HashKey Digest

7th May 2021

Rise of PancakeSwap

This is an article contributed by Eva of Mechanism Capital on Deribit Insights, where she discusses the data behind the growth of PCS.

How BSC emerged to fill market gap

The main highlights are as follows: 1) Ethereum’s service charges are too expensive; 2) Binance’s users have the demand to access DeFi; 3) The token on Binance can be directly transferred to BSC and become an application on BSC.

Quantifying PSCs flow

Significant increase in TVL:


Fast increase in trading volume:


Number of active users:


High retention rate:


The primary factors driving PancakeSwaps success:

  • PancakeSwap leverages an aggressive token emission schedule to bootstrap its growth and fend off competitors. Triple digit annual percentage yields (APY) enticed liquidity providers (LP). Those rewards ultimately increased TVL and kicked off a reflexive flywheel whereby appreciation in the token price led to even higher APY and more TVL. Once the platform accumulated deep liquidity across different token pairs, it quickly became the dominant decentralized exchange on BSC.
  • PancakeSwap is not just an AMM; it’s building a full product stack that enhances the growth of PancakeSwap’s main product, mainly from the Initial-Farm-Offering (IFO), Syrup Pools, NFTs and game features such as lotteries.

Main challenge – unsustainable emissions

PancakeSwap’s rise to dominance has been swift, but it will still face challenges in the future. Whilst emissions have been core to PancakeSwap’s success, these emissions are also akin to dilutive equity finance; it’s analogous to how companies can use cash from their Balance Sheet to pay for user acquisition (referral bonuses, new user subsidies, etc.). In both the traditional and DeFi scenario, incentives need to be focused and strategic in order to reward the actions that generate long-term value and network effects. In PancakeSwap’s case, the adoption enabled through yields and other incentives must outweigh the cost of dilution.


PancakeSwap’s success is both reliant on and symbiotic with the success of BSC; as PancakeSwap drives more traction to BSC, the ecosystem starts creating a network effect for PancakeSwap to feed off. The broader community needs to recognize the value PancakeSwap is bringing to the whole ecosystem. Whether PancakeSwap, the first major project in the BSC ecosystem, can sustain, deserves our attention.

Link to the original text: https://insights.deribit.com/market-research/pancakeswap-the-amm-eating-everyone-elses-breakfast/

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