What is PancakeSwap and how to get started on it

What is PancakeSwap and how to get started on it

With the increase in cryptocurrencies, more and more people started to join the crypto world. This caused an increased demand for cryptocurrencies and the need to exchange one crypto for another. To do so, most traders visit centralized exchanges with blockchain marketplaces gaining popularity, such as NFTs. Using those exchanges can take a long time and the crypto we want to trade, might not be available in pair with the crypto we want to receive.

This is where DEX comes into play. DEX is a decentralized exchange and one of the biggest of those exchanges is PancakeSwap. PancakeSwap offers a fully decentralized exchange that creates great liquidity and allows users to trade BEP-20 tokens for any other BEP-20 token.

Cake welcome.png

Things to Know About PancakeSwap

  • You don't need to register on PancakeSwap to start trading. Simply connecting your wallet to the website is enough to start trading
  • PancakeSwap is built on the Binance Smart Chain, which means it supports BEP-20 tokens. But there are ways to also trade other tokens, which are not BEP-20
  • You can either use PancakeSwap to trade or provide liquidity and receive rewards for it
  • PancakeSwap has its own native token called CAKE

What Is PancakeSwap

PancakeSwap is a decentralized exchange and by far the largest one. It is built on the Binance Smart Chain and has risen in popularity with its great liquidity, huge user base, and wide range of features. 

This platform gives users the ability to swap a wide range of BEP-20 tokens without the need of using centralized exchanges. Smart contracts are used to automatically complete trades on PancakeSwap and this completely removes the risk for the counterparty.

Usually, fully decentralized crypto exchanges tend to be looked at with skeptical eyes until they prove their legit status. PancakeSwap gathered the same sets of eyes at first, as the team standing behind the project still remains anonymous. Their legit status has been confirmed ever since they were audited by well-recognized blockchain security firms. PancakeSwap is an open-source project, which is another great way to check how the exchange works and if it is legit.

This exchange was launched in 2020. Ever since then, the exchange has been growing and currently has 4.4 million monthly active users, 31 million monthly trades, and $3.5 million staked. Outside swaps, PancakeSwap offers other tools and has become an entire decentralized ecosystem.

How Does Pancake Work

PancakeSwap is an automated market maker, which means that there are no order books or bid systems. For trading, users are directed to one of several liquidity pools and use those pools to complete the swap. After the swap is complete, these pools rebalance to keep the liquidity in a good state. Automated market maker exchanges like PancakeSwap take crypto from one pool and then put it into another pool.

This liquidity is provided by users themselves and not PancakeSwap. These users add equal values of tokens to both sides of the pool to increase liquidity. When liquidity providers add tokens to liquidity pools, they receive LP tokens. These tokens represent their share in the liquidity pool and tokens they put in a pool won’t be withdrawable without using those LP tokens. These liquidity providers then receive a portion of the transaction fee that traders pay. PancakeSwap has 0.25% fees for both makers and takers, with most of those fees going to liquidity providers.

This project receives funding from PancakeSwaps treasury which currently receives 17% of all transaction fees. These funds are then used for the upkeep and maintenance of the exchange. This treasury also covers payments for salaries, audits, bounties, and many others.

How to Use PankaceSwap

There are two ways we can use PankaeSwap. One is to use it as an exchange to exchange one token for another. Or we can help to create liquidity pools to receive rewards for helping the exchange operate.

PancakeSwap Decentralized Exchange

When we join PancakeSwap we have to press connect our wallet, just check the top left of the screen to find the Connect Wallet button. Once you are connected look for the Trade button on the top toolbar. There you will be given three options. Swap, limit, and liquidity. If you are a trader and plan on swapping tokens, select either Swap or Limit. 

When swapping, we need to select which token we want to swap for which and press Swap. PancakeSwap has an AMM liquidity pool, which makes transactions fast, flexible, and easy to execute. Anyone can create a pair of their choosing, unlike centralized exchanges where not every crypto-to-crypto pair is available. 

