WHAT IS DEX, AMM, AND HOW TO USE PANCAKESWAP AMM DEX.
– Table of ContentsWHAT IS DEX, AMM, AND HOW TO USE PANCAKESWAP AMM DEX.
- What is dex?
- Strong points of dex.
- Weak points of dex.
- What is amm dex and how it is different from dex?
- What are the strengths and weaknesses of amm system?
- What is Pancakeswap and how does it work?
- How to earn money by trading, staking, and farming on Pancakeswap?
- DePocket will have the update for staking DEPO token on this December.
- As blockchain has been going viral and approachable, I think that most of us have encountered the word DEX at least one time. This recently is the word that attracts much attention from the crypto population.
- In this article, we will get through some basic information about DEX to understand the definition, strong points, weak points, and the operating mechanism of DEX.
1. What is Dex?
- Before jumping into the DEX definition, I would like to remind you about CEX. CEX is a centralized exchange that is monitored by a third party. All of your tokens are managed and controlled by this 3rd party such as Binance exchange, Kucoin exchange, and Huobi exchange.
- Unlike CEX, DEX — Decentralized Exchange is built for running in a decentralized way that allows peer-to-peer transactions. A DEX offers a priority to implement transactions directly from person to person without third-party involvement. Some of the typical DEX now are Pancakeswap, Uniswap, and Sushiswap.
2. Strong points of Dex.
a. Right to control.
- When using DEX, users have the complete right to own their assets. All transactions take place safely and equally through the Smart Contract mechanism on Blockchain.
- In contrast to DEX, CEX just permits users to sign in to their accounts and conduct transactions under the strict control of a centralized system. This means that CEX diametrically possesses users’ coins, and certainly this exchange can block your account and you can lose all your coins.
- CEX will require users to implement the KYC process (Know your client) when they make a big transaction, so users’ personal information will be then disclosed.
- As opposed to CEX, DEX provides a much better mechanism that protects users from personal information disclosure in which transactions are done by using the smart contract. DEX only knows your wallet address and your privacy is safely ensured.
- CEX is the most attractive prey that hackers aim at usually. A lot of CEX were technically attacked and caused grave consequences for not only CEX but also for users to suffer. Although the CEX security system has regularly been modified and improved by the engineering team, CEX is always the most desiring and resistless focus for being hacked, and DEX is now working better on this side.
- In the case of DEX, it is impossible to hack and obtain money from users since tokens are traded on blockchain and controlled by nodes.
3. Weak points of Dex.
a. Liquidity deficiency.
- Liquidity is the level of easiness when a commodity is traded. This commodity in the blockchain is cryptocurrencies.
- In comparison with CEX, liquidity supplied by DEX is much less. This comes from the fact that fewer traders are deploying DEX than CEX and the trading volume is consequently not high enough to contribute to a high liquidity level. In the future, I hope that this weak point will be significantly improved with various methods such as better user experience, enhanced user interface, and additional types of trading like margin trading.
b. Delay in transaction processing time.
- Transactions on DEX take time to be checked and confirmed by nodes on the blockchain. This phenomenon occurring with the above-mentioned weak point of low liquidity creates such a certain feeling level of discomfort.
c. Not qualified enough in user experience.
- Although there are more and more newborn DEX currently that provide better UX/UI than the old ones, most of them have not been able to offer an adequately great user experience, as opposed to CEX where the user feedbacks are much more content.
- However, DEX is capable of improving this weak point soon and attracting more users.
4. What is AMM DEX? How is it different from DEX?
- As we have known, Dex has transactions conducted straightforwardly from person to person (P2P) by using the Smart Contract on the blockchain.
- Unlike conventional DEX, AMM DEX is a kind of DEX that has an autonomous market maker system (AMM) that provides liquidity to the exchange it operates in through automated trading. Transaction on AMM DEX is not implemented based on the P2P scheme, but it is based on the P2C scheme (person to smart contract).
- While all trading activities on old DEX are fulfilled using the order book of P2P scheme which needs to wait for being matched between buyers and sellers, AMM DEX creates liquidity pools including tokens to be traded by traders so that buyers do not need their orders to be matched to any seller.
- In addition, the special thing about liquidity pools is that users can play a role as liquidity providers to put their assets into the pools and make liquidity for these pools.
