DeFi 101: What Is PancakeSwap?
PancakeSwap is the most popular decentralised exchange (DEX) on BNB Chain (previously Binance Smart Chain). PancakeSwap enables users to swap BEP-20 standard tokens (the ERC20 standard on BNB Chain) quickly and easily.
Last week, we wrote about automated market makers (AMMs). Automated market makers are the lifeblood of DeFi.
They let users swap tokens quickly and easily using decentralised exchanges. The most popular AMMs on Ethereum are Uniswap and Curve Finance. But these two AMMs aren’t available on every blockchain.
That’s why alternative layer-ones have built native decentralised exchanges, just as we’ve seen on BNB Chain. BNB Chain (once Binance Smart Chain) is the smart contract blockchain built by the team at Binance.
It has a DEX called PancakeSwap, which has fast become one of the most popular decentralised products in all of crypto.
The proof of its popularity lies in its usage.
PancakeSwap’s ballooning popularity
PancakeSwap only launched in April 2021. But it already claims to have “the most users of any decentralised platform, ever.”
How’s it done so well in such a short space of time? Well, users are flocking to PancakeSwap to do more than trade crypto. They’re staking billions of dollars worth of tokens to generate anywhere from 7% to 100%-plus in APY.
Here’s a quick taste of PancakeSwap’s average monthly usage:
- Around 2 million active users
- Upwards of 55 million trades
- $2.5 – $6 billion total value locked (TVL)
In reality — there’s a lot to love about PancakeSwap. Moreover, the DEX shines a light on all the strengths of its underlying blockchain.
So let’s take a moment to explore what makes BNB Chain tick.
A little bit about BNB Chain
Binance is perhaps the world’s best-known native crypto exchange.
Its daily trading volume outranks the competition by an order of magnitude, highlighting it as one of the most prominent brands in crypto, too.
Binance launched in 2017. And just three years later, it released a native blockchain. Binance Smart Chain (or BSC, as it was originally called) grew in lockstep with the centralised exchange. But the company wanted its decentralised arm to carve its own niche.
That’s why Binance set BSC on a separate path under the moniker BNB Chain. And its mission is to become the infrastructure of a parallel virtual ecosystem, using an open, permissionless, and multi-chain product to serve creators and inventors alike.
It’s now a hub of decentralised finance (DeFi), which brings us to another novel aspect of PancakeSwap.
A DeFi innovation called the IFO.
Initial Farm Offerings: What is an IFO?
The Initial Farm Offering (IFO) is a new form of decentralised token sale event.
PancakeSwap has popularised the format, deploying it as a way to enable users to participate in token pre-sales hosted on its decentralised exchange.
An IFO allows users to buy tokens before they actually list on an exchange, benefiting both users and the listing project. Users get farming rewards for participating — while projects get an incentivised liquidity pool.
This dynamic creates early liquidity during the listing process, all the while ensuring users earn sustainable yields. IFOs have proven to be one of the most effective ways to get tokens into the hands of early adopters.
And DEXs like PancakeSwap have been pivotal in making them possible. Here’s a basic overview of how an IFO on PancakeSwap works:
- User provides liquidity to Cake-BNB pool
- User receives Cake-BNB LP tokens in return
- User can buy new tokens using these LP tokens
- PancakeSwap rewards listing project with BNB tokens
- PancakeSwap burns remaining Cake tokens
- User receives tokens once the IFO ends
When a project runs an Initial Farm Offering, the mechanics can vary in several ways. But that’s beyond the scope of this article.
What’s important to understand is how different decentralised exchanges offer different DeFi solutions. So it’s worth checking what’s happening across blockchains to ensure you always experience the latest innovations.
And if you want to learn how Elitium fits into the DeFi picture, here’s the post for you.