What is PancakeSwap and how does it work?

PancakeSwap is a decentralized exchange based on the Binance Smart Chain (BSC) instead of Ethereum. Users can easily swap BEP-20 standard tokens through PancakeSwap. Instead of the traditional market model, it operates on the automated market maker (AMM) model. In the AMM model, traders trade digital assets through permissionless liquidity pools.

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People deposit their funds in these liquidity pools and they receive an LP (liquidity provider) token in return. They also receive a fee for giving their assets for lending. Meanwhile, people who want to use this liquidity pay a fee to the Defi platform. This fee is later distributed among people who have contributed to the pool. Out of this pool, a nominal amount is reserved in the PancakeSwap treasury to run the platform.

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PancakeSwap was launched on September 20, 2020, days after the launch of BSC. It is currently the third-largest AMM platform after UniSwap and SushiSwap. It stands at the top among the AMM solutions developed on BSC. It has gained huge popularity within a relatively short period, resulting in speculation about the future of the DeFi market leaders.

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CAKE, the native token of PancakeSwap, was launched at a price of $1.37, dropping to $0.25 after a short span.

After that, CAKE kept swinging around half a dollar until mid-January 2021, crossing the $1 mark on January 24. In February, it surged to around 20 dollars — that is, 40 times the price at which it began the year. It saw its highest mark reaching just under $44 on April 30, making it one of the most profitable crypto investments of 2021. Since then, it has dropped due to various market drivers and is currently trading between the range of $15 to $20.

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First, you need to add liquidity to the pool on the PancakeSwap platform. People invest in the liquidity pools and collect a fee and CAKE (LP tokens) in exchange. These are all BEP-20 standard tokens. Investors use these tokens in various ways to earn profits on the PancakeSwap including trading, farming, staking, winning NFTs, lotteries, Initial Farm Offerings (IFOs).

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PancakeSwap entered the market to address the limitations of Ethereum-based platforms. To that end, PancakeSwap comes with many built-in features that provide it with an edge over its competition. It offers you several benefits including interconnectivity, ease of use, numerous options to earn, cheap transactions and privacy.