PancakeSwap Income: Tasty Ways to Profit – Bitcoin Market Journal

Summary: Revenue is one of the most important metrics to measure the health of crypto protocols and helps us answer the most important questions as crypto investors:

1) How many people are using the crypto platform?

2) How are you generating income?

3) How are those revenues growing?

In this article, we will cover how PancakeSwap generates its revenue, how investors benefit, and how it has performed against its competitors.

pancake swap

What is PancakeSwap?

PancakeSwap is a decentralized exchange (DEX) native to BNB Chain. It is similar to Ethereum-based Uniswap, which allows users to trade, buy and sell tokens without intermediaries. Since PancakeSwap is on the BNB Chain, it uses BEP20 tokens – the standard token developed by Binance.

It cuts out the middle man by using a system known as an automated market maker (AMM). This allows traders to trade with liquidity pools, which are funds locked in a smart contract, instead of buying and selling directly with counterparties.

For example, if you want to exchange BNB for PancakeSwap’s native CAKE token, you will first need to find a BNB/CAKE pool with enough liquidity (i.e. enough funds) to make your trade. You then deposit BNB tokens into the pool and automatically receive CAKE tokens based on the latest exchange rate.

The BNB/CAKE pool was created by investors who deposited these two tokens to help facilitate their trading. In return, these “Liquidity Providers” (LPs) have the ability to earn a portion of the fees you paid for your trade.

Therefore, automated market makers have a strong incentive for liquidity pools to arise where there is sufficient volume (i.e. sufficient trading demand) between two pairs of tokens. This makes them incredibly efficient and scalable.

In addition to being a liquidity provider, PancakeSwap has yield farming opportunities where you can lock up various crypto assets and earn “interest” in the form of CAKE tokens.

yield farming on pancakeswap
Yield farming on PancakeSwap is complex – if you bet on any of these two tokens, you receive LP tokens, which you can then stake to receive more CAKE.

PancakeSwap Revenue Sources

PancakeSwap has diversified its sources of income as follows:

Exchange fees

Its flagship product, PancakeSwap AMM, generates the most revenue for the project. Merchants have to pay a fee of around 0.25% of each transaction. Most of the commission (0.17%) goes to liquidity providers, 0.03% goes to the PancakeSwap treasury, while the rest is used to buy back and burn CAKE.

Burning CAKE weekly is one of the ways PancakeSwap helps keep inflation in check. Since CAKE has no hard cap (i.e. infinite CAKE can be minted), burning helps control your supply, in hopes of protecting your portion of CAKE.

PancakeSwap explains why the CAKE supply is not limited, stating that “CAKE’s The main function is to encourage the supply of liquidity to the stock market. Without block rewards, there would be much less incentive to provide liquidity..”

Lottery

PancakeSwap uses lotteries to generate revenue for the platform in two main ways. First, it allows participants to purchase six-digit tickets (increased from four) to raise money and enter a raffle. Second, users pay a transaction fee to purchase lottery tickets.

To win, players must match all six numbers on their ticket with the randomly drawn numbers. The amount won for each ticket will depend on how many other tickets win in the same prize pool.

For example, if a player has the only ticket that matched six numbers in order, and the default portion of the prize pool for that leg was 2,000 CAKE, they will receive the full 2,000 CAKE. ?However, if the player and three other people match all six numbers in order, the 2000 CAKE will be split among the four winning tickets, meaning each winning ticket will receive 500 CAKE.

lottery winning numbers
Here is your winning PancakeSwap lottery number.

Initial Agricultural Offer

IFOs on PancakeSwap allow investors to gain early access to new tokens released on PancakeSwap as soon as they are added, giving them the opportunity to benefit from increased rewards. To conduct a token sale on the platform, PancakeSwap charges a fee to the issuer of the token.

Also, to participate in an IFO, participants must create a profile. A fee is associated with the profile, which also helps keep the total PIE supply low by burning a bit of PIE from each profile created.

