Have you ever wanted to have your Cake and eat it too? With PancakeSwap's (CAKE -2.65%)native token, Cake, there is an emerging opportunity to invest in a diverse ecosystem and own a governance token with real utility.
PancakeSwap is a decentralized exchange (DEX), allowing investors to swap BEP-20 tokens. BEP-20 tokens are tokens built on top of the Binance Smart Chain that don't have their own blockchain.The platform is built on Binance Smart Chain instead of Ethereum, giving it a number of advantages. Early investors in Cake have been on a wild ride this past year -- the token has appreciated more than 30-fold in price since January.
Given the strong secular growth trend driving the decentralized finance (DeFi) space, and PancakeSwap's impressive user base -- the largest for any decentralized application (dApp), there are a number of reasons cryptocurrency investors are looking at Cake right now.
Here are three reasons Cake could be a game-changing investment.
Image source: GETTY IMAGES.
1. Lower fees
It's impossible to talk about PancakeSwap without mentioning its main rival and largest competitor, Uniswap (CRYPTO: UNI), which is based on the Ethereum (CRYPTO: ETH) blockchain.
Uniswap, although older and more established, is also burdened by the recent stagnation in the Ethereum network. Fees on the Ethereum blockchain rise daily, and with those growing gas fees, Ethereum 2.0 may seem like a distant reality at times.
PancakeSwap does not suffer from these problems. Its fees are a much more manageable 0.2% for users who use liquidity in their pools. Additionally, these fees are not paid in Ether. This allows for more transactions and higher profit margins for traders and investors. These are all great things for the price action of a token.
Competitive transaction fees are among the main drivers of this network's popularity, and are a key explanation as to how PancakeSwap has attracted such an enormous community of users. A quick look at social media will show just how passionately many investors feel about this project.
2. Staking options
Staking, or the process of putting one's tokens up to assist in validating transactions on a blockchain or providing liquidity to decentralized exchanges, is one of the key passive income opportunities crypto investors have. Through staking, investors can earn additional tokens on blockchains using a proof-of-stake validation model, or in liquidity pools decentralized exchanges use to facilitate trades.
Investors may get light-headed when looking at the annual percentage yields (APYs) of the crypto investments on various platforms. Let's take a look at what's possible when one stakes Cake in a Syrup pool on PancakeSwap.
Currently, there are 16 tokens available for staking in the network's pools, with the most-staked pool, Auto CAKE, returning an APY of 72.70%. There are pools with even greater rewards available.
Staking Cake on PancakeSwap offers many benefits over traditional yield farming.Mainly, all of the platform's staking options provide an extremely high return, and they are not traditional liquidity pools. That said, when one participates in yield farming, there are a number of specific risks to be aware of. Investors are exposed to what is called "impermanent loss," where if the price of an asset rises or falls, one's profits can be lower than they would have been had those assets simply been held in a cold wallet. Staking does not incur this form of risk.
When comparing UNI to Cake, it's easy to see which one wins. Because UNI cannot be staked within the Uniswap platform, it is just used as a governance token. Cake simply has more utility and provides more options for holders to generate passive income.
3. Greater liquidity
Probably the best thing about the Binance smart chain is its liquidity. PancakeSwap boasts the largest number of daily users of any dApp, and has the fourth-highest market volume. It has amazing wallet integration and supports popular wallets like WalletConnect, MathWallet, TokenPocket, TrustWallet, and even MetaMask.
Cake has extremely high daily volume, and that's great news for an investor looking for a token to stake. It's effortless to get in and out of Cake. Not every token in the cryptocurrency space can say that. In fact, most can't.
A final word
All cryptocurrency investments carry risks. It is a highly speculative market, and the returns we have seen over the past few years are staggering. What should give us pause, though, is over-allocating our portfolio to assets that promise unrealistic returns. Cake can be a part of a wise investment strategy executed prudently.
Binance itself is not without problems. It's currently facing a probe by the Justice Department over allegations of insider trading and market manipulation. The outcome of this investigation could have a negative effect on Cake and on the entire Binance smart chain. Accordingly, invest with caution.
That said, it's clear that Cake is one of the most liquid, lucrative, and easy-to-stake governance tokens available. It's not difficult to see why it is so popular.
Chris MacDonald owns shares of Ethereum. The Motley Fool owns shares of and recommends Ethereum. The Motley Fool has a disclosure policy.
