.png?w=480&auto=format%2Ccompress&fit=max)
The decentralized finance (DeFi) space is garnering a lot of interest lately and decentralized exchanges (DEX) are one of its components. DEXes offer a variety of advantages of conventional centralized exchanges. For example, they often have much more variety of trading pairs since listings are not dependent on a centralized authority’s approval. They are also much less risky for users as the funds are held in their own wallet and not a centralized storage. Perhaps most importantly, they are also well aligned with the inherent spirit of crypto - that of decentralization.
There are a lot of DEXs active - over 35 as of last count - in the crypto scene (with even Jack Dorsey’s Square looking to launch one). These run on layer 1 blockchains - such as 1INCH running on the Ethereum blockchain. Another - PancakeSwap - is looming into focus given its unique set of advantages and its ‘delicious’ naming conventions. It has the largest number of daily users and is the fourth highest in market volume amongst the current breed of dApps and DEXs. Let’s explore further.
PancakeSwap is an open-source DEX built on the Binance Smart Chain (BSC) by anonymous developers who probably had a strong liking for breakfast foods and rabbits (the platform has food-based visuals and naming conventions for all its products). The current team has more than 12 members including two co-leads and engineers (who call themselves ‘chefs’).
It is the most popular DEX, by far, on the BSC offering massive liquidity, a wide-ranging feature set and a sizable user base. It can be considered an ecosystem consisting of DeFi tools developed around CAKE- the platform’s native utility token. The platform can be accessed via a Web3 wallet such as TrustWallet, WalletConnect, or MetaMask.
PancakeSwap doesn’t use a manual system of order books, bid/ask system, or limit/market orders that conventional exchanges use. It uses an Automated Market Makers (AMM) system that helps users draw liquidity (assets) from one or more liquidity pools automatically. The liquidity pools rebalance themselves after the trade is complete by changing the weights of assets in the pools (and therefore, their values relative to each other).
PancakeSwap also has passive income potential. Traders can stake CAKE, its native token, on a pool to earn annual yields.
CAKE serves various utilities within the expanding landscape of the platform. Users can use CAKE for yield farming, staking, participating in the platform’s lottery and other events and also, to vote on governance proposals through the community governance portal of the platform.
The CAKE token is currently priced at a little above $15. It is among the top 50 cryptocurrency list. It has a market capitalization of $3.7 billion and a circulating supply of more than 240 million. There is no hard cap on the token supply. However, the makers have allotted 0.05% of the trading fees to buy back CAKE coins and burn them, such that the deflationary mechanism makes the coin even more robust.
Source: TradingView, Binance
The CAKE token is experiencing a dip ever since its August high of $26.6. Having shed almost 40% of its value, a fibonacci pull for CAKE’s dip indicates immediate resistances at around the $17 and $18.8 mark. These levels are crucial and will be tested before any upside can be assured. It will also have to content with its 20-day moving average (currently at $17.7) on its way.
However, there is reason to be optimistic. The CAKE/BTC ratio has been on a continuous downtrend and recently broke a long-term support line at 0.0002876. If CAKE can reclaim this level and hold it as support again, it should provide the fuel for significant upward moves.
The team at PancakeSwap has added several upgrades such as auto-compounding on staking, adding a referral program, etc, to the platform since its launch. It scores over the other DEX platforms built over the Ethereum blockchain in terms of low transaction fees and rapid confirmation times which help in quick trade execution. There are a host of other secondary features that are attracting users and liquidity to the popular DEX.
Decentralized exchanges do not adhere to know your customer (KYC) and other due diligence norms like centralized Indian exchanges. Coins that are listed on DEXs are susceptible for rug-pulls like SQUID last month. Investors are advised to proceed with caution if they are planning to use DEXs for crypto trades.
Disclaimer:This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.