Decentralized finance (DeFi) has transformed the cryptocurrency business. Prior to DeFi, investors depended primarily on centralized systems and banks for trade and profit booking.
There are now several decentralized platforms for purchasing, trading, and storing cryptocurrency in order to make passive revenue through yield farming.
The emergence of DeFi coincides with the rise of decentralized exchanges – Uniswap is the most popular AMM on the Ethereum network, while PancakeSwap is the leading popular DEX on the Binance Smart Chain.
What is Uniswap?
Uniswap is the most widely used Ethereum-based DEX, employing an AMM architecture, liquidity pools rather than order books, and LP tokens for liquidity providers.
Uniswap is the parent chain of PancakeSwap, which runs its network on the original Ethereum network rather than BSC.
As one of the first and most successful DeFi protocols, numerous DEXs have stolen functionality from Uniswap to operate their own platforms.
Automated market makers (AMM) allow unstoppable, automatic, and decentralized trading by pricing assets in liquidity pools using algorithms.
Traditional exchanges need customers, vendors, and a central asset reserve. AMM exchanges, on the other hand, crowdsource liquidity and utilize smart contracts to conduct deals.
It is worth noting that the AMM model eliminates the necessity for a partner on the opposite side of a purchase or sale order for a trade to be completed.
As a result, this approach consumes less trading time on DEXs. These exchanges enable more users to participate in decentralized token exchange by eliminating the requirement for know-your-customer (KYC) processes.
As of September 2021, Uniswap has about $6.3 billion in TVL, according to buidlbee.com. The protocol has about 1.5 million regular participants and a trading volume of $386 billion. The protocol’s most recent version is Uniswap V3, which went live on the main net in May 2021.
Trading on Uniswap does not involve the use of counterparties, or buyers and sellers. Instead, you use the swap interface of the exchange to trade assets with the Uniswap liquidity pools.
Anyone can contribute liquidity to the pools and trade with them. This simple yet beautiful exchange format has become so popular that Uniswap’s layout is nearly daily duplicated.
The Uniswap (UNI) has the following distinguishing features:
- The purpose of Uniswap is to generate liquidity.
- It tries to address the liquidity difficulties that plagued prior DEXs such as the EtherDelta platform.
- Because the entire process is automated, the protocol encourages market making by lowering costs and decreasing risks for all participants.
- Uniswap uses an automated market maker (AMM) protocol, which means you trade with a smart contract known as a liquidity pool rather than other traders.
In a deal, it serves as your counterparty. In this instance, your order is executed against the whole pool and its reserves rather than another trader’s order.
Investors provide liquidity to such a pool, therefore the benefits of the service are at least twice, depending on whether you are a basic trader or a liquidity supplier (or both)
- Because AMM protocols are permissionless, there are no KYC requirements to sign up for or disclose your identity.
There is no centralized authority to prohibit users and confiscate their funds, and no hackers to steal money from the exchange.
- Uniswap is also extremely beneficial to blockchain venture projects who wish to immediately distribute their tokens to the market and grab the attention of a larger audience.
It might be a terrible process to list a new currency or token on a controlled exchange, especially a high-caliber one. And there is no assurance of success.
There are no listing fees or lengthy screening processes with Uniswap before a currency or token can be listed for trade. As a result, its popularity is well-deserved.
- From the standpoint of an investor, Uniswap enables everyone to profit by providing liquidity for the market and then earning trading commissions.
Because the service is totally decentralized, all transaction fees are dispersed according to the liquidity providers’ part of the pool. It is just as simple to add liquidity.
- It allows traders to profit by taking advantage of price differences between Uniswap’s price quotations and the rest of the market.
In reality, the early version of Uniswap depended primarily on arbitrageurs to determine prices. The second edition now makes use of a blockchain oracle to maintain the price quotations up to date with the market.
Cons of Uniswap
- The site runs exclusively on Ethereum – no fiat currencies are accepted at this time.
- Secondly, there have been issues reported by users with regards to withdrawal fees – some users have claimed that withdrawing cryptocurrencies from the site can cost up to three times what trading does
- To trade with Uniswap, you must have a digital wallet.
- For new crypto traders, it is difficult to grasp.
- There is no protection for lost cryptocurrency or fraudulent activities, and there is no mobile trading software.
What is PancakeSwap?
On Binance Smart Chain, PancakeSwap is a huge decentralized trading and yield farming platform. Simply memorize the following to obtain a fast knowledge of PancakeSwap: PancakeSwap is the Binance Smart Chain equivalent of Uniswap.
Why use PancakeSwap when Uniswap already exists? There are various causes for this, but the most important are trading costs, yield farming, and speed of operation.
To begin, PancakeSwap uses the BEP-20 Binance token standard to exchange tokens. So, if you want to trade Ether tokens on PancakeSwap, you must first convert your ERC-20 tokens to BEP-20 counterparts via the Binance Bridge.
After that, you’re in the BSC ecosystem and may take advantage of the reduced fees made possible by the network’s high throughput capabilities.
If changing your tokens only to utilize PancakeSwap sounds like a chore, consider the huge number of yield farming chances the exchange provides.
PancakeSwap farms and Syrup pools provide returns of 200% or more in the exchange’s native CAKE coin. In addition to farm income, staking your CAKE tokens enables you to a revenue split from trading fees.
PancakeSwap has generated more total wealth locked onto its platform than Uniswap because to the high DeFi returns and revenue-sharing functionality of the CAKE token. PancakeSwap now has $7.4 billion tied up in its liquidity pools and farms.
The PancakeSwap (CAKE) coin has the following distinct features:
- It is an automated market maker (AMM) that allows users to swap tokens, offer liquidity via farming, and earn fees in exchange.
