At the heart of Decentralized Finance (DeFi) on the BNB Chain, PancakeSwap has become a vital ecosystem beyond just a trading platform. This Automated Market Maker (AMM) protocol has evolved to offer a complete range of decentralized financial services, attracting millions of users for its simplicity, speed, and low fees. Let's delve into the workings of this DeFi giant.
Launched in September 2020, PancakeSwap is a decentralized exchange platform (DEX) that primarily operates on the BNB Smart Chain (BSC), Binance‘s blockchain. Its creation responded to a pressing market need: a viable alternative to Uniswap, the dominant DEX on Ethereum, whose transaction fees (gas fees) had become prohibitively expensive for most users. PancakeSwap adopted Uniswap’s fundamental concept, the automated market maker (AMM) model, but deployed it on a faster and much more economical network.
Unlike centralized exchange platforms (CEX) such as Binance or Bitget, which use an order book to match buyers and sellers, PancakeSwap operates without intermediaries. Transactions, called “swaps,” are executed directly between the user’s wallet and autonomous smart contracts.
Initially perceived as a simple “fork” (a copy of the code) of Uniswap V2, PancakeSwap quickly developed its own identity. The team capitalized on the playful and accessible image of its universe (pancakes, rabbits, etc.) to democratize complex DeFi concepts. But behind this facade lies a robust protocol that has become the nerve center of DeFi activity on the BNB Chain, processing a daily transaction volume in the hundreds of millions of dollars.
The core of PancakeSwap’s reactor is its AMM model. To understand how it works, we need to break down its three pillars: liquidity pools, yield farming, and Syrup Pools.
A liquidity pool is a reserve of two different tokens, locked in a smart contract. For example, a BNB/CAKE pool. The price of tokens in this pool is determined by an algorithm based on the ratio between the two assets. When a user wants to exchange BNB for CAKE, they send their BNB to the pool contract, which calculates the equivalent amount of CAKE to send back, taking into account the 0.25% transaction fee.
These pools are supplied by liquidity providers (LPs). Anyone can become an LP by depositing an equal value of both tokens in the pool (for example, $100 of BNB and $100 of CAKE). In return, the user receives LP tokens (Liquidity Provider), which represent their proportional share of the pool. These LP tokens allow them to claim their share of transaction fees generated by swaps.
This is the first source of passive income on PancakeSwap. However, LPs are exposed to a risk called “impermanent loss”, which occurs when the price of deposited tokens diverges, potentially resulting in a loss of value compared to simply holding the tokens.
To encourage users to provide liquidity and ensure smooth exchanges, PancakeSwap has implemented a system of additional rewards: yield farming. Users who hold LP tokens can “stake” them in specific “farms.” By doing so, they earn rewards in the form of CAKE tokens, the platform’s native token.
The yield (APY) of these farms is variable and depends on the pool’s popularity, transaction volume, and the amount of CAKE allocated to that farm. It’s a powerful mechanism that has greatly contributed to attracting billions of dollars of liquidity to the protocol.
Once users have earned CAKE through yield farming or by purchasing it, they can use it in Syrup Pools. The principle is simple: stake your CAKE to earn… even more CAKE, or tokens from other partner projects. It’s a form of staking without the risk of impermanent loss.
With the introduction of PancakeSwap V3, inspired by Uniswap V3, the protocol introduced concentrated liquidity. Liquidity providers can now choose a specific price range in which their capital will be used. This innovation allows for much more efficient capital utilization and can generate higher yields, but it requires more active management and a better understanding of market dynamics.
CAKE is much more than just a reward token; it’s the backbone of the PancakeSwap ecosystem. As a governance and utility token, it fulfills several crucial functions.
CAKE holders can actively participate in the future of the protocol. By staking their tokens, they obtain voting power (vCAKE) that allows them to vote on community proposals: fee changes, farm reward allocations, new partnerships, etc.
CAKE is essential for accessing many of the platform’s products. It is used for:
Historically, CAKE was an inflationary token in order to reward liquidity providers. However, to ensure its long-term viability, the team has implemented several deflationary mechanisms.
A portion of the transaction fees generated by the platform is used to buy back CAKE from the market and “burn” it, permanently removing it from circulation. In 2025, with “CAKE Tokenomics 3.0,” this strategy was strengthened to target a maximum supply of 450 million tokens and make CAKE “ultrasound,” meaning potentially deflationary if the platform’s revenues are high enough.
It’s entirely possible to buy CAKE directly on PancakeSwap, but for investors who prefer the simplicity of a centralized platform and don’t use a non-custodial wallet, Bitget is an excellent gateway to acquire CAKE.
Here’s a step-by-step guide:
One aspect that has long intrigued and sometimes worried investors is the anonymity of PancakeSwap’s founding team. Presenting themselves under the collective pseudonym of the “Chefs,” these developers have chosen to remain in the shadows, a common practice in the early days of DeFi, symbolizing the primacy of code over personalities. This decision emphasizes decentralization: the protocol must be able to function and be judged on its technical robustness and community governance, not on the reputation of its creators.
To compensate for this lack of visibility, security has always been an absolute priority. The protocol has undergone multiple security audits by leading companies in the sector, such as CertiK and PeckShield. PancakeSwap even has a very generous “bug bounty” program, rewarding security researchers who discover and report vulnerabilities.
