Staking is a popular way of generating side income from your idle assets. In simple terms, staking crypto is a process used to validate transactions on Proof of Stake (PoS) based blockchains, but it’s less resource-intensive than crypto mining. If you want to stake, you need to commit your holdings to a blockchain of your choice and support its security and maintenance! It’s that simple!
PancakeSwap is one of the most popular decentralized exchanges (DEXs) on the market today, where you can try your hands at staking. In this article, we will talk about how this option works on PancakeSwap so that you gain a more in-depth understanding of the investment opportunities offered by the platform.
What Is PancakeSwap?
You might have heard about Binance Smart Chain (BSC), a blockchain network developed for building and running decentralized applications (dApps) that are based on smart contracts. So far, numerous dApps have been created on BSC letting you trade cryptocurrencies, join in lotteries and games, granting you access to the NFT world. And PancakeSwap is one of the most popular ones among these dApps.
PancakeSwap is an automated market maker (AMM), which means that it replaces traditional order books with liquidity pools that are pre-funded on the chain. In other words, it doesn’t have any order books, a system of bid/ask, or limit/market orders. Thanks to the liquidity pools, PancakeSwap offers passive income on deposits and extremely low transaction fees alongside rapid confirmation times.
PancakeSwap is a DeFi protocol that was developed to offer crypto traders a secure platform to trade Binance Coin (BNB) together with a bunch of other BEP-20 tokens. Similar to Ethereum’s (ETH) ERC20, BEP-20 is a standard for creating tokens on BSC. Trading them on the platform is super easy; all you need to do is jump over at pancakeswap.finance and click Trade.
Learning from Ethereum’s previous projects, such as Uniswap or SushiSwap (which switched to BSC in September 2021), BSC focuses on preventing network congestion and providing fast trades on Binance’s non-custodial platform. Looking at the efficiency, high market cap, and consequent popularity of PancakeSwap today, we can say that BSC did a very good job.
What Are CAKE Tokens?
CAKE is PancakeSwap’s native token that was launched on BSC in September 2020 as a BEP-20 token. In order to benefit from the platform’s utilities such as yield farming, staking, participating in the PancakeSwap lottery, and creating and voting on the governance proposals, you need to get CAKE tokens.. You can buy them on the PancakeSwap exchange or farm them by depositing your LP tokens. How is this done? We explain all about it down below.
How Does Staking Work?
Staking is a way to put the coins you own to work and earn benefits from idle digital assets. Similar to keeping your funds on a savings account in a bank, when staking your coins on an exchange, you lock in your virtual assets for a period of time in return for a small profit.
This is actually how blockchains verify transactions using the Proof of Stake (PoS) consensus mechanism. Much like mining Bitcoin (BTC) using the Proof of Work (PoW) mechanism, by staking, you receive block prizes for contributing to the validation of new blocks.
The staking reward can be a great way to generate passive income. The APY (annual percentage yield) for staking in the CAKE Pool is around 80%. But before you lock in your valuable virtual assets, it’s important that you fully understand its pros and cons.
Pros of Staking
- It is an easy way to generate interest from your digital assets.
- You don’t need any extra equipment or investment for staking; you only need crypto holdings that operate on a PoS network.
- You help maintain the security and efficiency of the blockchain you are staking on.
- Its carbon footprint is much lower than that produced by PoW mining.
Cons of Staking
- Staking limits your flexibility over your crypto assets. Because of the volatility in the cryptocurrency market, if your assets face a significant price drop, it can overweight your gains and result in impermanent loss.
- When you want to unstake your asset from staking, it might take some time before you regain access to your assets.
How to Stake CAKE Tokens
Because PancakeSwap is a DEX, you need a decentralised wallet that supports BSC to link up. You can use Trust Wallet, MetaMask wallet, Token Pocket, SafePal, Binance Chain Wallet, or any other wallet of your choice that’s compatible with PancakeSwap.
After connecting your wallet to your PancakeSwap account, you need to purchase some BNB. You can buy the cryptocurrency through your wallet if it offers that service or buy them on the PancakeSwap exchange.
In order to stake on PancakeSwap, you need to swap your BNB for the PancakeSwap token (CAKE). The liquidity provider fee you see on the screen depends on the impact that your purchase has on the liquidity pool. Using a liquidity pool is different from trading your assets with someone else on the other end. The pool consists of a number of tokens that you and other people add there in order to get CAKE tokens. Therefore, the liquidity provider fee correlates to your impact on the pool, meaning that if you want to use a greater number of assets from the pool, you’ll have a negative impact on the CAKE supply and incur a higher fee.
In Settings, you can change your slippage tolerance and transaction deadline. The slippage tolerance is the difference between the expected price and the actual price of a trade. It will be between 0,5% – 1% by default. As a rule of thumb, you may want to increase the slippage tolerance in highly volatile markets to decrease your risk factor.
The second setting is the transaction deadline. If you want your trade to be made quickly, you may want to decrease the deadline. But be aware that demanding faster transactions may result in a worse deal for your trade, as pushing your transaction forward in the queue requires some incentive.
After you are all set, click on “Swap” and “Confirm Swap”. Confirm it also on your wallet app. After that, you should have the amount of CAKE you just swapped in your wallet.
There are two options for staking in PancakeSwap: Yield Farms and Syrup Pools.
Don’t let the lingo confuse you – Yield Farms are a way to stake your tokens on PancakeSwap. Because they give you CAKE tokens as an incentive, the activity is also called farming CAKE. The difference between Yield Farms and Syrup Pools is that Yield Farms require you to stake a pair of tokens rather than just one token and come with different risk factors. For example, in order to enter the CAKE-BNB LP Farm, you need to provide liquidity for both of these tokens.
The Yield Farms can generate higher profits than Syrup Pools at the cost of higher risk. You gain a combination of Farm Base APR and LP Reward APR. These are the incentives for users to add liquidity in PancakeSwap’s liquidity pools.
To farm CAKE, click on the Farm’s row to see more details. Find the “Get (your pair) LP” link among the links on the left. After selecting your pairs and the amount you want to stake, click on Enable CAKE and click the Supply button. After approving the confirmation on your wallet, you will see your LP Token balance at the bottom of the page.
Syrup Pools are a simpler way to generate free CAKE on PancakeSwap. Some special pools let you stake LP Tokens other than CAKE, but staking CAKE is more common. To do that, go to the Pools page on the left menu. Connect your BSC compatible wallet if it is still not connected, and click on Unlock Wallet.
Choose a Syrup Pool you want to stake in. Auto Cake Pools automatically compound your rewards and invest them in the same pool, while Manual Cake Pools require you to harvest your gains manually. Other pools let you earn tokens other than CAKE tokens. Click on the Enable button on the pool you want to invest in and click Stake. Confirm the balance you want to stake. Now your staking information will be available on your Syrup Pool.
A Few Words Before You Go…
We hope that this article helped you learn more about staking and how to do it on PancakeSwap to generate some free CAKE tokens that you can monetise easily. However, you should keep in mind that staking always comes with certain risks, the greatest one being freezing your assets in a highly volatile market. But if you are not planning to trade your holdings in the near future, staking is a great way to put your dormant assets to use.