Launched in September 2020, PancakeSwap is a decentralized exchange (DEX) running on Binance Smart Chain. Instead of allowing its users to trade ERC-20 and ERC-721 tokens, the DEX focuses exclusively on Binance Chain BEP20.
By using an automated market maker (AMM), the DEX allows tokens to be exchanged with no need for order books. This is quite similar to Uniswap's liquidy pools which are automated by smart contracts.
In addition to its traditional functions, PancakeSwap offers staking for its liquidity providers. There's also a lottery for users holding 10 or more CAKE and by opting for a chain with much lower transaction fees than Ethereum, PancakeSwap offers a complete solution for decentralized finance (DeFi) enthusiasts.
Liquidity Providers stake their tokens in pools, allowing the DEX to run its automated market maker smart contracts. In exchange, those stakers are rewarded FLIP tokens. These FLIP tokens can also be staked in exchange for CAKE tokens.
Staking capabilities expand
Launched by anonymous devs and governed by its community, Pancake found its niche among Binance users. Users pay a 0.2% trading fee on every token swap (trade), while 0.17% goes back to the liquidity providers. The remaining 0.03% is sent to the PancakeSwap Treasury.
Even though it launched only five months ago on network that is much smaller than Ethereum, PancakeSwap has already risen to become the eight ranked DEX.
To manage the DEX governance system, another token called SYRUP was created and these can only be obtained by staking CAKE tokens. In addition to providing voting rights, SYRUP tokens also function as lottery tickets.
According to PancakeSwap's website, 75% of the newly-minted CAKE tokesn are assigned to farmers, while 25% is allocated exclusively to SYRUP holders.
As depicted above, PancakeSwap’s daily volume has been skyrocketing and as this occurred CAKE’s value rose by 300%.
The platform’s developers and community have also listed several potentially interesting developments that combine the NFT world with lending and there are a series of proposals for upgrading or customizing the user interface.
CAKE’s issuance schedule raises concern
While CAKE has been rising in value, an area of concern is its potential infinite supply. 25 CAKE are issued per block and redistributed to liquidity pools and the lottery for SYRUP holders.
On the other hand, an embed burning mechanism includes 9.1% of all the farmed CAKE tokens, 10% of the lottery tickets and 100% of the fees raised in its Initial Farm Offerings (IFO).
The past two weeks have shown that the DeFi sector and wider crypto sector is in desperate need of an alternative to the Etheruem network.
PancakeSwap could possibly be an exciting alternative as the platform is focused on combating the high fees charged on the Ethereum network. The PanCakeSwap community also seems focused on maintaining a balanced issuance rate and incentives that will encourage growth of the DEX ecosystem.
In the current high fee situation, the longer it takes for Ethereum's second layer capabilities to emerge and solve the current issues, the higher CAKE tokens' potential is.
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