Pie (crypto: cake) It was introduced just a year ago this month, but it has quickly become the largest automated crypto market maker – a trading liquidity provider – on the Binance Smart Chain (BSC). PancakeSwap users (which means that users hold cryptocurrencies in their digital wallets) have bet more than $5.6 billion on this decentralized exchange (DEX), compared to a market capitalization of just $4.983 billion. This indicates that the token is a bargain compared to peers like Uniswap, which has a total locked value (TVL) – a measure of how much you bet – which is 3.3 out of its market value.
Unlike many other cryptocurrencies, there is more to PancakeSwap than just buying and holding tokens. Let’s take a look at why it should be the best choice for coin holders.
What is PancakeSwap?
PancakeSwap is a token created on the Binance Chain BEP-2, which is operated by Binance, the owner of the largest cryptocurrency exchange in the world, processing transactions worth $27 billion per day on average. PancakeSwap was started by former Binance employees. Furthermore, the protocol is audited by leading smart contract security company CertiK. Like auditors who certify the financial statements of publicly traded companies, one can usually give more confidence to audited DeFi projects than to unaudited ones.
There are three ways to make money when it comes to investing in cake.
First, coin holders can buy BEP-2 CAKE tokens directly from exchanges and store them, making profits with higher prices.
But its main beauty comes from the use of the Binance Smart Chain CAKE token, or BEP-20. Users can switch between BEP-2 and BEP-20 CAKE using a digital wallet such as TrustWallet. The two are equivalent, except for the BEP-20 CAKE that enables the use of smart contracts and self-executing agreements that are triggered when certain conditions of use are met.
This brings the second tier of revenue. User can connect their wallet and share BEP-20 CAKE on PancakeSwap and earn more than 60% annually in rewards. This comes from:
- Payments made by other blockchain developers to list or advertise their tokens on PancakeSwap
- cake lottery
- CAKE Transaction Validation Fee
- Release a new cake to incentivize adoption
However, don’t expect the returns to always be high, especially when other CAKE blockchain developers gain enough traction and stop issuing marketing rewards. In addition, the rate of emitting CAKE, or coin generation, is about 100 million per year, compared to a total circulation of about 221.8 million tokens. So the oversupply rate is very high (although still higher than the staking returns). Imagine, for the sake of argument, if the US dollar deposit rate was 80%, but the inflation rate was 50%. The adjusted return in this case will be much less than the nominal rate.
Furthermore, users can also pledge their CAKE with liquidity to trade cryptocurrencies on the PancakeSwap DEX, turning themselves into market ticks with three-figure percentage returns potential.
The lower the trading volume of an asset, the greater the spread between the bid and ask prices, and the individual can earn more in potential commissions by providing liquidity. There are now 1,647 coins and 9,152 trading pairs listed on the Pancake platform, far more than the competitors.
Finally, the PancakeSwap smart contracts allow for automatic reset, that is, each cake a user earns can be returned to the storage pool, earning more “interest”. It’s similar to how bond investors get compound returns by reinvesting coupon payments into the underlying debt. With this setup, a cake re-brew can yield returns of up to 83% instead of the regular 65% or so.
CAKE holders can earn vehicle returns during ascents but are not subject to vehicle sales during descents. However, in the worst case, investors can lose their seed capital.
But with such high returns, there is a margin of safety as the passive income one gets from betting can offset short term market reversals. Hence, it is a strong cryptocurrency that must be verified.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.