It is not uncommon to find some platforms that bear the name of the food in the cryptocurrency market, such as PancakeSwap. While it sounds suggestive at a traditional American breakfast, the PancakeSwap platform is not meant to sell pancakes.
Thus, instead of trading food, through PancakeSwap it is possible to buy and sell numerous cryptocurrencies without intermediaries, such as the Light DeFi (LIGHT) token.
There are centralized exchanges, such as Binance, and decentralized exchanges (DEX), such as PancakeSwap. The difference between the platforms is in the governance. While Binance is maintained by a centralized business, no one owns PancakeSwap, a Decentralized Finance (DeFi) project.
Through PancakeSwap, it is possible to trade any DeFi token developed by the Binance Smart Chain (BSC) network, such as Light DeFi.
Known as a decentralized exchange, PancakeSwap works as an Automated Market Maker (AMM), where token purchase and sale transactions are registered practically automatically through blockchain technology.
Created in the second half of 2020, PancakeSwap quickly gained the market for decentralized finance and represented an update of Uniswap, which targets the Ethereum network. PancakeSwap serves more tokens issued on the Binance Smart Chain network.
PancakeSwap does not use consensus mechanisms that rely on data mining, such as Proof of Work, as it is considered a decentralized exchange. Instead, the platform bets on maintaining pools of liquidity for each trading pair existing on the exchange.
In other words, PancakeSwap is operated by a Proof of Stake engine, Proof of Stake, famous among DeFi projects. Through this mechanism, the platform can provide liquidity for registered transactions.
To sustain this entire ecosystem, PancakeSwap then developed a cryptocurrency to call its own. Known as Cake (CAKE), we can use this token in DEX liquidity pools.
Considered the largest decentralized exchange globally, PancakeSwap moves more than BRL 7 billion daily, according to updated data from CoinMarketCap.
With this movement, PancakeSwap alone corresponds to 18.24% of the entire DEX market that exists today. Meanwhile, the CAKE token is considered one of the largest in the DeFi market, being valued at over $5 billion and has an average daily volume of $510 million.
Seeking to ensure liquidity for the numerous trading pairs registered on the decentralized exchange, PancakeSwap has a rewards program known as Yield Farming.
Through this program, users lock balances in cryptocurrencies in liquidity pools to ensure that transactions usually occur on PancakeSwap, which uses a Proof of Stake mechanism.
In return, DEX rewards LP cryptocurrencies to users who have kept the balance stored on the platform, which is calculated annually through an APY.
To participate in PancakeSwap’s Yield Farming program, the user must have a balance in the two tokens present in the trading pair that he intends to provide liquidity. For example, CAKE-BNB.
PancakepSwap users can earn rewards twice by providing liquidity to the platform in another liquidity pool known as the Syrup pool. When entering balance in cryptocurrencies in Yield Farming, investors receive LP tokens.
These tokens act as a ticket that matches the user’s cryptocurrency balance stored in a trading pair of the Yield Farming rewards program.
With this LP, the user can allocate the token to a new rewards program known as staking. Thus, like Yield Farming, staking offers rewards in cryptocurrencies to holders of balances held by the protocol.