Pancakeswap is a decentralized finance (DeFi) platform backed by Binance, the world’s largest cryptocurrency exchange.
The decentralized exchange or DEX is said to be a rival to similar platforms deployed on the Ethereum (ETH) blockchain, which is considered the hub for decentralized applications (DApps).
Today, we will be conducting a detailed analysis of Pancakeswap and understand its underworkings. We will also take a closer look at the CAKE token powering the DEX, and make a verdict on whether it is a real or fake platform. So, let’s get started.
What is Pancakeswap?
Pancakeswap is a decentralized exchange (DEX) built on the BNB Chain that allows you to trade cryptocurrencies while offering passive income opportunities like staking or providing liquidity to token pools.
Unlike Uniswap and SushiSwap, which are deployed on the Ethereum network, Pancakeswap runs on the Binance Smart Chain (BSC), enabling it to charge significantly lower fees for transactions.
The trading fees on Pancakeswap can go as low as 0.2% per trade. The DEX is also affordable when it comes to depositing crypto tokens for yield farming compared to its Ethereum-based counterparts.
Since BNB Chain is a highly scalable blockchain, transactions on Pancakeswap are executed much faster than Uniswap or SushiSwap.
Pancakeswap also offers other income-generating features like Initial Farm Offering (IFO), Pancake Collectibles or NFTs, team battles, and the Pancake Lottery.
With these factors in play, Pancakeswap looks on the surface to have all the properties of a legitimate cryptocurrency trading platform.
But we still need to understand the DEX’s working model and the tokenomics of its native CAKE token to make the final decision.
How Does Pancake Swap Work?
Pancakeswap uses the Automated Market Maker (AMM) model, which employs an algorithm to set prices for crypto assets while enabling permissionless trading through liquidity pools.
Token swaps take place via the DEX’s liquidity pools, which facilitate trades without the need for an intermediary and pay liquidity providers a share of the transaction fees.
Each liquidity pool is a smart contract that holds reserves of two specific tokens and allows anyone to deposit and withdraw those tokens based on a set of predetermined rules.
The DEX uses what’s called a Proof of Staking Authority (PoSA) consensus, which is a hybrid of Proof of Stake (PoS), powering Ethereum, and Proof of Authority (PoA), powering Vechain (VET).
Pancakeswap also has shorter block creation times and is cheaper to operate than Proof of Work (PoW) blockchains like Bitcoin. This makes the exchange way more efficient, adding more credibility to its operations.
What is the CAKE token?
CAKE is the native token of Pancakeswap that acts as both the utility and governance token of the DEX. Pancakeswap mints CAKE to reward users who contribute to the exchange’s various liquidity pools.
The exchange’s governance system allows CAKE holders to propose and vote on the modifications recommended for its protocol. To be eligible to vote, users must hold a certain amount of CAKE tokens.
The BEP-20 standard token can also be staked on the DEX in the SYRUP liquidity pool, enabling users to earn further rewards in SYRUP tokens. Users can also re-stake their CAKE, allowing them to continuously compound rewards.
Is Pancakeswap A Scam?
The world of decentralized finance (DeFi) is a risky affair, hence, you cannot be 100% sure of the safety and security of platforms like Pancakeswap.
However, the DEX’s developers have given as much attention to its security as to its performance.
Being deployed on the Binance Smart Chain (BNB) allows the exchange to perform well, as the blockchain enables highly scalable, faster, and cheaper transactions, compared to its Ethereum-based counterparts like Uniswap or SushiSwap.
The CAKE token that underpins the DeFi platform also offers users various perks. You can earn the utility token as a reward for providing liquidity to Pancakeswap’s various liquidity pools, from yield farming, and for staking supported crypto assets.
All things considered, I can surely say that Pancakeswap is not a fake cryptocurrency exchange.
Being associated with a big player in the industry like Binance makes the DEX much more valuable to the DeFi space. Therefore, Pancakeswap can be considered a real and credible decentralized exchange.
As with all DEXs, you can trade crypto on Pancakeswap without the need for intermediaries. However, you should also note that these platforms are prone to security threats and are constantly under attack by hackers and scammers. So, you should always be careful when interacting with Pancakeswap and only invest funds you can afford to lose.
Conclusion
PancakeSwap functions as a genuine decentralized exchange within the cryptocurrency space, as shown by careful examination and analysis.
Although there are risks associated with any platform, PancakeSwap seems to be a reliable choice for decentralized trading given its solid user base and proven track record.
On the other hand, users must be cautious, research the subject, and remain informed about any new risks that may arise in the cryptocurrency space.
