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DeFi Sunday: PancakeSwap (CAKE) cuts part of Uniswap’s dominance in DeFi

Thanks to its integration into the Binance Smart Chain, PancakeSwap has become a magnet of liquidity compared to competitors such as Uniswap and SushiSwap.

In the last month, decentralized finance has been battling with issues revolving around non-functional tokens. However, this did not prevent the best DeFi projects from developing. As a result, strategies have been improved and their ecosystems developed which consequently led to increased market share.

One of the projects is the mentioned PancakeSwap (CAKE). An automated market maker based on Binance Smart Chain (BSC) that allows users to exchange tokens and profit from yield farming fees.

Monthly trading volume on PancakeSwap Figure 1: Monthly trading volume on PancakeSwap. (Source: Delphi Digital)

According to a recent report by Delphi Digital, several factors have played a significant role in the development of the PancakeSwap ecosystem. In the future, analysts predict that it will continue to be a competitor of Uniswap.

Higher fees on Ethereum network

Anyone trying to make a transaction on the ETH network in recent months must have noticed a large increase in fees as well as the rising price of Ethereum.

While fees on the Ethereum network increased, Binance Smart Chain proved to be a good choice, thanks to its low transaction fees. PancakeSwap also benefits from a large influx of users and Binance’s larger user base.

Its "vast network effect comes from being the biggest crypto exchange that is typically the first choice for retail traders." According to analysts at Delphi Digital.

Inflation as a problem?

Delphi Digital has highlighted the PancakeSwap token economy, which is important for its future growth.

Unlike UNI and SUSHI, there is no limit on the delivery of CAKE tokens. The current weekly inflation rate of CAKE is 3.78% , and that is well above the annual inflation rate of UNI, which is 2% .

Despite various deflation measures. The current net emission is approximately 1,000,000 CAKE per week – which translates to 37% real inflation annually (or 0.7% weekly).

According to Delphi Digital, PancakeSwap is aware of what today's inflation figures look like. The team has already announced a vote to change emissions. They either remain the same or reduce them to 23.5 or 22 CAKE per block.

If emissions were reduced to 22 CAKE, it would represent a reduction of 20% . At present, this would lead to emissions reduction by 1,050,000 CAKE which would be a small victory. Consequently, it would also help to neutralize inflation and maintain its place in the market in the long run.

Strong support from Binance and low fees on the Binance Smart Chain put PancakeSwap in an advantageous position. At this point, it tries to attract additional liquidity from ethereum-based DeFi protocols which currently suffer from astronomical transaction fees.

Jakub is a crypto trader and founder of Trader 2.0 project, which helps hundreds of traders from central Europe to understand cryptocurrency trading and its challenges. Jakub not o...


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