summary: Revenue is one of the most important metrics to measure the health of crypto protocols and helps us answer the top questions as crypto investors:
1) How many people use the crypto platform?
2) How does it generate revenue?
3) How is this revenue growing?
In this article, we’ll cover how PancakeSwap generates its revenue, how it benefits investors, and how it’s fared compared to its peers.
What is pancake swap?
PancakeSwap is a decentralized exchange (DEX) from the BNB chain. It is similar to the 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 token standard developed by Binance.
It cuts out the middleman by using a system known as an automated market maker (AMM). This allows traders to trade against pools of liquidity, which are funds locked in a smart contract, rather than buying and selling directly from counterparties.
For example, if you want to exchange BNB for PancakeSwap’s native token CAKE, you must first find a BNB/CAKE pool with sufficient liquidity (i.e. enough funds) to make your trade. Then deposit BNB tokens in the pool and automatically receive CAKE tokens based on the latest exchange rate.
The BNB/CAKE pool was created by investors depositing these two tokens to facilitate your trading. In return, these “Liquidity Providers” (LPs) have a chance to earn a portion of the fees you paid for your trades.
Therefore, automated market makers have a strong incentive for liquidity pools to emerge when there is sufficient volume (i.e. sufficient trading demand) between any two pairs of tokens. This makes them incredibly efficient and scalable.
Besides being a liquidity provider, PancakeSwap also offers yield farming opportunities where you can lock various crypto assets and earn “interest” in the form of CAKE tokens.
Yield farming on PancakeSwap is complex: if you use any of them two Tokens give you LP tokens which you can then use to get more CAKES.
PancakeSwap revenue streams
PancakeSwap has diversified its revenue streams as follows:
Swap Fees
Their flagship product, PancakeSwap AMM, generates most of the revenue for the project. Merchants have to pay a fee of around 0.25% of each transaction. The bulk of the fee (0.17%) goes to liquidity providers, 0.03% goes to PancakeSwap’s till, while the remainder goes to CAKE’s buyback and burn.
Burning CAKE weekly is one of the ways PancakeSwap helps keep inflation at bay. Since CAKE has no fixed upper limit (i.e. infinite CAKES can be minted), firing will help control its supply and hopefully protect your piece of CAKE.
PancakeSwap explains why CAKE’s supply is not capped, noting that “CAKE’s primary function is to incentivize the provision of liquidity to the exchange. Without Block Rewards, there would be far less incentive to provide liquidity.”
lottery
PancakeSwap uses lotteries to generate revenue for the platform in two ways. First, it allows participants to purchase six-digit tickets (increased from four) to raise funds and enter a drawing. Second, users pay a transaction fee to buy lottery tickets.
To win, players must match the six numbers on their ticket with the randomly drawn numbers. The amount won from each ticket depends on how many other tickets win in the same prize category.
For example, if a player has the only ticket that has six correct numbers in the correct order and the predetermined share of the prize pool for that group was 2000 CAKES, they will receive the entire 2000 CAKES. However, if the player and three other people match the six numbers in order, the 2000 CAKES will be split between the four winning tickets, meaning each winning ticket would receive 500 CAKES.
Here’s your winning PancakeSwap lottery number.
First agricultural offer
IFOs on PancakeSwap give investors early access to new tokens that will be introduced on PancakeSwap as they are added and give them the opportunity to take advantage of higher rewards. PancakeSwap charges a fee from the token issuer for conducting a token sale on the platform.
In order to participate in an IFO, participants must also create a profile. There is a fee associated with the profile which also helps keep the overall CAKE stockpile down by burning a bit of CAKE from each profile created.
Staking Fees
PancakeSwap allows users to earn rewards by using CAKE via “syrup pools”. Staking comes in two main types, temporary and flexible. The latter allows users to stake CAKE and earn rewards, with the ability to unstake whenever they want, while fixed-term staking means users lock their staked CAKE for a period of time they choose earn higher rewards.
Earnings come from a performance fee, which is approximately 2% and is automatically deducted from any yield harvest on flexible deployment. There is also a 0.1% “withdrawal fee” if you cancel the stake within 72 hours. The CAKE collected via the unstake fee and the performance fee is burned weekly as part of the 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 in an UP pool or DOWN pool. 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 bettors in the DOWN pool.
Revenue is collected from each pool by deducting 3% of each pool’s amount, which is transferred to Pancake Treasury and used to buy back and burn CAKE tokens every Monday.
PancakeSwap Earnings Last Year (Courtesy token terminal).
PancakeSwap sales history
Like most crypto protocols, PancakeSwap steadily increased its revenue through November 2021 before declining throughout 2022. Since it is built on the BNB chain, PancakeSwap’s fortunes are likely tied to Binance’s. In fact, BNB’s revenue chart shows a similar drop in 2022:
The BNB chain’s revenue last year (courtesy token terminal).
As a decentralized exchange, PancakeSwap actually competes with Binance, the world’s largest centralized exchange. Since PancakeSwap is built on Binance’s BNB chain, they are both competitors and collaborators.
While Binance CEO Changpeng Zhao has spoken of Binance’s willingness to interfere with DEXes, we believe the power structure of using Binance’s internal blockchain strategically disadvantages PancakeSwap.
While BNB Chain requires DEXs, Uniswap remains the clear leader on Ethereum, the leading blockchain tokenization platform. Uniswap typically generates double or triple PancakeSwap’s revenue each month.
To find out which DEXs will survive, investors must first ask themselves: which blockchains will survive?
| Jan | FEB | TO DAMAGE | APRIL | CAN | JUNE | total revenue | |
| 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 |
Leading DEX sales in the first half of 2022 (in millions)
In the blockchain, revenue is only generated when people use the product. Therefore, it is an important metric to measure the popularity of the protocol and the product: whether they are suitable for the product market and whether they are gaining momentum.
Also, with a product like PancakeSwap, the revenue is directly tied to the returns made available to the stakeholders; The higher the revenue, the better the benefits for investors.
PancakeSwap has attempted to diversify its revenue streams through yield farming and gambling products; Whether gambling has a place in a reputable financial institution is debatable. (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. So it’s no surprise that it has become one of the most popular DEXs in less than two years.
While the bear market has been particularly tough for DeFi projects, PancakeSwap has been Uniswap’s top-grossing competitor. However, BNB Chain and gambling addiction could be a reason to stay away.
As the old saying goes, you can’t have your CAKE and eat it too.
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