The stars are aligned to give PancakeSwap a meteoric rise - PancakeSwap analysis 2021 🥞

I have written about both RocketMoon and OrcaX recently. They are both dynamic supply projects (deflationary). There are tons of these projects being launched. To be frank, all these "mooncoins" are pure speculation and can even be compared to crypto gambling. There is really no utility.

Besides making some people very rich and other people a bit poorer. These projects have been a huge boon to PancakeSwap. I have written a couple of "how to buy X crypto" lately. All involving PancakeSwap.

The thing is that, these mooncoins can only be had through PancakeSwap as no exchanges list them. Most of these coins won't ever see the light of a crypto exchange. They simply won't be accepted on the exchanges.

SafeMoon has been leading the way in the mooncoin revolution, which started some time around mid-March. This has ultimately benefitted PancakeSwap greatly as you can see in the price chart from CoinMarketCap:

$CAKE impressive growth in 2021.

Another reason is the general hype are DeFi (Decentralized Finance). Almost all DeFi blockchain projects are up in 2021. Then there are the generally lower fees on the BSC network compared to e.g. Ethereum and ETH fees.

Is the growth sustainable, though?

What is PancakeSwap?

PancakeSwap is a DEX (Decentralized Exchange) running on the Binance Smart Chain (BSC). PancakeSwap has two things going for it. The ongoing moon frenzy and the fact that it runs on the BSC and have loads of BEP20 token projects launched on its DEX on a daily basis. It is very easy to list on PancakeSwap.

One of the main reasons behind the success of the BSC is the ease of launching dApps on the network. The bespoke BSC projects are typically DeFi (Decentralized Finance) projects. DeFi is the hottest thing in crypto over the last six months or so.

So, we have PancakeSwap at the heart of two crypto booms, DeFi and mooncoins, where users can freely swap BEP20-powered tokens. Such as e.g. swapping BNB for SafeMoon, RocketMoon and OrcaX. And they are enjoying incredible growth. Currently, there is $6.42 billion spread across different PancakeSwap liquidity pools.

PancakeSwap token swaps

Token swaps on are made between BEP20 tokens. E.g. swapping $CAKE for $BNB. The swap is made through PancakeSwap liquidity pools. The transaction (TX) fees are very low on PancakeSwap compared to a traditional CEX (Centralized Exchange).

I have outlined how this works in various how to buy guides, for example my how to buy RocketMoon guide.

Token swap is an AMM (Automated Market Maker) product that allows two tokens to be exchanged. The automation comes from the liquidity pools. What PancakeSwap has done well is the addition of gamification elements such as the PancakeSwap lottery.

Swapping on PancakeSwap.

PancakeSwap liquidity pools

PancakeSwap liquidity pools (LPs) allows users to provide liquidity by adding BEP20 tokens to LPs. When adding liquidity, a user receives liquidity pool tokens.

For example, you could deposit $CAKE and $BNB in a pool and receive CAKE-BNB LP tokens as a reward.

Additionally, LP providers receive a portion of the fees whenever someone swaps using PancakeSwap. A person swapping would pay e.g. 2% TX fee where 0.17% goes to the related liquidity pool for the pair that was traded for.

Liquidity pools on PancakeSwap.

PancakeSwap Yield Farming

One of the most used features of PancakeSwap is the yield farm options. To participate in any of the lucrative yield farms, choose the pair you would like to farm. All you need to do is contribute with liquidity for the selected pairs. For doing this you will receive rewards in the form of $CAKE. APR (Annual Percentage Rate) range from <10% up to 400% (at the time of writing this PancakeSwap analysis).

Yield farming on PancakeSwap.

Besides the three main features of PancakeSwap, you also find the following features:

  • PancakeSwap Prediction
  • PancakeSwap Lottery
  • PancakeSwap Collectibles
  • PancakeSwap Team Battles
  • PancakeSwap IFOs (Initial Farm Offering)

The side-features are not really worth highlighting. I would consider them as extra spice to make the product more interesting. A way to allow for more deliveries and updates around the core product which is swapping, liquidity pools and yield farming as highlighted above.

PancakeSwap dominating the Binance Smart Chain

There is no doubt that PancakeSwap is the dominating player in the DEX space of BNB. Many copycats are popping up trying to cash-in on the success of PancakeSwap. Despite the initial hype some of these DEX projects may gain, I would speculate that PancakeSwap will remain dominant in the space.

