Third-generation decentralized exchanges (DEXs) have risen in popularity recently for the incentives they offer.

PancakeSwap is one of these third-generation DEXs that offers exciting incentives for adding liquidity to the exchange. Let’s see what this decentralized exchange provides us and how it works.

It is a decentralized exchange platform that allows exchanging of existing tokens within the Binance Smart Chain (BSC).

PancakeSwap enables the exchange of the tokens without losing custody of the assets at any time. Its operation is based on a series of automated smart contracts deployed on the BSC, Binance’s blockchain.

PancakeSwap has quite a few functional similarities to Uniswap, a DEX deployed on the Ethereum blockchain. This exchange has a token called CAKE, which is of the BEP-20 type (practically the same design as the EIP-20 tokens).

It also allows to import of tokens from other platforms through the Binance Bridge and “converts” them into a BEP-20 token for use within the decentralized exchange.

This Decentralized Exchange is based on the Automated Market Making System (AMM). It is a mechanism by which users can add liquidity to the exchange without losing ownership of the tokens.

The order book is eliminated, and we must find a seller who sells us the tokens we want to buy and the ones we want to sell. Here users add tokens so that users can “use” them, creating a liquidity pool based on smart contracts.

It allows free trades to exchange tokens and token holders to “lend” them and get rewarded for adding liquidity.

The DEX PancakeSwap is a solution developed for the DeFi market. It allows traders to trade tokens without the need for an intermediary and without high commissions.

PancakeSwap is currently the most prominent decentralized exchange deployed on BSC, but it is not the largest DEX currently.

For liquidity, there must be funds in the DEX; users need to contribute it. That is done through liquidity pools between token pairs.

It is required to be able to carry out token exchanges so that other users add liquidity through their tokens. Adding liquidity does not mean losing our tokens.

They remain the user’s property, who adds liquidity and can withdraw them whenever they want. As an incentive to add liquidity, they receive a reward.

But this is just one of the many things we can do within the PancakeSwap platform. We can also add coins to the so-called Syrup Pools, which offer rewards.

We can bet on whether the price of the Binance Coin (BNB) token will go up or down in a given period. It also has a lottery in which we can win many CAKE tokens. Additionally, we have NFT and Initial Farm Offering (IFO).

For PancakeSwap to be liquid, users need to contribute their tokens. Liquidity Provider (LP) tokens in this DEX are called ‘FLIP’ tokens. These tokens may differ depending on the token pair we add liquidity to.

Once we add the funds to the liquidity pool, we will earn rewards in the CAKE token. We can leverage many tokens in Syrup (a name given to liquidity pools) to add liquidity. In exchange, we will receive a certain amount of CAKE tokens based on the annual percentage yield (APY), which is the amount we can earn if we keep stacking for a whole year.

Yield farming is a solution that allows users to add tokens in exchange for a reward. These rewards can be combined and used in different protocols. That enables users to increase the performance of their tokens thanks to the high commissions received.

Liquidity providers are incentivized to add their tokens to a liquidity pool that is based on smart contracts. The incentive can come from a percentage of transaction fees and interest from token loans, usually given in the CAKE governance token.

The maintenance of PancakeSwap is much lower than that of a decentralized exchange. The cost reduction is mainly due to being a decentralized platform without custody of the tokens.

The platform’s and servers’ maintenance needs are also reduced for it to be operational. What this set of points allows is to reduce transaction fees significantly.

PancakeSwap currently charges 0.25% for each transaction made on the DEX. 0.17 % of the total is intended to be used as a reward in the liquidity pools. 0.03% of the commissions are allocated to the DEX treasury, and in addition, 0.05% is used for the repurchase and burning of CAKE tokens.

PancakeSwap has the great particularity of having a lottery system that allows you to obtain great rewards. Every 6 hours, there is a raffle based on large prizes.

We can buy a lottery ticket for 10 CAKE, which generates four digits between the numbers 1 and 14—for example, 4-11-5-14.

The prize is obtained only if the four numbers that come out are identical to ours and in the same order. The prize amount supposes 50% of what has been spent on buying the tickets.

This DEX adds a lot of outlier elements to encourage user participation. One of the most curious elements of PancakeSwap in the beta phase is the BNB token price predictions. 

This mechanism allows us to bet on a rise or fall in the price of the Binance Coin token.

The process lasts 5 minutes, and we can bet on the price increase or decrease before the start of the new period. If we win, we will get the number of tokens staked plus a percentage. 

For example, we bet 10 BNB that the price will fall, which has a rate of x1.5, indicating that we will get 15 BNB, the 10 BNB bet, and the 5 BNB reward for the bet.