Strategically, PancakeSwap has built a dense network of partners. Binance Labs’ investment in June 2022 was a strong signal, consolidating its status as a key project within the BNB ecosystem. The platform regularly collaborates with GameFi and metaverse projects to list their tokens and organize IFOs. More recently, technical partnerships with price oracles like Pyth Network and market makers like Jump Crypto or Wintermute have been formed to improve trading efficiency, particularly for stablecoin pairs and perpetual futures contracts.
Let’s now look at the strengths and areas for improvement of PancakeSwap.
In 2025, PancakeSwap is no longer just a major player; it’s the central pillar on which a large part of the DeFi activity on the BNB Chain rests. Its leadership position on this network is undisputed. However, the battle for supremacy is being played out across the entire crypto ecosystem.
Its most obvious comparison remains with Uniswap. Technologically, PancakeSwap has often followed Uniswap’s innovations (the transition to V3 being the best example). However, its value proposition remains different: Uniswap is the reference market on Ethereum, with the deepest liquidity and the trust of whales, but at the cost of high fees. PancakeSwap is the king of “retail,” offering unbeatable accessibility and cost on the BNB Chain.
Compared to competitors like SushiSwap, which early on adopted an aggressive multi-chain strategy, PancakeSwap long capitalized on its domination of the BSC. Its recent expansion to other networks such as Ethereum, Polygon, Arbitrum, and Base shows an awareness of the need to adapt to an interoperable future.
Finally, new competitors are emerging on newer and more performant blockchains, such as DEXes on Solana (e.g., Jupiter) or on Ethereum Layer 2s, which promise even lower fees and innovative features. Despite this competitive pressure, PancakeSwap’s advantage lies in its network effect: its massive liquidity, large user base, and recognized brand make it the natural starting point for millions of people entering DeFi.
The future of PancakeSwap revolves around three major strategic axes: multi-chain expansion, improving user experience, and product diversification.
1. Multi-chain expansion: The “Ultrasound CAKE” strategy can only succeed if protocol revenues increase significantly. For this, PancakeSwap can no longer be content with just the BNB Chain. Deployment on high-volume networks like Ethereum, Arbitrum, Polygon, and Base is crucial. The goal is to become a DeFi overlay, allowing users to trade and provide liquidity across multiple chains from a single interface, while centralizing revenues to the CAKE ecosystem.
2. Improving the trading experience: To compete with CEXes, PancakeSwap must offer more sophisticated tools. The development of a perpetual futures market is a priority. Additionally, continuous improvement of the “Smart Router” to guarantee the best swap prices, as well as native integration of limit orders and automated liquidity strategies for V3, are expected developments to attract more advanced traders.
3. Diversification and Web3 Gaming: PancakeSwap continues to explore adjacent verticals. Gaming is a major development axis, with the launch of internally developed games (like Pancake Protectors) and a “Gaming Marketplace” to facilitate the launch of partner games. This synergy aims to use CAKE as currency in these games, creating new use cases and a new source of “burn.”
The success of these initiatives, combined with the transition to a deflationary model for CAKE, will determine whether PancakeSwap can maintain its leadership position in the increasingly competitive DeFi landscape of the next decade.
In 2025, our opinion of PancakeSwap remains very positive. The platform has brilliantly succeeded in its transition from a simple clone to a mature, innovative, and indispensable DeFi ecosystem. For any user of the BNB Chain, it is simply essential. Its fundamental advantages, namely negligible transaction fees and execution speed, remain strong arguments that have democratized access to decentralized finance.
We particularly appreciate the team’s willingness not to rest on its laurels. The introduction of concentrated liquidity with V3, the aggressive multi-chain expansion strategy, and the constant search for new use cases for the CAKE token demonstrate a long-term vision. The implementation of a monetary policy aimed at making CAKE deflationary is also a strong signal sent to the community and investors.
However, we must not overlook the risks. DeFi remains an experimental domain, and PancakeSwap, despite its audits, is not immune to security vulnerabilities. Moreover, competition is fiercer than ever. The success of its multi-chain expansion will be decisive. For an intermediate to advanced user, aware of these risks, PancakeSwap represents a platform extraordinarily rich in opportunities, whether for trading, generating passive income, or discovering the cutting edge of crypto innovation.
Gaston has been a writer for over 7 years and a passionate cryptocurrency enthusiast since 2020. He loves exploring the crypto ecosystem and is now dedicated to sharing his insights and discoveries through InvestX.
PancakeSwap is the largest decentralized exchange (DEX) on the BNB Chain, allowing users to trade cryptocurrencies without intermediaries.
The platform’s native token is CAKE, used for governance, staking, and other features.
Yes, the platform is regularly audited by security firms such as CertiK, but zero risk does not exist in DeFi.
PancakeSwap offers much lower transaction fees and faster trades since it’s built on the BNB Chain.
You can earn passive income by providing liquidity (farming) or by staking your CAKE tokens.
Swap fees are 0.25% per transaction, of which 0.17% goes to liquidity providers and 0.08% to the protocol.
Yes, PancakeSwap is now available on several blockchains, including Ethereum, Arbitrum, Polygon, and Base.
Yes, BNB is required to pay for transaction fees (gas fees) on the BNB Chain.
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