PancakeSwap (CAKE) and Uniswap (UNI) are the largest DEXs (decentralized exchanges) on their respective blockchains. PancakeSwap being built on Binance Smart Chain (BNB) and Uniswap on Ethereum (ETH).
In this piece, we examine these crypto giants and how they have performed recently. This article aims to ask the following question: if an investor had $1,000 to spare, how could they intelligently allocate it between these assets?
There is a growing interest in Decentralized Finance (DeFi) tools, which puts great emphasis on the Decentralised Exchange (DEX). DEXs are peer-to-peer marketplaces where crypto traders conduct transactions directly with one another. This is in opposition to Traditional Finance (TradFi) and Centralized Exchanges (CEX), who play the role of a middle man that ultimately takes control of funds away from their clients, if even momentarily. Both Uniswap and PancakeSwap are DEXs whose goal is to give users of compatible crypto wallets direct access to a range of financial services.
Our purpose today is to compare and contrast the two DEXs and their potential future.
Uniswap, the largest DEX, is a collection of computer programs that operate on the Ethereum blockchain and enable decentralized token swaps. Uniswap uses Constant Product Market Maker, a type of Automated Market Maker (AMM). In this model, the users contribute Ethereum tokens to Uniswap “liquidity pools.” Smart contracts are used to execute trades, and mathematical formulas are used to set prices. Each liquidity pool has funds for two cryptocurrencies. When users make trades, it draws from liquidity pools instead of an order book.
UNI is the native cryptocurrency of Uniswap. The UNI token was introduced to allow the Uniswap community to have ownership over the Uniswap Ecosystem. It allows stakeholders to vote on key protocol changes and development initiatives. Uniswap offered 400 UNI tokens to users who had previously used the Uniswap decentralized exchange protocol during its launch. Around 2,50,000 Ethereum addresses received UNI worth approx.. $1,500 at the time of the airdrop.
Today, users can earn UNI tokens by staking tokens in the liquidity pools of Uniswap. UNI holders who own 1% or more of the total UNI supply can submit development proposals. UNI has a total supply of 1 billion with a market capitalization of $5.8 billion and is ranked among top 25 cryptocurrencies.
PancakeSwap is another decentralized exchange though it operates on Binance Smart Chain. PancakeSwap operates on an automated market maker (AMM) model.
PancakeSwap is only used for BEP-20 tokens on the Binance Smart Chain. However, tokens from other platforms can be brought over via Binance Bridge and “wrapped” as a BEP-20 token for use on the DEX. CAKE is the native utility token of PancakeSwap.
CAKE is used for a variety of purposes. Its primary functions are yield farming, staking, PancakeSwap Lottery participation, and making and voting on governance proposals via the platform’s community governance portal. PancakeSwap rewards those who stake CAKE.
With a market capitalization of $2.7 billion, CAKE is ranked 42nd among cryptocurrencies.
UNI vs CAKE: Verdict
The primary difference between PancakeSwap and Uniswap is that PancakeSwap operates on Binance Smart Chain, whereas Uniswap operates on the Ethereum blockchain. The former offers significantly lower transaction costs. On the other hand, the latter uses ETH for every transaction and thus significantly increases transaction costs in comparison to other platforms.
Even though CAKE offers unique features like lotteries, UNI has a TVL (Total Value Locked) much higher than CAKE. While CAKE uses a PoS (Proof of Stake) consensus, UNI uses a PoW (Proof of Work) consensus.
In 2022, UNI underperformed Bitcoin by a larger margin and has lost 44% in value. Whereas CAKE has underperformed by 12% only – although this could be partially attributed to CAKE having lost significant value earlier in 2021.
Both UNI and CAKE are both working on regular updates to make their respective platforms better. The world of DEX is expected to improve as these two platforms continue their journey as #1 in their own blockchain.
Both UNI and CAKE are promising altcoins and to pick between them is akin to a choice between Ethereum and Binance Smart Chain. Therefore, to answer our question – we believe that investing a 60% share UNI and the remaining 40% share in CAKE is ideal.
NOTE: Nothing written above should be taken as financial advice. What has been written is an analysis and personal opinion of these assets. We are not held responsible for any individuals financial decisions.