Get to Know Uniswap and PancakeSwap: Key Platforms to Watch

Uniswap

Uniswap is an AMM-type DEX. It is a representative DEX with a large number of users, and in addition to Ethereum, it also operates on Polygon, Optimism, Arbitrum, and Celo.

The number of users and daily transaction amount are among the largest in the world

Uniswap is an AMM-type DEX that runs on smart contracts and is led by a company called Uniswap Labs. Although there is a company that leads the development, the direction of operation and development is decided by voting by the DAO. Uniswap's swap fees are very low and it is available 24 hours a day. The ease of use, which only requires connecting wallets, is probably the reason for the large number of users.

In an AMM-type DEX, transactions are made through pooled crypto assets rather than connecting wallets between users. Therefore, in the AMM type, incentives are paid to those who deposit crypto assets into the pool to maintain the amount of crypto assets in the pool and ensure liquidity of transactions. If you deposit funds into the pool, in addition to interest, a portion of the fees paid by the user at the time of the swap is returned, so there are benefits for the depositor as well. Naturally, Uniswap also adopts this incentive system.

Although Uniswap has many benefits, its use also comes with risks. First of all, Uniswap is not permitted under Japanese law. Although it is not illegal, use is at your own risk and users are not protected. In addition, fiat currency cannot be traded on Uniswap. You need to purchase the underlying cryptocurrency at a real exchange.

In addition, if you make a profit by swapping between cryptocurrencies that can be exchanged for fiat currency, you will be taxed. Consult with an expert to avoid unknowingly committing tax evasion. In addition, there are many scam coins that take advantage of the fact that any cryptocurrency can be swapped.

Uniswap is a very easy-to-use tool for understanding DeFi. That's why you should be sure to understand the disadvantages before using it.

Advantages

・Decisions are made by the DAO
・Just connect to your wallet and you can use it
・Supports yield farming
・Cryptocurrency swaps can be done at low cost

Disadvantages

・Not approved by Japanese law
・Swaps with Japanese yen are not supported
・Tax calculations are difficult
・There are many scams among the currencies in circulation

PancakeSwap

A DEX based on the BNB chain that is currently attracting attention. It is attracting attention for being able to process transactions faster and cheaper than the popular Ethereum. It is also compatible with Ethereum.

Dealing with a notable alternative blockchain to Ethereum

PancakeSwap is a DEX built on the BNB chain. Its biggest feature is that it has overwhelmingly cheaper fees compared to Ethereum and other blockchains. Gas fees on the BNB chain can only be paid with BNB.

Currently, BNB can be traded domestically on Binance Japan and bitbank. Since it is not widely available in Japan, it takes a little more effort to start using it than Uniswap, which allows you to pay gas fees with Ethereum and other blockchains, but the low price is an advantage that more than makes up for that.

The number of PancakeSwap users is growing rapidly, partly because its reward acquisition scheme is more comprehensive than other DEXs. In addition to "farming," which helps to secure liquidity by depositing assets in a pool, you can also stake the CAKE tokens, the base currency acquired through farming, to earn interest.

In addition, there are reward acquisition methods that are not often seen in other DEXs, such as "perpetual trading," a high-risk, high-return futures transaction that can be conducted indefinitely, "prediction," where you predict and bet on the rise and fall of CAKE and BNB, and "lottery," which can be purchased for about $5 per coin. There is also an NFT buying and selling market within the app, which is not often seen in other services.

BNB Chain is supported by the world's largest cryptocurrency exchange, Binance, and is also used in "STEPN," which sparked Play to Earn, and has become more well-known in Japan. However, compared to Bitcoin and Ethereum, the number of users is still small, and prices tend to fluctuate wildly.

PancakeSwap itself is close to being the largest DEX that handles BNB Chain, but that doesn't mean you should suddenly invest large amounts of money. Also, as a DEX, it cannot be protected by Japanese law like Uniswap. You should try it at first just to practice cryptocurrency trading and get a peek into the inner workings of the BNB chain.

Advantages

・Gas fees are extremely cheap
・Just connect to a wallet and you can start using it
・There are many ways to monetize
・There is also an NFT marketplace

Disadvantages

・Not approved under Japanese law
・Does not support swaps with Japanese yen
・Larger price fluctuations than Ethereum-based DEXs
・Many minor currencies

Glossary

DAO: Decentralized autonomous organization. A form of organization in the Web 3.0 era that advances projects without owners or administrators. Participants can participate in decision-making by using specific tokens as voting rights.

Smart contract: A program that performs transactions on the blockchain according to pre-set rules.

Databook type: A DEX in which cryptocurrency transactions are performed off-chain and only cryptocurrency transactions are performed on-chain.

AMM type: A DEX in which all transactions are performed on-chain using smart contracts. This places a heavy load on the blockchain.

Staking: A mechanism in which cryptocurrency is deposited on the blockchain and rewards are received in return for contributing to its operation.

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