In addition to DeFi, there has been a rise in decentralized exchanges, such as Uniswap for the Ethereum blockchain and PancakeSwap for the Binance Smart Chain.
Nowadays, there are two major decentralized exchanges that rule the roost in the crypto landscape:
- Uniswap — The original DeFi liquidity protocol built on Ethereum. This is the current standard for easy cryptocurrency trading using ERC-20 tokens, mainly ETH pairs.
- PancakeSwap — A Uniswap clone built on BSC which delivers fast and inexpensive trades using BEP-20 tokens and the BSC←→ETH bridge.
While both enable decentralized exchanges, community governance, yield farming, and LP (liquidity provider) opportunities, only PancakeSwap rewards token holders.
In February 2021, Ethereum’s unstoppable ride since its Beacon Chain launch in December 2020 was slowed for some – ironically, it was due to its price rise. In February 2021, the second-largest cryptocurrency in the world, denominated in Gwei, reached an all-time high (ATH) of 373.8 Gwei, pushed by a surge in the popularity of staking apps. However, congestion and high gas fees caused the cryptocurrency to sputter.
During peak periods, Uniswap’s transaction fees can reach upwards of a few hundred dollars. Because of this, some developers and users opted to use other platforms.
The Binance Smart Chain (BSC) and its Decentralized Exchange (DEX) PancakeSwap reaped the benefits of this migration in a big way, setting off new inter-chain rivalries between Ethereum and BSC – and their respective flagship exchanges Uniswap and PancakeSwap – that could determine DeFi’s foreseeable future.
PancakeSwap #
PancakeSwap uses an AMM model to fulfill orders on its Decentralized Exchange powered by Binance Smart Chain (BSC). By replacing an order book with a liquidity pool, PancakeSwap eliminates the need for an order book.
With over 2.8 million users and $9.9 billion in total value locked (TVL) in September 2021, PancakeSwap claims to be the most popular decentralized platform. PancakeSwap V2 is the latest version, and there are 1,426 token pairs on the DEX.
PancakeSwap’s Syrup Pools enable liquidity providers to participate in the pool and receive tokens as LPs (called FLIPs). This token is necessary for them to remove their shares. In addition, users can farm for two other tokens – CAKE and SYRUP. Tokens on the platform comply with BEP-20, since it runs on BSC.
In keeping with its playful and vibrant nature, PancakeSwap offers on-chain games as well. A user can participate in the BNB price prediction game (currently in beta) or enter the BNB lottery to win prizes.
In addition, the LP tokens come in different “flavors” based on their deposit in the pool.
Uniswap #
Uniswap is the most popular Ethereum-based DEX that uses an AMM model, liquidity pools instead of order books, and LP tokens to reward liquidity providers. Uniswap is the mother chain of PancakeSwap, which uses the original Ethereum blockchain to run its network rather than BSC. In some form or another, most DEXs have borrowed features from Uniswap to run their own platforms as one of the first wildly successful DeFi protocols.
Due to the AMM model, a trade does not require a partner to execute it. This model results in less time spent trading on DEXs. These exchanges provide decentralized token swapping to more people by eliminating the need for know-your-customer (KYC) procedures.
The total value of Uniswap TVL is over $6.3 billion as of September 2021. Over 1.5 million users have made use of the protocol all-time, and $386 billion has been traded. Uniswap V3 was released in May 2021 on the mainnet.
PancakeSwap versus Uniswap #
Uniswap is seen as a benchmark for DEXs following an incredible 2020 DeFi summer, which redefined the rules for decentralized exchanges. Most other DeFi-focused initiatives are trying to follow Uniswap’s lead in becoming the leading platform for token swaps.
In approximately two months, PancakeSwap’s liquidity increased by over 1,000%, making it the unofficial winner. Within the first 49 days of 2021, PancakeSwap’s volume had risen from a meager $37 million to a “whopping” $1 billion.
The growth of Uniswap has been attributed to the problems with Ethereum’s blockchain. ETH’s reliance on the proof-of-work (PoW) consensus mechanism affects its scalability. As a result of the congestion on the platform, transaction costs or gas increase.
Through the launch of Ethereum 2.0 in December 2020, Ethereum will transition from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism, which will solve the scalability issue. Sadly, the complete rollout will take approximately two years.
PancakeSwap has flipped Uniswap #
PancakeSwap briefly overtook Uniswap as the largest AMM-based exchange in February 2021. During the week of February 19, the DEX-powered by BSC platform had a daily trading volume of over $400 million more than the ETH-based one.
This steady rise had resulted in daily volume of over $1 billion. BSC users only paid a tiny fraction of Ethereum’s $16 million gas fees in a single day.
Uniswap regained its previous position in September 2021, but a new player, Biswap, has already passed Uniswap, showing how quickly decentralized trading is evolving.
Uniswap and PancakeSwap trade over $1 billion a day, but they remain behind the top centralized exchanges (CEXs). As of the time of writing on September 10, 2021, Binance, the largest cryptocurrency exchange in the world, has a 24H trading volume of over $34 billion.
Comparing the top DEXs #
PancakeSwap Native Token — CAKE #
PancakeSwap’s base asset, CAKE, provides farming and staking functionality. The staking option allows holders to earn more CAKE tokens by providing liquidity, staking or buying them on an exchange.
Like any standard coin, CAKE tokens issued to liquidity providers are tradable on the open crypto market.
The exchange’s CAKE token had also experienced significant growth, gaining more than 2,964% since 2021 began.
