PancakeSwap Exchange Review
PancakeSwap Staking Review
PancakeSwap has emerged as one of the most prominent decentralized exchanges, thanks to its low fees and almost instant transaction speed. In addition, the income-generating potential of some of the services provided by PancakeSwap has been one of its most appealing attributes. More specifically, staking on PancakeSwap is somewhat a worthwhile venture due to the high-interest rates offered to investors. In this guide, I will be reviewing PancakeSwap’s staking operations and how you can take advantage of these opportunities. Importantly, this guide will also be highlighting the downside of using Pancake’s staking service.
What is PancakeSwap?
Before going into the basics of staking cryptocurrencies on PancakeSwap, you will need to get a basic understanding of how PancakSwap operates. The first thing you need to know is that PancakeSwap is a decentralized exchange. Hence, it primarily functions as a medium for exchanging one cryptocurrency for another. As it is with all decentralized exchanges, PancakeSwap relies on smart contracts for the bulk of its operations. In other words, the system is not governed by a single entity. Instead, the entirety of users' operations relies on self-governed infrastructures such that traders can execute trades without involving intermediaries.
Notably, all this boils down to the ability of the decentralized exchange to attract liquidity. Investors are usually encouraged to deposit funds that users will trade against on smart contracts, commonly called liquidity pools. When investors deposit liquidity in these pools, they become entitled to earn a fraction of the fees paid by traders. In addition, they receive rewards in the form of the decentralized exchange’s liquidity provider (LP) token.
Another thing that you should note about PancakeSwap is that it is a Binance Smart Chain-based protocol. Hence, it facilitates the trades involving BEP-20 tokens only. This is unlike what we have on Uniswap, which only supports ERC-20 tokens due to its Ethereum-based infrastructure. As a result of PancakeSwap’s underlying blockchain network, it boasts lower transaction fees and higher transaction speeds, compared to what its Ethereum-based counterparts normally offer.
Staking on PancakeSwap
DeFi has established new passive income-generating strategies ideal for investors who are ready to embrace the opportunities as well as the risks that come with blockchain-based financial products. One of the strategies that investors seem to have favored is staking. In its simplest form, DeFi staking is the process of locking a token or a coin in a smart contract for a chance of earning more of the said tokens.
In the case of PancakeSwap, the investor stakes LP tokens to receive CAKE as rewards. Note that CAKE is the native token of the PancakeSwap ecosystem as it unlocks several utilities apart from the liquidity pool system mentioned earlier. More specifically, CAKE is central to PancakeSwap’s staking economy. Due to the introduction of CAKE, users can earn via the following methods.
- You can stake LP tokens to earn CAKE
- You can stake CAKE to earn more CAKE
- You can stake CAKE to receive the tokens of other supported projects.
All these possibilities are part of the yield farming opportunity available on the PancakeSwap protocol.
How to stake on PancakeSwap
To get started, you need to first understand that staking is a subset of the platform's yield farming strategy, which also encompasses the process of providing liquidity. In other words, you may have to take up the role of a liquidity provider to generate the LP tokens required to kickstart your staking experience on PancakeSwap. As a liquidity provider, you have to deposit liquidity in any of the pools featured on PancakeSwap. Depending on the pool you pick, you need to deposit a pair of tokens to become eligible to earn trading fees and receive LP tokens.
Note that the LP tokens you receive would determine the specific farm where you can stake them and the potential APR it will potentially generate. For example, if you deposit liquidity in a CAKE-BNB pool, you will receive CAKE-BNB LP tokens, which will, in turn, restrict your staking activities to the CAKE-BNB farm. As such, it is important to research the profitability of farms before opting for a liquidity pool. You can view the details about the farms available on PancakeSwap on the platform’s Farms Page. Here, you should take note of the APR and multiplier of each farm.
Multiplier denotes the share of the CAKE distributed to each farm. For instance, if a farm with a 1x multiplier receives 1 CAKE as a reward on each block, a 40x farm will receive 40 CAKE. Thus, the multiplier is one of the factors that determine the APR of PancakeSwap’s farms.
The following are the steps you need to scale through to provide liquidity to one of the pools and stake LP tokens on PancakeSwap:
- Connect your BNB-supported wallet, preferably Metamask or Trust Wallet. Once you have connected the wallet, visit the website’s liquidity page to deposit the required tokens, depending on your chosen pool. For instance, if you plan to provide liquidity for the CAKE-BNB pool, you will need to have BNB and CAKE in your connected wallet. Also, ensure that you have enough BNB to pay for the fees required to facilitate the transactions.