Participation fees

PancakeSwap allows users to earn rewards by staking CAKE through “syrup pools”. Participation comes in two main types, fixed-term and flexible. The latter allows users to stake CAKE and earn rewards with the ability to “un-stake” whenever they wish, while fixed-term staking means that users lock in their staked CAKE for a period of time they choose, in order to have the opportunity to earn higher rewards.

Revenue comes from a yield fee of around 2%, automatically subtracted from each flexible staking yield harvest. Additionally, there is a 0.1% “delete fee” if you cancel within 72 hours. The CAKE collected through the Stake Elimination Fee and Performance Fee is burned on a weekly basis as part of regular CAKE token burns.

Prediction Pool Fees

The prediction product allows players to predict the price of BNB in ​​the next five minutes and bet the amount on a Group UP or Group DOWN. If the price is lower than the starting price, the players in the DOWN pool win, and the amount in the UP pool is divided proportionally among the players in the DOWN pool.

Revenue is collected from each pool by deducting 3% of each pool amount, which is transferred to the Pancake Treasure and used to buy back and burn CAKE tokens every Monday.

pancakeswap revenue for the past year
PancakeSwap revenue over the past year (courtesy token terminal).

PancakeSwap Earning History

Like most crypto protocols, PancakeSwap steadily increased in revenue through November 2021, before tapering off throughout 2022. Because it is based on the BNB Chain, PancakeSwap’s fortunes are likely tied to those of Binance. In fact, the BNB income chart shows a similar decline throughout 2022:

bnb income in the last year
BNB chain income in the last year (courtesy token terminal).

As a decentralized exchange, PancakeSwap is actually competing against Binance, the largest centralized exchange in the world. Since PancakeSwap is based on Binance’s BNB chain, they are both competitors and collaborators.

While Binance CEO Changpeng Zhao has spoken of Binance’s willingness to discontinue with DEX, the power structure of using Binance’s internal blockchain, in our opinion, puts PancakeSwap at a strategic disadvantage.

Also, while BNB Chain needs DEX, Uniswap is still the undisputed leader on Ethereum, which is the leading blockchain platform for creating tokens. Uniswap typically generates double or triple the revenue of PancakeSwap each month.

So, to find out which DEXs will survive, investors must first ask the question: which blockchains will survive?

JAN FEB SEA APRIL MAY JUN total income
uniswap $134.10 $85.20 $93.50 $86.00 $86.60 $63.50 $548.90
pancake swap $55.60 $38.30 $41.40 $43.90 $46.30 $19.00 $244.50
dYdX $39.00 $54.90 $47.50 $42.20 $26.60 $18.20 $228.4
sushi swap $38.30 $16.00 $13.70 $12.50 $13.70 $6.20 $100.40
trader joe $25.50 $18.70 $14.00 $9.50 $11.10 $4.20 $83.00

Top DEX revenues in the first half of 2022 (in millions)

In blockchain, income is generated only if people use the product. Therefore, it is an important metric to measure the popularity of the protocol and the product: if they fit the market of the product and if they are gaining traction.

Also, with a product like PancakeSwap, revenue is directly related to the returns provided to stakeholders; therefore, the higher the income, the better the returns for investors.

PancakeSwap has sought to diversify its revenue streams through gaming and yield farming products; Whether the game has a place in a reputable financial institution is a matter of debate. (There’s a reason banks don’t sell lottery tickets.)

Investor Takeaway

PancakeSwap has successfully offered investors lower fees and faster transaction times while providing additional innovative features. It is therefore no surprise that it has become one of the most popular DEXes in less than two years.

While the bear market has been especially difficult for DeFi projects, PancakeSwap has been Uniswap’s closest competitor in terms of revenue. With that said, its reliance on BNB Chain and gambling may be reasons to stay away.

As the old saying goes, you can’t have your CAKE and eat it too.

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