As we mentioned before, PancakeSwap is built on the Binance Smart Chain and supports BEP-20 tokens. But if you want to trade the Ethereum chain's ERC-20 tokens, you are able to do so by bridging ERC-20 tokens to the Binance Smart Chain and turning them into BEP-20 tokens.



When we want to trade ERC-20 tokens on PancakeSwap we need to use the Binance Bridge to wrap those tokens into BEP-20 tokens.

To do so, we need to head to the Binance Bridge where you will have to connect your wallet. If you are connecting a wallet that is on the Ethereum chain, you will select the token you want to bridge and confirm the transaction. You will need to pay gas fees in Ethereum for it, but it is totally worth it. 

This does not only work for those who trade. Liquidity providers can also use the Binance Bridge to bridge tokens to the Binance Chain and add them to the pool for liquidity.

This is not permanent, and you can always bridge them back to ERC-20 tokens.

Create Liquidity

You can provide liquidity to PancakeSwap and receive rewards for doing so. Doing this is an easy process and keeps the exchange running.

To do this, once again press the Trade button at the top toolbar and there select Liquidity. You will have to select which token you want to provide liquidity for. This is done in pairs, which means you have to provide two tokens.

When providing liquidity, you can either create your own pool or join an existing one. Creating a new pool is not done very often and is mostly used by new projects to promote their tokens. 

When you select which pair you are providing liquidity for, follow through and complete the transaction. When the deposit is finished you will receive FLIP which is a token that represents your stake in the pool. When you are holding FLIP every time a transaction takes place and uses the pool you receive a portion of the rewards.

Yield farming

When we are providing liquidity, our assets are growing as the pools they are part of are being used for transactions. Yield farming, on the other hand, is the process where you deposit one token to mint another one.

You can find Yield farming at the top toolbar under the Earn section. Once there you will be shown a long list of token pairs you can farm. Choose the farm that interests you and check how much CAKE each farm returns. Each pair will have a different APY with some reaching as high as 200%.


PancakeSwap Lottery

For those who like to gamble and make their crypto experience spicier, PancakeSwap offers a Lottery system where you can gamble with CAKE.

You can check this lottery at the Win tab. Here you can deposit CAKE into the prize pool. The more CAKE you deposit, the higher your chances of winning will be. When the lottery is run, if you match 2 or more numbers on your ticker, you will receive a portion of the prize pool.

This lottery takes place every 24 hours and the prize pool reaches tens of thousands of dollars.


PancakeSwap also has its own NFT marketplace. Here you can buy and sell Binance Chain-based NFTs. This marketplace might not be as big as some other big NFT marketplaces such as OpenSea and Rarible, but you can still find interesting and investment-worthy NFTs on the PancakeSwap NFT marketplace. 


Things We Learned From This Guide

  • PancakeSwap is a DEX which means that it is fully decentralized 
  • People who use PancakeSwap mostly use it for trading or to create liquidity and earn rewards
  • You can bridge ERC-20 tokens using Binance Bridge, which gives you the ability to trade with them on PancakeSwap
  • PancakeSwap has its own NFT marketplace, where you can find interesting projects

FAQs About PancakeSwap

Is PancakeSwap legit?

Yes, PancakeSwap is completely legit. The founders have not revealed their identities and are staying anonymous. But despite that, they have been audited by many different blockchain security firms, and they confirm the legit status of PancakeSwap.

Are fees high on PancakeSwap?

PancakeSwap does not differentiate between makers and takers. Both have the same 0.25% trading fees. These fees are not high and most of these fees go to those who create liquidity and are keeping the exchange operational.

Can I use PancakeSwap in the US?

Yes, US citizens are allowed to use PancakeSwap's services and make passive income from them, as well as swap tokens. But US citizens have to pay taxes on their crypto and the absence of an order book might make it hard to keep track of your gains and losses, which you will have to report to the IRS.