- After selecting your preferred pair of cryptocurrencies, which in this case is BNB and CAKE, click the Enable CAKE button to confirm the action on your wallet. Next, click on the Supply button and confirm the transaction to deposit the tokens. As soon as you complete this process, your LP token balance will be updated to reflect your share of the total volume of tokens deposited into that specific pool.
- Once you have deposited the liquidity and received LP tokens, you can kick start the staking process. To do this, all you need to do is go to the Farms page and locate the appropriate farm. In this case, we are going for the CAKE-BNB pool since our liquidity pool is also CAKE-BNB.
- Click anywhere on the row of your preferred farm to reveal more details about the farm. From here, you can click the Enable button and subsequently confirm the action on your wallet. After a few seconds, the Enable button will change to a Stake LP button. Click this button to navigate to a new window where you can enter the amount of LP tokens you wish to stake. Once you have done this, the Confirm button will activate. By clicking this button, your wallet will request that you confirm the action. Immediately after you sign the transaction, your staked LP token balance will automatically reflect the amount you have staked.
Note that you can add more LP tokens or remove some of them by clicking on the said farm to reveal its details and selecting either the - or + button. The - button will navigate you to a window where you can specify the amount you want to remove while the + button will allow you to add more LP tokens.
How to harvest staking rewards on PancakeSwap
To claim staking rewards, you need to locate your farm, click on the Details button to view the number of CAKE tokens you have earned so far. Next, click on Harvest, to reveal the fees that such action will incur. From here, you can follow the prompt to receive the accrued staking rewards in your wallet.
Speaking of rewards, the amount of CAKE earned depends on the number of LP tokens you stake, the farm's APR, and the staking period.
How to stake CAKE
As mentioned earlier, you can stake CAKE to earn more CAKE or to receive the tokens of other projects. You can do this by visiting the Syrup Pools page on the PancakeSwap website. Here, you can access a list of pools that will allow you to stake CAKE for a chance of earning rewards. The first on the list is the Auto CAKE pool. This particular staking pool lets users automate the process of reinvesting accrued staking rewards in the pool. In other words, the protocol automatically restakes the CAKE tokens earned as incentives.
The next pool on the list is Manual CAKE, which as its name implies, does not automate the reinvestment process. Instead, users will have to click the Compound button to authorize the protocol to restake the CAKE-denominated rewards. Like the staking process discussed earlier, you only need to click on Harvest to claim the accrued CAKE tokens.
What are the pros and cons of PancakeSwap?
The pros of PancakeSwap
It is decentralized
The entirety of PancakeSwap’s economy is powered by a decentralized network. Hence, users are offered the sort of autonomy that is absent in centralized staking services.
The Interest rates are very high
Staking on PancakeSwap is a very rewarding venture since stakers can earn as high as 400% APR when they stake their LP tokens in farms of lesser-known tokens. At the time of writing this review, users stand a chance of earning a 79% APY when they auto-stake their CAKE tokens.
Staking on PancakeSwap is affordable
Since the protocol relies on Binance Smart Chain’s infrastructure, the platform is not plagued by some of the issues associated with Ethereum-based protocols. More specifically, users do not worry about issues relating to network congestion that may in turn increase the transaction fees and time.
Pancake offers multiple staking strategies
As mentioned in this guide, there is an option to stake LP tokens to earn CAKE. Likewise, you can stake CAKE to earn rewards denominated in CAKE or other projects' tokens. By providing these dynamic staking systems that can be accessed concurrently, PancakeSwap is an ideal option for investors interested in maximizing profits.
The cons of PancakeSwap
DeFi staking is considered a high-risk investment
The DeFi economy as a whole is still at its experimental phase. Therefore, there is a lot that is yet to be perfected. More specifically, security is one of the components that still need more development and research. As such, you are exposed to a significant level of risks when you deposit your funds in protocols like PancakeSwap as a lot could go wrong.
Liquidity providers are exposed to impermanent loss
For those planning on providing liquidity to PancakeSwap’s pools to earn LP tokens, you need to understand the concept of impermanent loss and how it can affect your earnings. Simply put, liquidity providers are exposed to this type of risk when the price of their deposited digital assets has changed compared to their value at the time they were deposited.