PancakeSwap uses CAKE as its native token, a user could get more CAKE tokens upon liquidity mining, staking, or from the protocol’s lottery. PancakeSwap allows users to stake its CAKE token similar to other AMMs like SushiSwap and UniSwap.
To stake CAKE on PancakeSwap, a user should own some CAKE tokens and a supported crypto wallet like Metamask or Trust Wallet. Then follow the set rules and guidelines for a successful staking process. The rate at which a user can make profits on PancakeSwap staking differs according to the selected pool. Therefore it is advisable to check the “Farms” tab to compare the pools and determine which one has the best offer.
Since the pools have different profitability levels, it is good to check their APY and APR rates to get a glimpse of the ones that will have the highest ROI. PancakeSwap allows the staking of tokens for 1 day, 7 days, 30 days, 1 year, and 5 years. Additionally, there is an unstacking fee for users who unstake their holdings within the first three days of the process.
PancakeSwap Yield Farming
PancakeSwap is one of the most popular yield farming protocols on the BSC network and the DeFi sector. To farm on PancakeSwap, a user must own a supported wallet and be on the BSC network. It offers different pools for a user to add liquidity.
The PancakeSwap yield protocol works in a relatively simple way. A user has to buy BNB coins of the same value as their desired coin (the token they choose to stake). The exchange will then start farming by purchasing coins at a low price and selling them high while ensuring that the value of BNB and the in-yield coin remains at 50-50% balance.
Additionally, it is good to note that yield farming in PancakeSwap can be subject to Impermanent Loss (IL). IL occurs when a user contributes to a pool and the price of their deposited assets changes compared to how they deposited them. Since the pair’s balance needs to be maintained, one asset will either go down or up to maintain parity in value. The returns from the pools can mitigate the loss resulting from IL.
Also, users should note that the BSC network allows everyone to create and name their tokens independently. Therefore some of the standard tokens may be faked and thus leading to a loss of funds. Also, the exchange cannot pay for the loss of funds due to the use of wrong addresses.
Is it safe to use PancakeSwap?
Although pancakeSwap does not require KYC/AML protocols, it is safe to use. Its staking and liquidity-adding protocols are some of the safest ones yet since it has never suffered a cyber attack since its launch. The only risks on the platform are scams and IL on the liquidity farms.
Why Stake or Yield Farm on PancakeSwap?
Being decentralized, PancakeSwap is one of the best crypto exchanges to settle for. It allows its users to choose how it is governed and gives them the chance to make more profits passively through staking and Yield farming. Below are some of the reasons why one should explore more how PancakeSwap works:
- It allows for crypto holdings to earn passive income: PancakeSwap allows its users to enjoy earning passively from their crypto holdings through staking and Yield Farming. Some of these options even offer an ROI of over 100% APY. Therefore, such an APY is reasonable enough for most traders and investors.
- It offers secure, fast, and reliable services at low fees: The platform allows its users to swap tokens and earn passively from their holdings through a secure, fast, and reliable BSC network with low gas fees. The network is more efficient than many popular ones like Ethereum, whose scaling issues result in gas fees above 10% of the transaction at times.
- Holding CAKE allows users to determine how the protocol is governed: CAKE is the governance and utility token of the exchange. It enables people to trade within the exchange and, most importantly, to vote during key processes like the vetting of proposals. The voting process is the principal governance protocol of the platforms since proposals have to pass through consensus before going live.
- Locked assets are safe from sharp market variations and emotional trading: The locked investments in the liquidity and staking pools are safe from market variations. Even though the market variation affects liquidity pools due to IL, the loss can be mitigated during calculating returns. However, staking does not need any recalculation of returns. A user earns extra CAKE tokens as recorded by the smart contracts during the locking of assets, whether their value rises or drops.
The crypto space is full of opportunities, and a brilliant investor should use all means possible to hedge against potential losses. These losses can arise from scams, errors during the completion of transactions, security issues, market forces, etc. Therefore, all crypto investors should keep researching projects to assess these risks and their profitabilities. Also, they should learn how to mitigate such risks.
There are some standard solutions to the risks involved with the crypto space. They include following instructions for successful transactions, following security protocols, and using passive income methods to hedge against sharp market variations of assets. Even in the traditional financial systems, hedging against inflation is essential to maintain the value of investments.
Several projects are available for users to mitigate the market risks in the crypto space. One of the best platforms for such solutions is PancakeSwap. This protocol is an AMM that also allows for staking and yield farming. When assets are in their staking and yield farming pools, they have assured rewards upon completing the locking cycles. These rewards are, at times, large enough to cater to the losses during significant dips and motivate a user not to do emotional trading.
However, it is best to DYOR before settling for one crypto project or investing in any, as they come with their risks. Also, some may have better rewards and usage experiences than others.