However, Binance and the BSC is not the only popular network. It is definitely the flavor of the year. Especially with the absence of viable options elsewhere. But once development in other blockchains have caught up, you can expect that PancakeSwap will get a run for their money. First in mind is ETH 2.0 and Polkadot Network. Both these universes are on-course to make it big. And there is a major, fundamental difference between the BSC and these upcoming blockchain networks.

Binance is a central entity and even the Binance Smart Chain is not 100%. Both Ethereum and Polkadot on the other hand are 100% decentralized networks. Once available, I would expect that a lot of people would prefer to do their business on the fully decentralized networks over partial ones like the BSC. Don't get me wrong, BNB and the BSC will remain a prominent player in the crypto space. I am just saying that they will likely lose a considerable market share.

Keep an eye out and follow:

  • PolkaSwap - $PSWAP
  • Uniswap - $UNI
  • Gravity DEX (Cosmos) - $ATOM
  • Compound.Finance - $COMP
  • Aave Protocol - $AAVE

Buy the rumor, sell the news

If you have been in crypto more than two weeks, you probably heard the phrase "Buy the rumor, sell the news." This phenomenon is not unique to crypto markets. It happens in any financial markets whether it is Forex trading, fiat stock trading or index funds.

Basically, a trader or investors buy a crypto based on a speculation, a rumor or a hint about an upcoming release or big announcement. Once the rumored event passes and the news becomes public and factual, the trader or investor sell their holdings in relation to the price going up. In crypto, a lot of people uses this tactic to turn a quick buck.

In the case of PancakeSwap, they have been building a prediction product within their ecosystem. I would be willing to bet that the impact of the betting prediction will have on the value of $CAKE is highly exaggerated. It is, a product feature that at best adds some spice, shows that development and effort are made to please hodlers and potential buyers. Of course, a user of PancakeSwap will use it, but to what extent? Much less than what a 25-30% increase in the price of $CAKE warrant.

Remember that the core of PancakeSwap is what brings value:

  • PancakeSwap trading
  • PancakeSwap liquidity pools
  • PancakeSwap yield farming

And, when buying or hodling PancakeSwap, expect that announcements and releases of features such as PancakeSwap prediction will get hype and inflate the value in the short-term. From a personal perspective, I would not buy PancakeSwap based on such. I would closely monitor the usage of the core.

Higher liquidity = Lower APR (Annual Percentage Rate).

Remember that farming yields closely relate to the volume or liquidity and number of users

One of the reasons why DeFi and yield farming and particular have a bad rep from outsiders, and is often labelled "Ponzi", is because, early movers have a significant advantage over later adopters.

The early APR of PancakeSwap was significantly higher than what you see today. The same thing can be witnessed when new farms are added, %APR starts very high, then with more liquidity in the farm and more users - the %APR goes down. So, yield farming is more lucrative the earlier you are. The returns from PancakeSwap is going down regularly making it less and less attractive.

This will continue to be the case. What PancakeSwap has going for itself is that they have managed to maintain a relatively high average %APR. And, in the process become the king of the Binance Smart Chain when it comes to yield farming. PancakeSwap is by farm one of the safest options when it comes to yield farming on the BSC. Higher %APR can be found in plenty of projects. New DEXs can have extremely lucrative yield farms, the same goes for a lot of simpler DeFi projects that features yield farming. However, these are also riskier options.

But in the end, farming yields will go down on PancakeSwap, making it less lucrative to use liquidity pools and stake in PancakeSwap yield farms.

Summary PancakeSwap Analysis

The immediate threats to PancakeSwap, mainly other networks, are still distant. Cosmos Gravity DEX is closest up, but Cosmos does not have the same expectations as e.g. Polkadot network. However, Cosmos is a sleeper and may blow up. Where more blockchains may be pegged to their IBC (interoperable blockchain) and if allowed to speculate, become available to swap in the Gravity DEX. Polkadot are expected to release several parachains during 2021 and is something to keep an eye on. The full launch of ETH 2.0 is probably far away, earliest in 2022 or later.

So, I would say that PancakeSwap is a solid option in 2021 but worth keep an eye out for other projects and competitors which may steal market shares from PancakeSwap.