Yield farm reviews: PancakeSwap in 2021

Yield farm reviews: PancakeSwap in 2021

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Chris
Chris

An editor at Coincrop


16 Dec 2021 | 17 min read
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ancakeSwap emerged as one of the early decentralised exchange (DEx) winners on the Binance Smart Chain.

In this guide:

Disclaimer: All of the information written on Coin Crop 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?

PancakeSwap is a crypto currency exchange service that crucially operates in a decentralised manner - that is, you are executing transactions without a central intermediary.  This contrasts with organizations such as Binance and Coinbase that are operated as a corporate entity.  We refer to PancakeSwap as a decentralised exchange (DEX).

It runs on the Binance Smart Chain (more on that below).  An exchange service allows individuals to convert from one digital asset into another.

For example, you if you had some Binance USD (BUSD) and wanted some Bitcoin (BTC), the exchange would facilitate the conversion and charge a small fee for this service.

The digital assets that can be converted are BEP-20 tokens – this is a extension of the Ethereum token standard (ERC-20).

In addition to exchange functionality, PancakeSwap offers:

 

- Yield farms that allow you to deposit your crypto and earn fees from exchange transactions

- Pools for staking assets and earning a reward

- A marketplace for buying and selling NFTs

- A lottery

- An “Initial Farm Offering” for offering new tokens

- A prediction market for guessing the market direction of the BNB token

 

At the time of writing, PancakeSwap is nearly 2 million in daily transactions making it the single most popular decentralised exchange.

What is CAKE?

In order for PancakeSwap to operate, it makes use of an exchange token referred to as CAKE.  Rewards (from staking or yield farming) are paid in CAKE token and tickets for participating in the lottery are purchased using CAKE.  The token can be exchanged for other tokens through the exchange interface.

For example, you could provide liquidity into a farm – after a period of time, you would earn CAKE tokens as rewards.   You could choose to hold those tokens (which make appreciate) or you could exchange them for another token such as Binance USD (BUSD).

Holders of the CAKE token are also allowed to vote on proposals relating to the PancakeSwap ecosystem.

What is Binance Smart Chain?

As mentioned, Pancake Swap operates on the Binance Smart Chain.  This blockchain is based on Ethereum and is used for staking and yield farming.  In comparison to Ethereum, it has cheaper fees and operates much faster.

Why should I use PancakeSwap?

There are a number of reasons as to why you might use PancakeSwap:

i) Cheaper transactions

PancakeSwap operates on the Binance smart chain network which doesn’t use GAS fees to complete transactions resulting in much cheaper trades when compared to the likes of SushiSwap and Uniswap.

ii) Faster transactions

The Binance smart chain network processes transactions much faster than the Ethereum network. This is beneficial to traders where transaction timing is important.

iii) Better privacy

KYC or know-your-customer is the process of verifying the identity of a customer before they are permitted to trade on a centralised exchange.  Users providing this information face the risk of the exchange being hacked and their personal identification information leaked.  Decentralised exchanges such as PancakeSwap do not require any such information in order to use – this is appealing to users that value their privacy.

iv) Availability of new tokens

PancakeSwap exchange offers a wide variety of tokens with which users can exchange. Whilst many of the tokens are new and highly speculative, there is a demand from users.  Similarly highly speculative tokens can take much longer to appear on centralised exchanges as they have a more cautious approach.

v) Ease of use

PancakeSwap exchange offers a wide variety of tokens with which users can exchange. Whilst many of the tokens are new and highly speculative, there is a demand from users.  Similarly highly speculative tokens can take much longer to appear on centralised exchanges as they have a more cautious approach.

vi) Generate income

Income can be earned on PancakeSwap in several ways.  If you have existing crypto assets, these can be provided as liquidity into farms for which you then earn a return from fees.  Certain assets can be staked in pools which again earns a return.

Who are PancakeSwap?

PancakeSwap is anonymous – the identities of the team members is not known.

It is not uncommon for projects in the crypto space to be anonymous so it should not necessarily be perceived as suspicious that the team member identities are unknown.

How do I exchange assets?

The primary purpose of PancakeSwap is to facilitate the exchange of one crypto currency asset into another.  The model of operation used is referred to as automated market maker (AMM).  In practise this means that you don’t exchange using an order book (where you are matched with a seller) – instead, you trade with a liquidity pool.

A liquidity pool is a combination of usually two digital assets that are funds belonging to users.  Users deposit funds into the pool to receive liquidity provider (LP) tokens in return.  These LP tokens are then used to reclaim their share of the pool plus a portion of the trading fees.

