PancakeSwap is the largest decentralized exchange on Binance Smart Chain (BSC), and the second-largest DEX behind Uniswap based on total value locked (TVL).
For a project that launched on September 20, 2020, we can say that this level of growth is phenomenal.
In this post, I will be performing a fundamental analysis of PancakeSwap, to understand the factors that pushed it to its current enviable position.
And also try to speculate on the potential future price of the CAKE token in the next few years ahead.
What is PancakeSwap?
PancakeSwap is a decentralized exchange on BSC for swapping and farming BEP-20 tokens.
Additionally, there are many opportunities to earn or win great prizes on PancakeSwap.
And we will be discussing them all in the remaining part of this post. So stay with me.
The PancakeSwap team
There’re no known faces or names behind the PancakeSwap project.
That means that the PancakeSwap team is anonymous like most DeFi projects.
And that also means that if anything bad happens today, the team can walk away, untraceable. Leaving investors high and dry.
And that’s one of the major risks you should be aware of when investing in DeFi projects.
I am not saying this will happen, but that risk is there.
So far, the team has shown competence, transparency, and commitment to the project. Which makes investors trust and believe in them to deliver. And that is evident in the exponential growth of the project.
Features of PancakeSwap
What can I do on PancakeSwap, or is it “just another DEX on BSC”?
Below are the unique features and functionalities of PancakeSwap.
- Trading
- Farming
- Staking
- Lottery
- NFTs
- IFOs (initial farm offerings
Let’s take a closer look into each of the above
1. Trading
PancakeSwap makes it easy, fast, and cheap to swap one BEP-20 token for another.
PancakeSwap makes it easy and fast to swap one BEP-20 token for another at a very low fee of 0.2%.
As of today (March 14, 2021) there are 207 coins and 1936 pairs available for trading on PancakeSwap.
To put things in perspective, there are 1,698 coins and 2,235 pairs available for trading on Uniswap.
This shows that there’s still a lot more room for PancakeSwap to grow. More especially considering that the entire crypto and DeFi market is still in its infancy.
How to trade on PancakeSwap
Trading on PancakeSwap is simple, easy, fast, cheap because its on BSC.
First, go to their website https://pancakeswap.finance. You will land on the home page.
To launch the PancakeSwap exchange, click on Trade from the left-hand side of the screen and select Exchange from the drop-down list as shown below.
This will launch the PancakeSwap exchange protocol.
Next is to connect your wallet to the exchange by clicking the Connect button at the top right-hand side of the screen.
You will be asked to select your wallet as shown below.
I am using a Binance Smart Chain wallet for this tutorial so that’s the one I will select.
If you’re already logged in to the wallet, it will automatically connect.
Otherwise, you will be prompted to enter your password in order to proceed. Do that, and you’re good to go.
I believe you already know that you need BNB to cover all transaction fees on PancakeSwap and BSC. Similar to how you need ETH to cover transaction fees on Uniswap and Ethereum.
If you didn’t know, now you know.
Make sure you have some BNB in your wallet.
For the purpose of this guide, I will be swapping BNB for CAKE.
You can manually specify the amount of BNB you want to spend or click the BNB balance to use all.
Always remember to leave some BNB to cover the fees for further transactions.
If you’re satisfied with the amount of CAKE you will receive as displayed, then click the Swap button.
You will be asked to confirm the transaction, confirm it and also approve the exchange to deduct the required BNB from your wallet.
Once done, your BNB will be taken and your wallet will be automatically credited with the appropriate amount of CAKE tokens.
Congratulations. You’re now a professional trader on PancakeSwap (pun intended).
PS: You can swap any of the listed tokens for any other token on PancakeSwap. It doesn’t have to be BNB for other tokens. However, you need BNB to cover the transaction fees.
2. Farming
There’re two ways to farm on PancakeSwap.
- By providing liquidity into the liquidity pools
- By staking your LP tokens in the various farms on PancakeSwap to earn CAKE.
Liquidity mining
Each token pair on the exchange has a pool where users like you can deposit their token pairs and earn a share of all exchange fees from that pool.
For example, take the BNB/CAKE pool.
