PancakeSwap Instructions

In brief
PancakeSwap is a decentralized exchange (DEX) available on multiple blockchain networks.
It uses an Automated Market Maker (AMM) model, meaning trades take place through liquidity pools instead of traditional order books.
PancakeSwap offers a wide range of products and features, such as token swaps, liquidity pools, yield mining, limit orders, NFTs, Web3 games, and more.
IntroduceThe decentralized finance (DeFi) revolution has redefined the way we trade and invest. With the use of blockchain technology, DeFi platforms can increase transparency, autonomy, and access to financial services.
During the early years of DeFi protocols, we saw the emergence of many platforms and decentralized exchanges (DEXs). They initially focused on the Ethereum blockchain due to its smart contract execution capabilities. But we now have several DeFi platforms on various networks, including BNB Chain, Polygon, Solana, and more.
As blockchains that support smart contracts, these networks have a growing community of users, developers, and tools for building powerful decentralized applications (DApps). In this article, we will look at PancakeSwap, a multi-chain decentralized exchange.
What is PancakeSwap?PancakeSwap is a decentralized exchange (DEX) launched in 2020. Initially, it was mainly used to swap BEP-20 tokens on BNB Smart Chain (BSC) but has since expanded to other chains.
Today, PancakeSwap also supports ERC-20 and other token standards. Besides BSC, you can use PancakeSwap on other blockchains, such as Ethereum, Polygon, Arbitrum, etc.
PancakeSwap exchangeThe PancakeSwap exchange uses the Automated Market Maker (AMM) model. That means you can trade digital assets on the platform without relying on a centralized exchange. There is no order book where you are matched with others. Instead, you will be trading with a liquidity pool.
Those pools are filled with other users' coins. They deposit them into the pool, receiving liquidity provider (LP) tokens in return. They can use those tokens to get their share back, plus a portion of the transaction fees. In short, you can trade tokens or add liquidity to earn rewards.
PancakeSwap V3It is worth noting that PancakeSwap V3 was launched in April 2023, bringing new features and product updates, including non-fungible liquidity positions, customizable price ranges, Improve liquidity and optimize transaction efficiency.
Let's take a look at some of the key features of the PancakeSwap exchange.
Key features of PancakeSwapLiquidity poolsPancakeSwap's liquidity pools play a key role in facilitating token swaps. Users can contribute liquidity to these pools and earn LP tokens in return, which not only represents their stake in the liquidity pool but also grants them rewards in the form of trading fees.
Yield mining allows liquidity providers to earn additional rewards, such as CAKE tokens, by locking their LP tokens in smart contracts. The introduction of Initial Farm Offering (IFO) gives users the opportunity to purchase new tokens during limited-time events.
Token swap and smart routerToken swaps on PancakeSwap are streamlined with a smart router that intelligently routes transactions through a variety of liquidity sources, such as PancakeSwap V3, V2, StableSwap, and originators markets on both BNB Smart Chain and Ethereum.
Users can customize their trades, choose liquidity sources, and adjust routing preferences. The smart router ensures optimal trade execution by finding the best price across multiple pools.
Limit orders at desired price levelsPancakeSwap's introduction of limit orders empowers users to have more control over their trades. Users can set desired prices to buy or sell tokens when the market reaches a specific price limit or higher.
Market maker integrationPancakeSwap's integration with market makers on Ethereum and BNB Smart Chain helps improve trading efficiency. This means that trades can be automatically routed to market makers, offering better execution prices than AMMs. Such integration aims to provide users with cost-effective trading options and improved liquidity.
Zap featureTraditionally, users wanting to provide liquidity to DeFi platforms would have to add a pair of tokens to the liquidity pool. On PancakeSwap, the Zap feature simplifies liquidity provision by allowing users to add or remove liquidity with just one token and one click.
Users can add liquidity with unbalanced token pairs and Zap will automatically rebalance them in a 50/50 split. By eliminating liquidity, Zap allows users to receive just one token in a trading pair, simplifying the process.
Connect with PancakeSwapYou will notice many features will not be accessible until you connect your wallet on PancakeSwap. Click Connect Wallet and you will see several options: MetaMask, Trust Wallet, WalletConnect, Binance Chain Wallet and others.