The particularities of this decentralized exchange platform do not end here. PancakeSwap has a collection of cute NFTs you can earn and exchange for CAKE tokens or keep as a collectible item.

The IFO (Initial Farm Offerings) is a mechanism that allows us to obtain a certain amount of a recently released token available to users that makes use of yield farming. PancakeSwap allows adding token liquidity in a supported pool to gain access to a newly launched token sale.

We can access the platform through Metamak, TrustWallet, MathWallet, Binance Chain Wallet, and others. The best option is Metamaks, which allows adding the BSC blockchain quickly and easily. Thus, we will have access to the Ethereum and Binance blockchain from our browsers.

Let’s assume you already have Metamask in your browser, so you have to log in. Now we are going to follow the next steps:

1. Click on the Metamask icon and log in
2. Now click on our profile icon to open the drop-down menu
3. Let’s go to ‘Settings.’
4. We go down the drop-down until we find the ‘Networks’ section
5. Press the ‘Add network’ button
6. Fill in the fields with the following data:

• Network Name:  Smart Chain
•  New RPC URL:  https://bsc-dataseed.binance.org/
•  String ID:  56
•  Symbol:  BNB
•  Blockchain explorer URL (optional):  https://bscscan.com

We click ‘Save’, and the Binance network is connected to our Metamask

Above we can choose the network, going from the main Ethereum network to the Binance network whenever we want.

DEXs are usually launched on the Ethereum blockchain due to their great popularity.

Ethereum’s strength is based on “simplicity” when deploying smart contracts to develop dApps. Even decentralized finance (DeFi) solutions have grown significantly in recent months.

Ethereum has a significant problem: the cost of transactions. When there is no congestion in the network, the commissions are usually relatively high due to the high use.

Commissions skyrocket when there is significant network congestion. There is still a long way to go before Ethereum 2.0 is released and fixes this problem, which is why PancakeSwap has opted for Binance Smart Chain.

The Binance exchange blockchain makes it possible to develop tokens that are virtually the same as those created on the Ethereum blockchain.

That makes it very easy for developers to deploy new tokens. But the main reason to use BSC is that the fees are much lower than Ethereum. Something that allows users to enter at a lower cost.

We can find three different tokens, one being the platform’s main token is one and the other being rather secondary.

It is the primary token of PancakeSwap, used for the lottery and to reward those who add liquidity. No fixed maximum number of CAKE tokens allows the supply to fluctuate according to need, making it inflationary.

Although there is no limit, there is a block-controlled issuance mechanism and the regular burning of tokens, which reduces token price inflation.

CAKE is a token that seeks to encourage liquidity in the DEX. Users would only be incentivized to add liquidity if this token existed.

We can add CAKE tokens to the SYRUP Pool, allowing us to earn SYRUP tokens. SYRUP holders will earn part of a 25% reward from each CAKE block, entitling them to earn tokens from new BSC projects.

It is a specific token for liquidity pools. Users who add liquidity to the DEX are rewarded with the FLIP token.

Like any other code, a smart contract can have certain security holes that can be exploited and, consequently, stolen tokens.

To ensure the security of smart contracts the security firm Certik has been assigned to audit them. The auditing of the code has been passed with total success.

Additionally, different security and protection elements have been contracted with CertiK:

• Oracle security elements
• CertiK Security Shield
• CertiK Virtual Machine

We are currently working on developing new projects to increase the platform’s usability. These are:

• Loans: We can borrow BSC tokens and LP tokens, using CAKE as collateral for loans.
• Margin Trading: It will offer the possibility of exchanging BSC tokens with leverage on the chain. The CAKE will be exchanged and will be burned periodically.
• NFT: Will increase the importance of NFT characters with race, age and other parameters tied to CAKE.

Gamification: A mechanism for missions, levels and others will be added, allowing us to obtain an NFT that we can sell for CAKE.

Second- and third-generation decentralized exchanges have proliferated quite in the last two years, powered by decentralized finance (DeFi). DeFi and DEXs constantly feed each other to expand cryptocurrency options and functionalities.

Pancakeswap is committed to a less used blockchain than Ethereum to obtain certain competitive advantages over other DEXs.

Like other DEXs of this type, PancakeSwap seeks to offer certain additional elements that add usability and, therefore, community. That it can be easily connected with Metamask is another of the great strengths of this exchange platform.

The incentives to add liquidity to the network are also very high, which is why it is a widely used platform to obtain revenues without the need to start mining and trading projects.

Tell us about your experience using the DEX PancakeSwap and the improvements you would like to see.