When you add BNB and CAKE to that pool you earn a share of all fees collected from traders who buy and sell CAKE and BNB.
The trading fee is 0.2% as mentioned previously and 0.17% of this amount is given to liquidity providers in the pool while the remaining 0.03% goes to the PancakeSwap treasury.
CAKE farming
You can farm CAKE with your LP tokens on PancakeSwap.
When you provide liquidity into the CAKE/BNB pool for example you earn the CAKE-BNB liquidity provider (LP) token.
These LP tokens are similar to the receipt you get when you deposit your gold or any valuable item in a bank.
In order to get your deposited tokens back from the pool, you will need to present the necessary LP token.
PancakeSwap makes it possible for you to earn CAKE with any of the supported LP tokens.
This literarily means that you’re earning from two different sources with the same funds.
First, you earn a share of the liquidity provider fees.
And secondly, you earn CAKE with your LP token.
3. Staking
Just as you can stake any LP token on PancakeSwap to earn CAKE tokens, you can stake CAKE to earn other tokens in PancakeSwap syrup pools.
As of the time of writing this line, there’re about 25 different pools and tokens you can earn by staking CAKE.
These include:
- CAKE Pool (stake CAKE, earn CAKE)
- ALICE Pool (stake CAKE, earn ALICE)
- NULS Pool (stake CAKE earn NULS)
- DODO Pool (stake CAKE earn DODO).
…among others.
How to stake
To stake CAKE first ensure you have purchased the amount of CAKE you want to spend.
Once you have your CAKE in your wallet, click on Pools to go to the PancakeSwap syrup pools page.
Find a pool you want to participate in and click the Approve CAKE button to stake your CAKE and start earning the token of that pool.
4. Lottery
If you’re one of those who like gambling, you can participate in the PancakeSwap lottery program and earn some more CAKE tokens IF you win.
To participate in the lottery, go to the lottery page and buy your tickets with CAKE.
1 CAKE token will buy you one ticket and that ticket. And the 1 ticket will give you 4 random numbers.
If all four numbers match the winning number of the lottery draw, you will win 50% of the total lottery prize.
If 3 of your ticket numbers match the winning number of the lottery draw, you will win a share of 20% of the total lottery prize.
And if only 2 of your ticker numbers match the winning numbers of the lottery draw, you will win a share of 10% of the total lottery prize.
The remaining 20% of the lottery pot will be burned.
Click here to read the full details of the PancakeSwap Lottery.
The total lottery prize comprises all CAKE people (like you) spent on buying the tickets to participate in the lottery.
5. IFOs (initial farm offerings)
The PancakeSwap IFO is a rebranded version of ICO, IEO, Launchpads, and Presales.
With the increasing number of rug pulls and scam presales, the best way to participate in them now is through launchpads like the PancakeSwap IFOs.
This is because only serious and legit projects will agree to launch through launchpads or IFOs.
How does the PancakeSwap IFO work?
It’s simple.
To participate in the PancakeSwap IFOs you need the CAKE-BNB LP.
When the IFO is live all you need to do is commit or stake your CAKE-BNB LP tokens.
And you will receive your due share of the new token that is being launched.
The amount of the new token you get is determined by the amount of LP token you deposited.
If you commit 1% of the total CAKE-BNB LP tokens for the IFO, you will get 1% of the total token sale etc.
All CAKE spent in an IFO will be burned and all BNB spent will go to the developers of the new project.
Thus the IFO is another CAKE burning mechanism to regulate the supply.
Click here for details of the PancakeSwap IFO and how it works.
The CAKE token
CAKE is a BEP-20 token and native cryptocurrency of the PancakeSwap exchange.
The token has an infinite supply and a weekly burning mechanism to help regulate inflation.
Daily CAKE production
25 CAKE tokens are generated per block. With a 3 seconds block production time, the total amount of CAKE generated every day is 720,000.
In a year, 262,800,000 new CAKE tokens will be added to the circulating supply.
Except demand keeps rising in proportion to this supply, inflation is inevitable.
And that’s why there is the weekly burn mechanism which happens every Monday.
This helps to “slow down inflation” (not stop or eliminate it).
