In this new series, we compare some key crypto assets and how they have fared recently. While doing so, we ask this question - if an investor has Rs.1,000 to spare today, how can he/she allocate the capital between these assets? Today, we aim to compare Uniswap (UNI) and PancakeSwap (CAKE).
In the era of growing use cases of Decentralized Finance or DeFi tools, the part played by a Decentralised Exchange or DEX is significant. A DEX is a peer-to-peer marketplace where crypto traders conduct transactions directly with one another. Two of the most popular DEXs, Uniswap, and PancakeSwap, work towards the same goal - to allow users with compatible crypto wallets to access a huge range of financial services directly from their wallets.
Today we aim to compare the two DEXes to examine their future potential.
Uniswap, the largest DEX, is a collection of computer programs that operate on the Ethereum blockchain and enable decentralized token swaps. Uniswap uses Constant Product Market Maker, a type of Automated Market Maker (AMM). In this model, the users contribute Ethereum tokens to Uniswap "liquidity pools." Smart contracts are used to execute trades, and mathematical formulas are used to set prices. Each liquidity pool has funds for two cryptocurrencies. When users make trades, it draws from liquidity pools instead of an order book.
UNI is the native cryptocurrency of Uniswap. The UNI token was introduced to allow the Uniswap community to have ownership over the Uniswap Ecosystem. It allows stakeholders to vote on key protocol changes and development initiatives. Uniswap offered 400 UNI tokens to users who had previously used the Uniswap decentralized exchange protocol during its launch. Around 2,50,000 Ethereum addresses received UNI worth approx.. $1,500 at the time of the airdrop.
Today, users can earn UNI tokens by staking tokens in the liquidity pools of Uniswap. UNI holders who own 1% or more of the total UNI supply can submit development proposals. UNI has a total supply of 1 billion with a market capitalization of $5.8 billion and is ranked among top 25 cryptocurrencies.
PancakeSwap is another decentralized exchange though it operates on Binance Smart Chain. PancakeSwap operates on an automated market maker (AMM) model.
PancakeSwap is only used for BEP-20 tokens on the Binance Smart Chain. However, tokens from other platforms can be brought over via Binance Bridge and "wrapped" as a BEP-20 token for use on the DEX. CAKE is the native utility token of PancakeSwap.
CAKE is used for a variety of purposes. Its primary functions are yield farming, staking, PancakeSwap Lottery participation, and making and voting on governance proposals via the platform's community governance portal. PancakeSwap rewards those who stake CAKE.
With a market capitalization of $2.7 billion, CAKE is ranked 42nd among cryptocurrencies.
UNI vs CAKE: Verdict
Recent performances of UNI and CAKE v/s BTC
Source: TradingView, Binance
The primary difference between PancakeSwap and Uniswap is that PancakeSwap operates on Binance Smart Chain, whereas Uniswap operates on the Ethereum blockchain. The former offers significantly lower transaction costs. On the other hand, the latter uses ETH for every transaction and thus significantly increases transaction costs in comparison to other platforms.
Even though CAKE offers unique features like lotteries, UNI has a TVL (Total Value Locked) much higher than CAKE. While CAKE uses a PoS (Proof of Stake) consensus, UNI uses a PoW (Proof of Work) consensus.
In 2022, UNI underperformed Bitcoin by a larger margin and has lost 44% in value. Whereas CAKE has underperformed by 12% only - although this could be partially attributed to CAKE having lost significant value earlier in 2021.
Both UNI and CAKE are both working on regular updates to make their respective platforms better. The world of DEX is expected to improve as these two platforms continue their journey as #1 in their own blockchain.
Both UNI and CAKE are promising altcoins and to pick between them is akin to a choice between Ethereum and Binance Smart Chain. Therefore, to answer our question - we believe that investing a 60% share UNI and the remaining 40% share in CAKE is ideal.
Use promocode TNM51 at www.giottus.com/profile#promo after registration to get Rs.51 worth free Bitcoin.
Disclaimer: This article was authored by Giottus Crypto 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.