Before starting the trade ensure that you have the asset that you wish to convert in a MetaMask wallet.  You will also need a tiny amount of Binance Coin (BNB) in order to pay the transaction fees associated with the exchange.

Navigate to the “Trade” menu and click the “Exchange” option.  Select the asset that you have and the amount you want to convert.  Then, select the new asset that you want to receive.  You will then be shown a preview of the trade before finalising the conversion.  Note, you will require a tiny amount of Binance Coin (BNB) which is used for transaction fees.

How do I get started yield farming?

Broadly the steps can be summarised as follows:

i) Deposit two digital assets into a wallet

ii) Convert the two digital assets into liquidity tokens

iii) Deposit the liquidity tokens into a farm

iv) Wait for the CAKE rewards to be earned

 

Below we detail the yield farming steps:

i) Deposit two digital assets into a wallet

We start this explanation by assuming that you have deposited two crypto currency assets into a software wallet.  The MetaMask wallet (operating as an extension running in a browser such as Chrome or Firefox) is commonly used and has a good reputation.

ii) Convert the two digital assets into liquidity tokens

In order to receive the CAKE rewards (farming), you need to add liquidity to the exchange.  Using the PancakeSwap interface, select “Liquidity” from the “Trade” menu.  Clicking the “Add Liquidity” button will prompt the user to select the two assets that you want to farm.   Once these have been selected you will then be prompted to create liquidity provider (LP) tokens.

iii) Deposit the liquidity tokens into a farm

At this point you have your liquidity tokens. It’s now time to stake them in order to earn the CAKE tokens.  Navigate to the ‘Earn’ menu and select ‘Farms’.  Find the farm that corresponds to the two assets to which your liquidity provider (LP) token relates – click the “+” icon and follow the instructions to add the liquidity.

iv) Wait for the CAKE rewards to be earned

As soon as your liquidity is deposited you will immediately start earning the CAKE rewards. The amount of CAKE rewards that you earn is dependent on the farm APR and the amount of liquidity you have staked.  Once the earned CAKE has reached an amount that you wish to receive, you must click the “Harvest all” button from the PancakeSwap home page.  Note, you will need a tiny amount of Binance Coin (BNB) to pay for the transaction fees to receive the CAKE into your MetaMask wallet.

How do I swap between chains?

We’ve mentioned already that PancakeSwap operates on the Binance Smart Chain. This is a problem if your assets (ERC-20) are on the Ethereum blockchain.  To turn these ERC-20 assets into BEP-20 assets, you require a bridge to move them across.

Binance a product known as the Binance Bridge to transfer the assets. Moving the assets will incur a potentially high cost in Ethereum fees but once they have moved over onto the Binance Smart Chain the fees will be tiny.

How much can I earn?

The following are examples of rates that can I earned on PancakeSwap by yield farming:

AssetTermsAPY Rate

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

477,994%

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

396,420%

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

252,215%

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

147,944%

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

26,098%

+

Biswap (BSW)

+ Alpha Finance (ALPHA)

Flexible

25,093%

+

Ethereum (ETH)

+ Pancake Bunny (BUNNY)

Flexible

3,651%

MMFinance (MMF)

Flexible

1,763%

MDX (MDX)

Flexible

1,002%

+

MDX (MDX)

+ Pancake Bunny (BUNNY)

Flexible

851%

What are prediction markets?

PancakeSwap offers a prediction market that allows you to gamble on whether the price of Binance Coin (BNB) will rise or fall.  This is essentially a betting market that works in windows lasting 5 minutes.  i.e. you place a bet as to the BNB direction with the market settled at the end of a 5 minute countdown timer.

The size of the price pool is dependent on the number of participants and size of the wagers.

How does the lottery work?

A simple lottery is offered on the PancakeSwap web site.  Individuals can place tickets for approximately $5 USD in CAKE tokens.  There is no limit to the number of tickets that can be purchased but only 100 tickets can be bought at a time.

Upon purchasing one ticket, the user will be assigned a random 6-digit combination of numbers between 0 and 9.  Numbers must be matched from the left in order to win prizes – the more numbers that match, the larger the prize pool that you will share.

Prizes are paid in CAKE tokens.

Is PancakeSwap safe?

Decentralised exchanges are, by there very nature, inherently risky.  In the case of PancakeSwap, the team is anonymous, there is no financial protection in the event of failure and there is no financial regulation.  Despite, these risks, of all the decentralised exchanges, PancakeSwap has one of the best regulations.

The exchange has been audited by cyber-security company CertiK which brings a number of reassurances. Additionally, the code is public and available for anyone to view.


Chris

Chris

An editor at Coincrop
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