- It is a decentralized marketplace (DEX) that allows you to trade BEP20 tokens on the Binance Smart Chain.
- The CAKE token’s primary role is to reward the PancakeSwap platform’s liquidity provision.
Pros of Pancakeswap
- Trading generates a consistent revenue source fee. When you perform a token transfer or trade on the platform, you must pay a 0.25% transaction charge in three installments.
First, 0.17% is returned to liquidity pools in the form of a fee incentive for liquidity providers (LPs). The PancakeSwap Treasury then receives a 0.03% fee.
Last but not least, a 0.05% fee is charged to assist CAKE buyback and burning. So, if you’re a liquidity provider who’s always wondered how PancakeSwap earns money, now you know. The more profit they raise, the greater the impact on the price of the Cake governance token.
- When compared to other products, you may obtain a larger yield by using PancakeSwap. It is computed as follows: To begin, the LP rewards APR is gained by supplying liquidity.
Second, APR for farm base rewards is gained by staking LP Tokens in the farm. The farm base APR is determined using the farm multiplier and the farm’s total amount of liquidity, which is the quantity of CAKE tokens allocated to it.
Farmers also earn LP rewards for providing liquidity. You must use caution while dealing with a temporary loss. As a result, before investing in DeFi, everyone who wishes to start produce farming should study more about what impermanent is.
- Instead of consumers needing to actively re-stake their CAKE coins to receive the greatest APY, PancakeSwap’s auto-compounding functionality handles this for them. This is how to bet in PancakeSwap.
- PancakeSwap is a decentralized marketplace built on top of the Binance Smart Chain, a quick and economical alternative to Ethereum.
Binance, the owner of the world’s largest cryptocurrency exchange, runs the BSC. There is some speculation that Binance created Pancakeswap, but no one can confirm this.
Comparison Table between PancakeSwap and Uniswap
|TVL (total value locked)||TVL in Uniswap exchange is$7.6 billion.||TVL for PancakeSwap is$6.5 billion.|
|Transaction cost||Significantly rising every day.||Lower transaction cost.|
|No. of listed tokens||Listed more than 1600crypto tokens||Listed around 200 crypto tokens.|
|Runs on||Operates on Ethereum blockchain.||Operates on Binance Smart Chain.|
|Launch time||Launched on 2 November 2018.||Launched on 20 September 2020.|
Main differences between Uniswap and Pancakeswap
- The biggest difference between Uniswap and pancakeswap is that PancakeSwap operates on Binance Smart Chain, which offers remarkably lower transaction costs, whereas Uniswap performs on Ethereum blockchain that includes ETH for every Ethereum transaction and thus significantly increases transaction costs in comparison to other platforms.
- CAKE is PancakeSwap’s base asset, which also serves as a governance token and allows for farming and staking. Users can get CAKE by providing liquidity, staking, or purchasing it on the platform. CAKE tokens given to liquidity providers, like regular coins, are transferable on the open crypto market.
- UNI tokens, on the other hand, are Uniswap’s native asset, which its creators airdropped to early users of the network in September 2020. Aside from governance, the token’s genuine use case on the network has yet to be identified.
- While PancakeSwap is gaining popularity, Uniswap is older and has a large user base. It’s one of the few projects that brought DeFi out of the shadows by delivering AMM features that no other project has previously done satisfactorily.
- However, PancakeSwap looks to be on its way to pass Uniswap, thanks to the surge in use of the Binance Smart Chain as well as the CAKE token. The price of a digital asset, as is usual in the crypto realm, responds to acceptance or, at the very least, demand.
- PancakeSwap has many active members than Uniswap, but Uniswap has a bigger trading volume, implying that Uniswap users trade in larger denominations.
- PancakeSwap has the advantage in terms of the amount of listed tokens, especially considering the proliferation of meme tokens on BSC. PancakeSwap has 1427 tokens, whereas Uniswap has 599 as of September 2021.
However, in September 2020, the pace and sheer volume of tokens posted on the network raised alarms, with Uniswap reporting an average of 150 token pairs uploaded every day for seven days – although an open system fosters freedom, this freedom also applies to criminal actors.
Fake projects have sprung up as a result of Uniswap’s permissionless architecture, keen to take advantage of rushed investors. For example, Uniswap have seen the listing of “Uniswap Exchange Token,” which had nothing to do with Uniswap other than being published on the site.
- Although liquidity on PancakeSwap is increasing, Uniswap remains the market leader. Most tokens on Uniswap are significantly more liquid than those on PancakeSwap.
Because PancakeSwap’s liquidity-providing incentives benefit individuals who deposit the most volatile exotic tokens, more liquidity providers choose Uniswap.
PancakeSwap, on the other hand, has already topped Uniswap’s one-day trade volume. However, given to the volatility of the DeFi ecosystem, the BSC-powered platform must sustain an upward trend in order to consistently outperform Uniswap in terms of trading volume.
- Although both PancakeSwap and Uniswap are decentralized, PancakeSwap benefits from Binance’s backing. Uniswap, on the other hand, has a sizable community due to its early entry into the DeFi market.
PancakeSwap is seeking to close the user gap left by their late debut on the DeFi market by developing a devoted following through lotteries, tournaments, and other similar incentives.
Again, the PancakeSwap-Uniswap competition extends beyond the DEXs themselves, as it highlights the essential distinctions between the Ethereum blockchain and the Binance Smart Chain.
BSC now looks to be on the winning side, with its liquidity expanding tremendously. Binance’s native coin, BNB, is reaping the benefits of the DeFi boom, ranking among the top four cryptocurrencies by market cap on CMC.
The increasing competition will put enormous pressure on Ethereum developers to accelerate, or at the very least adhere to, the milestones that outline the roadmap leading to its ultimate proof-of-stake form, which should put a stop to its present scaling troubles.