What is PancakeSwap (CAKE)?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
PancakeSwap is a decentralised exchange launched on BNB Chain in 2020 that swaps tokens using an automated market maker. CAKE is the token used to reward liquidity providers and for governance voting. It now runs on several chains and offers perpetual futures and prediction games alongside spot swaps.
Key points
- Became one of the most used DEXs on BNB Chain
- Liquidity providers earn trading fees plus CAKE emissions (yield farming)
- Version 3 introduced concentrated liquidity within a chosen price range
- CAKE has a recurring burn mechanism
Definition
An automated market maker DEX that started on BNB Chain and expanded to several chains, together with its reward and governance token CAKE.
When PancakeSwap appeared in 2020, high fees on Ethereum were a barrier to using DEXs. Offering the same mechanism on the cheaper BNB Chain drove its early growth.
Swaps use an automated market maker. Rather than matching orders in a book, price is derived from the ratio of two tokens held in a pool. Liquidity providers who deposit into the pool share the fee from each trade.
CAKE has been emitted as an additional reward for that liquidity provision: stake your LP token in a farm to earn CAKE, then stake CAKE for further rewards. Because continuous emission dilutes holders, part of the fee revenue is used to buy back and burn CAKE.
Feature-wise, the protocol added v3 pools with concentrated liquidity, perpetual futures, a prediction game on price direction and token launch sales, and support has expanded to chains beyond BNB Chain.
Watch out for
- · Providing liquidity to an AMM exposes you to impermanent loss when prices move
- · Anyone can create a pool, so pools for look-alike fake tokens exist; verify the contract address
- · Emission-based rewards dilute holders, so the displayed yield alone does not tell the whole story
Frequently asked questions
Do you need CAKE to use PancakeSwap?
No — swapping only requires the chain's native asset for gas (BNB on BNB Chain). CAKE comes into play for rewards and governance.