PancakeSwap (CRYPTO: CAKE) was launched just a year ago this month, yet it has swiftly grown to become the Binance Smart Chain’s largest automated crypto market maker (a supplier of trading liquidity) (BSC).
Users on PancakeSwap have staked (held their crypto in digital wallets) more than $5.6 billion on this decentralized exchange (DEX), compared to a market value of just $4.983 billion. That means the token is a good deal when compared to rivals like Uniswap, which has a total value locked (TVL) 3.3 times its market cap.
PancakeSwap, unlike many other cryptocurrencies, is much more than just purchasing and keeping tokens. Let’s take a look at why it’s such a popular option among coin collectors.
All About Pancakes
PancakeSwap is a token based on the Binance operated Binance Chain BEP-2. It is the world’s largest cryptocurrency exchange, with an average daily volume of $27 billion. Former Binance workers founded PancakeSwap. CertiK, a major smart-contract security firm, has also audited the protocol. Investors may normally trust audited DeFi initiatives more than unaudited DeFi projects. This is as much as auditors validate the financial statements of publicly listed firms.
Profiting from CAKE
When it comes to investing in CAKE, there are three paths to profit.
To begin, coin holders can buy BEP-2 CAKE tokens straight from exchanges and keep them in their wallets, earning as values grow.
The utilization of its Binance Smart Chain CAKE tokens, or BEP-20, is the key attraction. Using a digital wallet like TrustWallet, users easily switch between BEP-2 and BEP-20 CAKE. The only difference is that BEP-20 CAKE supports smart-contracts. These contracts agreements self-execute that activates when specific criteria are satisfied.
The second layer of returns is now visible. A user may link their wallet to PancakeSwap and stake BEP-20 CAKE to earn more than 60% each year in incentives.
They derive this from:
1. Fees paid to PancakeSwap by other blockchain developers to list or publicize their tokens.
2. A CAKE DRAW
3. Validation fees for CAKE transactions
4. The introduction of a new CAKE to encourage adoption.
After other CAKE-affiliated blockchain developers get enough traction to stop offering marketing awards, yields will drop. Also, over 100 million CAKEs are created per year. This compares to a total of 221.8 million tokens in circulation. As a result, supply increases rapidly (though still above staking yields). Assume an 80% interest rate on US dollar deposits and a 50% inflation rate. It would be a fraction of the nominal rate.
Users can also pledge CAKE to provide liquidity for crypto-to-crypto trading on the PancakeSwap DEX, effectively turning themselves into market markers with triple-digit percentage yields.
The bigger the disparity between the bid and ask prices, and the more potential commissions one might earn by providing liquidity, the smaller the trading volume for that asset. On the Pancake platform, there are now 1,647 currencies and 9,152 trading pairings, far more than on rivals’ platforms.
Finally, PancakeSwap’s smart contracts allow automated re-staking, so every CAKE a user earns can return to the staking pool to earn more “interest.” Bond investors can receive compounding returns by reinvesting their coupon payments into the underlying debt, just as they can do with dividend payments. This method of re-staking CAKE can result in yields of up to 83 percent instead of the usual 65 percent.
Conclusion
During bull runs, CAKE holders can earn compound profits but don’t expose to compound sell-offs. Investors might, however, lose their CAKE principal in the worst-case scenario.
However, with such high yields, there is a margin of safety since the passive income generated by staking may compensate for short-term market reversals. As a result, it’s a good coin to look into.