The CAKE burn mechanism
PancakeSwap has incorporated multiple burn mechanisms to help slow down inflation.
First is through the Lottery program which burns 20% CAKES of the Lottery pot.
Second, 9.09% of all daily transaction fees which goes into the PancakeSwap treasury are burned.
Remember that PancakeSwap charges a 0.2% LP fee on all swaps on the exchange. 0.17% of which goes to the liquidity providers and 0.03% goes to the team.
9.09% of what goes to the project team daily is allocated for burning.
The third and last burn mechanism which is currently operational is the PancakeSwap IFOs.
As mentioned earlier, 50% of all amount raised in an IFO is burned.
The more and larger IFOs PancakeSwap conducts the more CAKE tokens will be burned.
CAKE price predictions
The price of a token is determined mostly by the level of demand for it. And demand is a product of the token’s utility.
The more useful a token is, the more there will be for it, and the higher the price tends to go.
But with a token with infinite supply such as CAKE, success mostly rests on the effectiveness of the burn mechanism.
And so far the above-mentioned burn mechanisms that have been introduced by the PancakeSwap team have been effective.
But will it be enough to take the price of CAKE back to $20 or more in 2021?
Let’s find out in the remaining part of this CAKE price prediction for 2021 to 2025.
CAKE price predictions 2021-2025
As of the time of writing this line, there’s a total circulating supply of 137,063,323 CAKEs.
I expect this number to be around 300,000 000 by the end of 2021 even with the burn mechanism.
If demand remains at current levels the price of CAKE should and I see it going back to somewhere around $4 to $7.
However, if the current bull market is sustained a pump to $30 is very much likely.
However, I don’t see that happening. I can be wrong, but I think the kind of pump we saw in January through February with the token (when the price moved from $0.6 to $20) will not happen again this year.
So in my opinion we have already seen the ATH (all-time-high) for CAKE for 2021 which is $20.33.
How far below that we close 2021 will be mostly determined by the overall market direction.
And I see this going sideways as it’s currently doing for the remainder of this year. As money moves from Bitcoin to Alts and back to Bitcoin.
People will be taking profit from shitcoins and investing in Bitcoin and other more reputable projects and hopefully, CAKE should hold and grow its market share comfortably.
I see CAKE closing in 2021 with a price of $5 to $7.
CAKE price prediction 2022
By the end of 2022, the CAKE circulating supply should be somewhere around 500,000,000 (500 million).
Given that PancakeSwap’s (CAKE) market cap is just a little over $1.4 billion while its nearest competitor Uniswap (UNI) is at over $15.7 billion shows there’s a lot more room for the project to grow.
For a second, let’s assume the marketcap of CAKE to be $5 billion by December 2022.
Yes, this is possible as more projects will most likely be listed on the exchange then, and the trading volume and demand for the token will be far higher than the current numbers.
For the love of maths marketcap/supply = price.
5,000,000,000 / 500,000000 = $10.
As you can see, we might not be seeing the ATH price of $20 for CAKE anytime soon.
Except of course, the burn mechanism is able to take more CAKE off the market.
CAKE price prediction 2023 to 2025
By the end of 2025, if the current emission model is maintained, the total circulating supply of CAKE should be somewhere in the region of 1.5 billion (1, 500, 000, 000).
Let’s assume (again) that the marketcap would be at least worth the current Uiswap value of $15 billion.
1 CAKE will be trading at $10 by 2025.
Before you start panicking that we’re stuck at $10, understand that the above scenarios are in a rational market. And crypto is not rational.
And don’t forget that these are all speculations based on simple maths and things could turn out very differently.
However, I don’t see CAKE going beyond $30 ever due to the constant, albeit slow inflation.
Conclusion
PancakeSwap is the largest decentralized exchange on Binance Smart Chain with a competent, committed, and transparent team.
As far as I am concerned their biggest shortcoming is the unlimited token supply.
Hopefully, they will cap it sometime in the future to support the potential upward price of CAKE.
Otherwise, expect the price to be stable at around $10 in the long term and you can make money by farming the token.
If the price doesn’t fall faster than the farming rewards, you should make a good profit from farming CAKE.
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