5. What are the strengths and weaknesses of the AMM System?
- The transaction processing time and the exchange’s liquidity are enhanced well thanks to the adding pool mechanism of AMM.
- Liquidity providers have other ways to make money as they can utilize the pool to stake and farm for earning reward tokens or receiving trading fees. This would lead to the result that more users will be appealed to use DEX and contribute to the Defi development in general.
- Slippage in AMM DEX takes place when token A buying demand is much more than its supply available in the liquidity pool, and users have to buy at a higher price.
- Inflation is the next problem that we should care about. When a coin is not noticed and not traded much, it does not have much liquidity and its price will consequently decline to sell easier for covering loss.
- The security problem is the vulnerable side of the system that should be enhanced as soon as possible. AMM DEX applies a P2C scheme in which the liquidity pool involves the trading process. Hence, hackers can attack these pools and take your money.
6. What is Pancakeswap and how does it work?
- Pancakeswap is one of the first AMM DEX of Binance Smart Chain allowing users to exchange BEP20 tokens (the latest token standard from Binance Smart Chain).
- As same as the other AMM DEX, users who are liquidity providers can add tokens into liquidity pools and traders can swap these assets in these pools using the P2C scheme.
- Pancakeswap is not simply an AMM DEX. Indeed, it has grown to become a payment center of Binance Smart Chain, which runs as a DeFi hub and provides various services to make money from staking, adding liquidity pools, farming to IFO, Syrup, Lottery.
- PancakeSwap Official Website: https://pancakeswap.finance/
7. How to earn money by trading, staking, and farming on Pancakeswap?
To trade on this platform, let’s do the following steps:
- Visit the Pancakeswap Exchange page here: https://pancakeswap.finance/
- Select the wallet platform you want to connect
- Choose the Binance Smart Chain and connect the wallet
- Select the token you want to trade and add the token quantity
- Check the details and click the swap button
- Check again and click confirm swap
- Select confirm button in your wallet
- You can visit the link named “view on BSC Scan” to see your transaction details
b. Adding liquidity pools.
- Users can add liquidity by staking tokens in liquidity pools and receiving trading fees from traders. The noticeable thing here is that you need to add a pair of different tokens that have the same value.
- Aside from that, after adding liquidity, liquidity providers then get the LP tokens that represent the value of already staked tokens and can use this to accordingly farm for cake tokens.
- You can withdraw your tokens whenever you want.
Follow these following steps to add liquidity pool:
- Visit PancakeSwap Liquidity page here: https://pancakeswap.finance/liquidity
- Select Add liquidity.
- Choose a pair of tokens to add to the pool to stake.
- Notice that you need to adjust the values of these two tokens to be equal, then click the supply button.
- Check the information and click the confirm supply button.
- Select confirm in your wallet to stake a coin in the liquidity pool.
After having LP tokens, you can use them to farm for Cake tokens. There are many Pools for you to select and these steps below will show how to do that:
- Go to the farm section on Pancakeswap here and select the Connect button to connect your wallet.
- Select the Farm pool that you want to join.
- Click select.
- Click the figure +.
- Add the quantity of tokens LP that you want to farm.
- Select confirm.
d. Staking on Syrup pools.
Syrup Pools is a Staking product, helping you to receive tokens most easily. You only need to stake one kind of token Cake to earn Cake or any other chosen tokens available in Syrup pools.
- Go to the Pools page https://pancakeswap.finance/pools
- Choose which Syrup Pool you want to stake in.
- Once you choose a pool, click the Enable button. Your wallet will ask you to confirm the action.
- The Enable button should now be replaced with Stake. Click the button to bring up the staking menu.
- Type in an amount or slide the rabbit to choose how much CAKE you want to stake.
- Click Confirm. Your wallet will ask you to confirm the action.
8. Depocket will integrate new functions of staking, farming, and adding liquidity for Pancakeswap.
- The financial management DePocket dApp to be built as an all-in-one DeFi hub is going to have an important update in which users can stake DEPO tokens on DePocket dApp. This is what Depocket holders have been waiting for a long time period.
- Furthermore, you will only need to use DePoket dApp to track, manage all of your assets and start earning money on various DEX effortlessly soon when upcoming new functions of staking, farming, and adding liquidity pool are launched on Depocket successfully, instead of having too many dApp.
Please follow DePocket for more information. Thank you.
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