Uniswap Native Token — UNI #
Uniswap’s developers had airdropped UNI tokens to its early customers back in September 2020, the platform’s native asset. In addition to governance, the token’s real use case on the platform has yet to be determined.
If UNI’s use case ever becomes more clear, CAKE is expected to have gained more traction by then. PancakeSwap also has a token called SYRUP, which allows holders to receive 40% of all CAKE emissions. Syrup cannot be sold, since it is required to unstake any staked CAKE.
Adoption Rate #
On this one, it is hard to quantify the two top DEXs. PancakeSwap’s adoption rate is rising, but Uniswap is older and has a substantial user base. In addition to introducing AMM capabilities that no other project had previously implemented, DeFi became one of the few projects to bring DeFi out of the shadows.
In spite of this, PancakeSwap appears to be in the process of passing Uniswap due to the popularity of the Binance Smart Chain and the CAKE token. In the crypto ecosystem, a digital asset’s price responds to adoption or at least demand.
There are more users on PancakeSwap than Uniswap, however Uniswap’s trading volume is higher, suggesting that Uniswap users are trading in larger denominations.
Transaction Costs #
At the moment, Ethereum clearly loses on transaction costs, leaving the door wide open for platforms with smart contract capabilities that are more efficient. Gas fees have been escalating exponentially since Uniswap is running on the second-largest blockchain.
Uniswap users can only trade small amounts, so the gas costs eat into their profits even more. The low transaction costs PancakeSwap offers can be attributed to the use of a scalable network such as BSC.
BSC transaction fees are pennies compared to Ethereum, whose fees can reach hundreds of dollars per transaction. In addition to saving users from high gas fees, BSC also speeds up transactions.
Number of Listed Tokens #
PancakeSwap has the advantage here, given the explosion of meme tokens on BSC. Uniswap (V3) has 599 tokens, whereas PancakeSwap (V2) has 1427 tokens.
Although there is freedom in an open system, it can also let in malicious actors. In September 2020, Uniswap reported 150 token pairs were added each day for a whole seven days, raising eyebrows over the speed and sheer number of tokens being listed on the network. Because of Uniswap’s permissionless system, fake projects had surged, eager to take advantage of investors. Uniswap, for example, saw the listing of “Uniswap Exchange Token,” which had no connection with Uniswap other than being listed on the platform.
In addition to listing successful and unique tokens like FRONT and BAKE, PancakeSwap suffers from the same “low-quality listing” problem as Uniswap.
Therefore, it is not necessarily true that the number of listed tokens means the DEX is better, since it could be attributed to more meme tokens or even scam tokens being listed. As a matter of fact, quality is more important than quantity in this case, and the rigorous vetting process for CEXs may prove beneficial in this regard.
Liquidity and Trading Volume #
Even with PancakeSwap’s rising liquidity, Uniswap remains the leader. Uniswap has a much larger liquidity pool than PancakeSwap for most tokens. Because PancakeSwap’s liquidity provision incentives reward those who deposit exotic tokens that are volatile, more liquidity providers prefer Uniswap.
Uniswap’s one-day trading volume has already been surpassed by PancakeSwap. To beat Uniswap on trading volume, the BSC-powered platform must maintain a steady upward trajectory due to the volatility of the DeFi ecosystem.
Safety and Community #
Both PancakeSwap and Uniswap are decentralized, but PancakeSwap benefits from the Binance ecosystem’s support. Due to its early entry into the DeFi scene, Uniswap also has a large community.
PancakeSwap is trying to bridge the gap in users created by their relatively recent arrival on the DeFi scene by offering lotteries, competitions, and other incentives to build a loyal following.
Conclusion: #
Our thought on these two titans is that although nothing is ever official. We have to give the “W” to PancakeSwap for flipping the Ethereum-based titan this year. PancakeSwap and Unswap’s rivalry goes beyond the DEXs themselves, as it highlights the differences between the Ethereum blockchain and Binance Smart Chain.
With its liquidity increasing exponentially, BSC appears to be on the winning side. With BNB sitting on CMC’s top four leading cryptocurrencies in market cap, Binance’s native token is reaping the benefits from the DeFi boom.
BSC’s high volume indicates that transactions need to be cheaper and faster. The high gas costs of Ethereum have been a major factor in users switching to BSC-based DeFi networks. BSC, for example, saw an increase in unique users from 12,700 to over 50,000 between January and February 2021.
By September 10th, 2021, BSC’s trading volume reached $172 billion, while the second-largest blockchain reached $20.5 billion. Additionally, BSC is seeing a rise in the number of decentralized applications (DApps) like MOBOX, CryptoBlades, and Crypto Zoon, which are taking advantage of the rise in play-to-earn (P2E) games.
Ethereum developers will be forced to speed up, or at least stick to, the deadlines that mark the roadmap leading to its final Proof-of-Stake form, which should resolve its scaling issues.
References:
Vermaak, W. (2021, November 5). History of Uniswap and PancakeSwap. CoinMarketCap. https://coinmarketcap.com/alexandria/article/uniswap-vs-pancakeswap
The Uniswap V1 Protocol | Uniswap. (2021, September 11). Uniswap.Org. https://docs.uniswap.org/protocol/V1/introduction
Sinclair, S. (2021, February 19). BNB Gains 45% in 24 Hours as PancakeSwap ‘Flippens’ Uniswap Volume. CoinDesk. https://www.coindesk.com/markets/2021/02/19/bnb-gains-45-in-24-hours-as-pancakeswap-flippens-uniswap-volume/