If you are not sure how to connect your MetaMask to the BSC network, please refer to this guide: Connect MetaMask to BNB Smart Chain.
If you have successfully connected, you will see your wallet ID in the top right corner.
How to add liquidityIf you have used any AMM before then you will know how to do it. To earn CAKE, you must first add liquidity to the trading pool.
1. Navigate to Trade, click Liquidity, then click Add Liquidity.
2. Select the token pair you want to deposit (eg: BNB and CAKE). Make sure you understand the risks of temporary losses before adding liquidity to the pool.
3. The platform will automatically select the most popular fee.
4. Set the price range you want to provide liquidity. You won't be providing liquidity for trades outside your chosen price range, so smaller ranges tend to be safer.
5. Enter the amount you want to deposit and click Add Liquidity when you're ready.
6. You will have to confirm some transactions on your wallet to allow the platform to use your tokens and ultimately add liquidity to the pool.
Please check the official PancakeSwap docs for more details on adding and removing liquidity.
Mining - FarmingYou can also stake your LP tokens to earn CAKE or other assets. To do so, navigate to the Farms tab and select the option appropriate for your LP tokens.
You will need to approve the transfer of tokens, which allows the contract to withdraw them on your behalf. When you click Approve Contract, a window will pop up asking you to confirm the transaction and displaying a fee.
Once that transaction is confirmed, you simply choose the amount you want to stake and confirm it. You can exit the trading page and come back at any time to check how much CAKE you have earned. In case you want to receive your reward right away, click Harvest and confirm the transaction.
LotteryAnother thing you can do with your CAKE is participate in the PancakeSwap lottery, which is controlled by a smart contract.
Each lottery ticket costs around $5 USD calculated in CAKE and will give you a random six-digit number combination (e.g. 9-1-3-9-6-2). To win the jackpot, the numbers on your ticket need to match the numbers in the same position as the winning ticket.
What happens if you don't match all six numbers? Don't worry. You can also win a prize if one or more of your numbers are in the same position as the numbers on the winning ticket.
The lottery prize is determined by the amount of CAKE used to purchase the ticket plus unclaimed CAKE from previous lottery rounds. There is also the periodic injection of CAKE from the PancakeSwap treasury.
Non-Fungible Tokens (NFTs)PancakeSwap also has a marketplace for non-fungible tokens (NFTs), where you can buy, sell, and collect unique assets on the BNB Smart Chain.
Game marketPancakeSwap also has the Web3 game marketplace, a game publishing platform powered by PancakeSwap in partnership with third-party game developers. For example, the game Pancake Protector was released by the Mobox group.
Although the platform is open to game developers who want to publish games, games are selected based on certain criteria, such as previous experience, affinity with PancakeSwap elements, development roadmap as well as technical and community support.
Is PancakeSwap safe?PancakeSwap has been audited by CertiK and it is one of the leading platforms in the DeFi sector. Does that guarantee it's completely safe? Nothing can guarantee this. Depositing funds into smart contracts always carries the risk of errors, even for audited and reputable projects. There is also a risk of financial loss that may occur when trading or providing liquidity. So never spend more than you can afford to lose.
summaryEthereum may have started the DeFi trend, but initiatives like PancakeSwap show that the wave of innovation will continue to spread to other blockchains.
PancakeSwap has emerged as a flexible and community-driven platform, cementing its position as a key player in the decentralized finance landscape.
Whether it's through AMM, liquidity pools, yield mining, market maker integration, Zap feature or limit orders, PancakeSwap offers a diverse and user-friendly DeFi experience with users.
Read more:What is Yield Farming in Decentralized Finance (DeFi)?
What is an Automated Market Maker (AMM)?
What are smart contracts and how do they work?
Disclaimer: This content is provided to you on an “as is” basis for general information and educational purposes only without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended as a recommendation to purchase any specific product or service. You should seek your own advice from appropriate professional advisors. In cases where articles are contributed by third-party contributors, please note that the views expressed belong to the third-party contributor and do not necessarily reflect the views of Binance Academy. Please read our full disclaimer here for more details. Digital asset prices may fluctuate. The value of your investment may fall as well as rise and you may not get back the amount you invested. You are solely responsible for your investment decisions and Binance Academy is not responsible for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.