Decentralized finance (DeFi) has revolutionized the crypto industry. Before DeFi, investors heavily relied on centralized exchanges and banks for trading and booking profits.
Now, there are many decentralized platforms for buying, selling, and parking crypto to generate passive income via yield farming.
The most popular DeFi application is Uniswap, the world's #1 decentralized exchange for easily trading cryptocurrencies on the Ethereum blockchain. It is now iconic swap interface has been copied endlessly by Sushi, Pangolin, and Quickswap.
PancakeSwap is another Uniswap clone built on Binance Smart Chain. So far, the PancakeSwap DEX boasts billions of dollars in trading volume and liquidity, making it Uniswap's closest rival.
When comparing Uniswap and PancakeSwap, you'll find that each has strengths and weaknesses to suit different needs. This guide unpacks the pros and cons of each to help you decide which DEX is right for you.
Before getting into the features of both Uniswap and PancakeSwap, it's essential to highlight the differences between Ethereum and Binance Smart Chain.
Why? Because ultimately, Ethereum and BSC offer very different user experiences and enable unique features for DeFi applications built on them.
Ethereum is a decentralized smart contract blockchain platform running the majority of today's DeFi protocols. In Q1 alone, Ethereum settled transactions worth $1.5+ trillion. Such deep liquidity means that when you trade on Uniswap, your Ethereum-based ERC-20 tokens plug and play with other protocols like Compound and Aave.
The downside to Ethereum's popularity is network congestion. Ethereum's current architecture wasn't built to handle the sheer transaction volume generated by Uniswap and others. Uniswap transactions use the vast majority of gas on any given day, beating out the totals of most other DeFi apps combined.
PancakeSwap is BSC's most popular DeFi application. The exchange experienced parabolic growth after introducing a liquidity mining program that siphoned vast amounts of wealth away from Uniswap and into its own reserves.
Unlike Ethereum, Binance Smart Chain is relatively cheap and fast to use, making PancakeSwap transactions less expensive than Uniswap.
BSC's low cost and speed are nice, but the extra speed comes from Binance Smart Chain's centralization. Binance Exchange owns a massive store of the BNB tokens needed to vote for the 21 network-controlling nodes.
Uniswap is the world's top decentralized exchange. It runs on the Ethereum blockchain and uses groundbreaking Automated Market Maker technology to execute trades.
< Click here for an explanation of AMM exchanges >
In 2020, Uniswap infamously flipped Coinbase's total trade volume. The event marked a watershed moment in the evolution of DEX technology from novelty to the future of finance.
The way Uniswap makes trades happen has much to do with liquidity. Today, Uniswap has about $6 billion worth of crypto assets locked into the exchange's liquidity pools. That figure is down from a peak of roughly $8 billion, but it's more than enough liquidity for any trade imaginable.
Trading on Uniswap doesn't require counterparties, i.e., buyers and sellers. Instead, you trade assets with the Uniswap liquidity pools using the exchange's swap interface.
Anyone can provide liquidity to the pools, and anyone can trade with them. This basic yet elegant exchange format has proven so popular that Uniswap's structure gets cloned near daily.
For a deeper explanation about what Uniswap is and how it works, read the Shrimpy Guide to Uniswap.
PancakeSwap is a massive decentralized exchange and yield farming platform on Binance Smart Chain. To gain a quick understanding of PancakeSwap, just remember the following:
PancakeSwap is to Binance Smart Chain what Uniswap is to Ethereum.
If Uniswap already exists, why use PancakeSwap? There are several reasons, but the best have to do with trading fees, yield farming, and transaction speed.
For starters, PancakeSwap trades tokens using the BEP-20 Binance token standard. So, if you intend to trade Ethereum tokens on PancakeSwap, you need to use the Binance Bridge to change your ERC-20 tokens into BEP-20 equivalents. Once done, you're inside the BSC ecosystem and can enjoy the low fees afforded by the network's high throughput capabilities.
If it seems like a hassle converting your tokens just to use PancakeSwap, consider the insane amount of yield farming opportunities the exchange offers. PancakeSwap farms and Syrup pools feature 200%+ yields paid in the exchange's native CAKE token.
On top of yields from farming, staking your CAKE tokens entitles you to revenue share collected from trading fees.
The huge DeFi yields plus the revenue-sharing feature of the CAKE token explain why PancakeSwap has attracted more total value locked into its platform than Uniswap. Right now, PancakeSwap has $7.4 billion locked across its liquidity pools and farms.
