Building a passive income with PancakeSwap

Building a passive income with PancakeSwap

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Mike
Mike

An editor at Coincrop


30 Mar 2022 | 8 min read
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ancakeSwap is one of the longest established decentralised exchanges. It offers a number of ways through which investors can earn a passive income by depositing a variety of cryptocurrency assets.

In this guide:

Disclaimer: All of the information written on Coincrop is without influence and based on our analysis. No guarantee is offered concerning the accuracy of this information and therefore, any individual following up on it does as such completely at their own risk. Rates are correct at time of publication.

What is PancakeSwap?

Despite its rather odd name, PancakeSwap is one of the most successful decentralised exchanges (DEX) built on the Binance Smart Chain (BSC). Central to the exchange is the Pancake token (CAKE) – through several methods participants can earn the token as well as use it for token swaps.

Unlike traditional exchanges, PancakeSwap uses an automated market maker (AMM) model where buy and sell orders are matched with others in a liquidity pool.

Liquidity pools are maintained with deposits from other participants who can earn trading fees and liquidity provider (LP) tokens. These LP tokens can be redeemed for the initial capital deposited together with any fees earned minus any impermanent loss.

Earning opportunities

There are two ways in which CAKE can be earned – farms and pools.

How do farms work?

Farms work in such a way that a participant providers liquidity in the form of two tokens. These two tokens are converted into a single liquidity provider token. For example, an individual with BNB and CAKE would deposit the two tokens into PancakeSwap and convert them into BNB-CAKE liquidity provider (LP) tokens.

These LP tokens are moved into a farm from which you begin earning CAKE. At any point you can stop farming and convert the LP tokens back into the CAKE and BNB that you deposited.

At the time of writing, the CAKE-BNB farm has liquidity (deposits) of over $272m and pays an APR rate of 34% to depositors.

What are pools?

The second method of earning is by using pools. These are simpler in the sense that only one token is required.

In the example of the CAKE pool, staking is rewarded at a rate of over 69% per year. i.e. if I stake 100 CAKE, I will have gained 69 after one year.

Pools are auto compounding meaning that profits are automatically reinvested back into the pool again.

Unlike farms, pools have the advantage that there is no impermanent loss. 

Risks

When you stake your tokens in a Pool, you will always have them, you cant lose them. They can of course still drop in value, but that is always a risk with crypto.

So with Staking, the risk would be that the value of CAKE drops then you are left with many tokens worth little. However, that can also be a Pro, since, on the opposite, a massive price boost will generate a great profit.

Farming however often yields better rewards, but with an added risk of Impermanent Loss.

Impermanent loss happens when the value of any of the tokens in the pair changes price. You should read the explanation on Binance to fully understand the concept of Impermanent Loss.

Farms usually provide rewards such as trading fees that are distributed amongst the Liquidity providers (farmers) to compensate and counter the risks of Impermanent Loss.

Earning with CAKE

Holders of PancakeSwap token CAKE who are prepared to lend it to organizations can currently earn the following:

OrganizationDeposit assetsReward assetsAPY Rate
AAX

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

70.0% - fixed (90 days)

Vauld

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

42.6% - fixed (30 days)

Vauld

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

34.0% - flexible

Trofi

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

25.0% - flexible

SwissBorg

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

16.9% - flexible

Fibit Pro

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

13.7% - fixed (30 days)

AAX

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

4.00% - fixed (30 days)

AAX

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

3.50% - fixed (14 days)

Bitrue

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

3.40% - flexible

AAX

Saving

Deposit PancakeSwapPancakeSwap (CAKE)

Earn PancakeSwapPancakeSwap (CAKE)

3.00% - fixed (7 days)

PancakeSwap FAQs

In order to start using PancakeSwap, you will require some $BNB. This can be obtained from a centralised exchange such as Binance or by exchanging in a wallet such as Exodus.

PancakeSwap works on the Binance Smart Chain (BSC).

Slippage is the change in a token's trading price between the time the order is placed and when it is executed. Slippage is most impactful during periods of high market volatility.

The prediction market feature on PancakeSwap allows users to forecast if the value of BNB will increase or decrease in the next five minutes. Users pool their money into a reward pool, split among those who accurately anticipate the market’s future. The bet sum is forfeited by the losers.

Syrup pools replace the simple staking mechanism of PancakeSwap. Instead, customer tokens may be staked in the Syrup pools of the platform to receive a return, which can be in CAKE or other cryptocurrency tokens.


Mike

Mike

An editor at Coincrop
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Mike is a Crop Crop staff writer based in the UK, covering the best rates for cryptocurrency earning and borrowing products. When not at work, he's likely putting his latest car project back together.


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