What Is PancakeSwap? A Guide on How to Use It

The rapid growth of decentralized finance (DeFi) has unlocked innovative financial opportunities centered around autonomy, speed, and inclusion – elements often lacking in traditional financial systems. This is particularly evident in the emerging decentralized exchange (DEX) sector, where users increasingly participate in autonomous markets powered by blockchain technology.

One notable example of such a market is PancakeSwap, a decentralized exchange built on the BNB Chain (formerly Binance Smart Chain), similar to UniSwap (UNI) and SushiSwap (SUSHI). In this guide, we will delve into the mechanics of PancakeSwap and explore various ways to leverage its features confidently and effectively.

What is PancakeSwap?

Launched on September 20, 2020, PancakeSwap is a decentralized exchange built on the BNB Chain, offering a seamless platform for swapping BEP-20 standard tokens. By eliminating the need for intermediaries, users can easily and securely exchange their coins. What sets PancakeSwap apart is its dedicated focus on BEP20 tokens, a token standard developed by Binance. This specialized approach ensures a reliable and efficient trading experience for cryptocurrency enthusiasts.

How does PancakeSwap works?

Trading

Decentralized exchanges operate using an automated market maker (AMM) system, eliminating the need for order books or intermediaries. Instead of trading with counterparties, traders engage with liquidity pools. These pools consist of funds deposited by investors worldwide, enhancing liquidity for traders.

This innovative approach removes the wait for matching buyers and sellers. When users desire to trade one token for another, they simply deposit their token into the pool and withdraw their desired token. This efficient system ensures seamless transactions and empowers users to freely exchange tokens.

NFTs

NFTs, short for Non-fungible tokens, are at the core of PancakeSwap's gamification strategy. Users have the opportunity to win unique NFTs, which can be utilized for trading and staking purposes. However, there are individuals who choose to collect these NFTs as a standalone pursuit. Binance has developed a dedicated protocol that simplifies the generation of NFTs, offering a more streamlined process compared to previous methods.

Providing Liquidity

PancakeSwap offers opportunities beyond trading. In addition to being a trader, you can also become a liquidity provider. By depositing tokens into a liquidity pool, you have the potential to earn a portion of trading fees paid by those who trade against the pool.

Yield Farming

Yield farming on PancakeSwap is the most lucrative method to earn substantial returns. By farming LP token rewards within the PancakeSwap platform, users can collect CAKE, the platform's governance token. This investment-like approach involves locking in funds to secure rewards. The terminology used aligns with farming practices; investing and waiting for CAKE rewards is referred to as farming, while reaping the rewards is known as harvesting. The magnitude and duration of the investment directly correlate to the returns obtained. To begin farming, simply navigate to the Farms tab on the sidebar.

Initial Farm Offerings (IFOs)

To take part in initial farm offerings, it is necessary to utilize specific tokens from PancakeSwap. This will grant you access to the sale of newly launched tokens. IFOs operate similarly to ICOs and IEOs, which we will delve into in more detail below.

Play the lottery and other games

In addition, there is the opportunity to win the lottery by accurately predicting a set of winning numbers. This presents another means of earning on PancakeSwap. The platform hosts four lotteries daily, each lasting for six hours. To participate in the lottery draw, you must purchase a ticket with CAKE. If you emerge as a winner, you may even receive an NFT as a reward.

Furthermore, PancakeSwap features a separate lottery pool known as Pottery, where you can deposit CAKE for a duration of 10 weeks. By doing so, you have the chance to win from their prize pot while also earning yield.

You can also play a tower defense game to win NFTs and Cake coins here.

Getting started with PancakeSwap

Before utilizing PancakeSwap, it is crucial to establish a wallet that is compatible with the BNB Chain.

There are several options available for this purpose, including Trust Wallet, BNB Chain Wallet, and Coinbase Wallet.

You can also use MetaMask, but you frst need to setup the BNB chain network.

To complete this process, access the Settings menu on MetaMask. Look for the Networks option and click on Add Network located in the top right corner of the page. Upon doing so, you will be directed to a page where you can input the following parameters:

Network Name: BNB Chain

ChainID: 56

Symbol: BNB

Block Explorer URL: https://bscscan.com

Congratulations! You have successfully linked your MetaMask wallet to the mainnet version of BSC.

Note: You can now access Pancakeswap with different networks: ETH, Base, BNB, Polygon zkEVM, Arbitrum, Aptos. To do so just click on the upper right, as seen on the picture bellow:

How to Swap Tokens on PancakeSwap

To begin using PancakeSwap, connect a BEP-20 supported wallet to your account. The initial step for token swapping is to possess tokens. To acquire LP (Liquidity Provider) tokens on PancakeSwap, you must invest your digital assets into their liquidity pools. Navigate to the Trade tab and select the Liquidity option, then click the Add Liquidity button to commence the liquidity addition process. Once completed, you will receive LP tokens proportional to your invested assets.

To initiate token swapping, locate the exchange button on the Trade tab within the sidebar. Choose the desired token pair for trading, with one token being the one you already own and the other being the one you wish to purchase. Select the desired pair and proceed confidently with the exchange.

Official Pancakeswap website: https://pancakeswap.finance/