Want to know more about PancakeSwap? Read the Shrimpy Guide to PancakeSwap.
How do Uniswap and PancakeSwap stack up in a head-to-head comparison? On the surface, the two top decentralized exchanges look similar. But once you peel back appearances, there are plenty of differences to be found.
Expensive Ethereum transaction fees during the spring led traders to seek alternatives to popular apps like Uniswap. BSC had already spent months positioning itself as a low-cost competitor, so when the exodus away from Ethereum apps began, PancakeSwap was ready.
During one busy day in April, PancakeSwap racked up over 2 million transactions. All of Ethereum combined, including Uniswap, only managed to push 1.5 million transactions through during the same time frame.
PancakeSwap trading volume increased to such an extent that for a time, PancakeSwap flipped Uniswap as the world's largest decentralized exchange by trading volume.
However, in recent months, PancakeSwap's trading has waned. Ethereum transaction expenses have decreased, making Uniswap trading cheaper. Additionally, because the Ethereum DeFi ecosystem has 218 projects versus 36 built on BSC, far more ERC-20 token volume is available for trading on Uniswap.
Uniswap has reclaimed its place at the top of DEX rankings by a fairly wide margin over PancakeSwap. With Ethereum's EIP 1559 upgrade scheduled for July, Uniswap trading fees are likely to decrease even more. To stay competitive, PancakeSwap will need to reinvent itself to lure traders away from Uniswap.
PancakeSwap and Uniswap offer different yet similar swap interfaces.
The main differences between PancakeSwap and Uniswap swap interfaces have to do with clutter and color.
Uniswap prioritizes minimalist cleanliness with a strong focus on the exchange mechanism itself. PancakeSwap uses lighter colors and has an overall cartoonish vibe filled with animal characters and a busy menu.
Swapping feels relatively similar between the two exchanges. For each one, you need to connect a Web3 wallet like MetaMask. However, points go to Uniswap on this score since MetaMask natively works with Ethereum out of the box. To use MetaMask with PancakeSwap, you need to input Binance Smart Chain’s parameters to connect manually.
While Uniswap outranks PancakeSwap as far as looks and process are concerned, the latter comes out ahead in trading speed. Binance Smart Chain processes more transactions per second than Ethereum, giving PancakeSwap the power to push trades through quickly.
Uniswap trades can sometimes take up to five minutes, depending on the gas costs paid. Therefore, each exchange has strengths that outweigh the other, making the user experience a wash between Uniswap and PancakeSwap.
Currently, Uniswap doesn't offer yield farming in the strict sense of the term. The only way to earn yields on Uniswap is by collecting trading fees from liquidity pool tokens.
In contrast, PancakeSwap offers a massive array of DeFi farming options. If you need proof, just check the countless PancakeSwap Farms available right now.
Besides the PancakeSwap Farms, there are also Syrup Pools. These are pools with juicy yields that allow you to stake CAKE tokens in return for tokens belonging to BSC projects.
Finally, you can provide liquidity to PancakeSwap just as you would on Uniswap. If you're keeping count, that's three primary ways you can earn yields on PancakeSwap versus one way on Uniswap.
Both Uniswap and PancakeSwap have native tokens: UNI and CAKE. That's where the similarities end. Let's take a quick look at what each token does.
Uniswap token, or UNI, is a governance token used to help guide the direction of the Uniswap protocol. By holding UNI tokens, you can propose, participate in, and reject proposals that shape Uniswap now and into the future.
For many, the downside to how the UNI token works is that it currently does not have a function beyond governance. You can't stake it, earn network fees, or swap it for a yield-bearing token.
PancakeSwap token, or CAKE, is a dynamic cryptocurrency used in several ways. Because PancakeSwap is a decentralized swap protocol, CAKE is used for governance just like UNI.
Where CAKE really shines is how you can use it to earn more CAKE and other tokens. By staking CAKE tokens, you can earn a portion of the revenue collected from PancakeSwap trading fees. In this way, CAKE is similar to the Sushi xSUSHI token.
As you earn more CAKE, you can keep staking to earn more fees, or you can use it as one part of a liquidity pool pair in PancakeSwap Farms. You'll make even more CAKE this way, in turn giving you more tokens to deposit in Syrup Pools, where you can earn other BEP-20 tokens.
You probably want to know which exchange is better between Uniswap and PancakeSwap. After all, they're the biggest DEXes in the world. It's difficult to give a clear-cut answer because both exchanges have strengths and weaknesses.
Here's a summary of our findings you can use to decide which decentralized exchange is better for you.
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