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How To Build a Passive Income With PancakeSwap

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Category : blockchain   passiveincome


Photo by Sharon McCutcheon on Unsplash

Recently I discovered that there is an easy way to gain passive income by using a site named PancakeSwap.

I have been using it for a week now with 500$ I had to spare, and I am very impressed. Note that I say Passive Income because you don’t have to do anything to earn money.

I have to say right now, it is not a get-rich-quick scheme. At the moment of writing this, the calculated APY (Annual Percentage Yield) is 67.55%.

PancakeSwap- The APY Calculator

67.55% is a pretty good gain. You can see in the image that the 51 USD (4.35 CAKE) that I staked in the image will return 34.96 USD (2.945) worth of CAKE over one year of staking.

And this does only calculate how much CAKE you will gain, it does not take price increase/decrease of CAKE into account.

I have 50 USD staked on something called AutoCake and 450 USD on a Farm. We will soon explain what that means and what pros and cons there are on the two methods.

You invest (Stake) a cryptocurrency called CAKE, then you start automatically making more CAKE, which you can sell for profit.

Only invest what you can afford to lose

This article is not to be considered financial advice, invest at your own risk and do your research.

How it works - Proof of Stake

Proof of Stake is a consensus mechanism for blockchain which allows people to mine cryptocurrency by staking their coins to gain a reward for helping the network. You can find detailed explanations here. Proof of Stake has increased in popularity in the last years.

The idea is that you provide liquidity (stake) to a coin and you get rewarded for it.

PancakeSwap has its Token called CAKE, and it runs on the Binance Smart Chain (BSC). The positive thing about BSC is that the fees for transactions are really low compared to for example Ethereum.

The main currency on BSC is called BNB and is used for performing transactions.

You can trade BNB for CAKE, both ways, so you can Buy CAKE with BNB, and you can sell CAKE for BNB.

PancakeSwap allows you to stake CAKE to earn more CAKE, which is how the passive income is built.

There are two ways to start gaining CAKE, Farms, and Pools.

Farms is a way to provide liquidity to two tokens. In Farms you have to choose two cryptocurrencies that you own and stake those as a pair. The token pair you stake are converted into a Liquidity Provider token. Say that I decide to use the BNB — CAKE farm, then I need to provide BNB and CAKE to get BNB-CAKE LP tokens. Those LP tokens are put into the farm and you then start gaining CAKE. Once you want to stop farming, you can convert your LP tokens back to your CAKE and BNB that you put in.

PancakeSwap- Farm returns for the BNB-CAKE farm

The gains from Farming are as of writing this 41.53% APR, but farming also gives 0.17% of trading fees to be distributed amongst farmers. The more trading of the token, the more earnings.

The positive thing about farms is that you keep your original tokens, in my case I can always get back my BNB and CAKE back. This is good because you don’t solely have to invest in CAKE, and If CAKE would crash your investment would be protected by at least having your BNB left.

You should try finding cryptocurrency pairs that are stable in their price compared to each other, like CAKE and BNB, since otherwise, Farms has the risk of Impermanent Loss. We will cover that in the Risks chapter.

The second method is Syrup Pools, they are simple and only required one token, great for beginners. As the example at the beginning of the article, I have staked CAKE, and automatically gain CAKE (69% over a year).

For example, if I stake 100 CAKE, I will have gained 69 CAKE after a year. The great thing is that there are auto pools that automatically reinvest any gained CAKE into the pool again. Making the earned CAKE also boost your income.

The positive thing about Syrup Pools is that you don’t have to worry about impermanent loss and it’s easier to understand. The con is that you are affected more if the CAKE price drops since you have to convert your BNB to CAKE. Don’t worry if this sounds complex or hard, it is rather easy. We will take it step-by-step later in the article.

Risks

When you stake your tokens in a Pool, you will always have them, you cant lose them. They can of course still drop in value, but that is always a risk with crypto.

So with Staking, the risk would be that the value of CAKE drops then you are left with many tokens worth little. However, that can also be a Pro, since, on the opposite, a massive price boost will generate a great profit.

Farming however often yields better rewards, but with an added risk of Impermanent Loss. Impermanent loss happens when the value of any of the tokens in the pair changes price. You should read the explanation on Binance to fully understand the concept of Impermanent Loss.

Farms usually provide rewards such as trading fees that are distributed amongst the Liquidity providers (farmers) to compensate and counter the risks of Impermanent Loss.

How to start — Download a Wallet & Add Binance Smart Chain

First of you need to have a wallet for your cryptocurrency, I like to use Metamask, but there is also TrustWallet which is popular. Download the wallet, either the app on mobile or the chrome extension if using Metamask. Once installed you can find the MetaMask icon at the top of your browser.

Metamask — Chrome Extension showing my account

Next, we need to add the Binance Smart Chain to your wallet. This is the blockchain network used by PancakeSwap so we need to make sure we connect to it. Open Metamask and enter the Settings and locate the Networks tab.

MetaMask — Networks setting where you can add networks such as BSC

Enter the networks option and select Add Network. You will be presented with many fields to fill, don’t worry if you don’t understand them, just copy the values here.

MetaMask — The option to add Networks

Network Name: Smart Chain New RPC URL: https://bsc-dataseed.binance.org/ ChainID: 56 Symbol: BNB Block Explorer URL: https://bscscan.com You can find a full guide for adding BSC to Metamask on the Binance website.

Second step — Buying BNB

The second step is to buy some BNB and send them to your Wallet. I recommend buying BNB through the original Binance website.

BNB is the cryptocurrency used on the Binance Smart Chain which is the blockchain that PancakeSwap runs on. That is why all transactions and fees will cost BNB.

I have a referral link to Binance which gives me commission (15%) on all trades the referred accounts make, but the referral accounts will also receive a commission (5%)! That’s a Win-Win!

Be sure to use the referral link if you are new to Binance.

Enter the Buy Crypto menu and select to buy BNB.

Binance.com — Buy Crypto to get your BNB tokens

Make sure you select to Buy BNB, other cryptocurrencies cannot be used on the Binance Smart Chain.

Binance — Buying BNB on the Binance marketplace.

Once you have your BNB on Binance, transfer them to your Metamask or TrustWallet account. Visit your Binance wallet by pressing the small profile button on the top bar and navigating to Wallet → Fiat and Spot.

Binance — Accessing your Online wallet.

Locate your BNB wallet and select Withdraw.

You must select the correct Network when you withdraw your tokens. PancakeSwap and Binance run on the BSC network, so make sure to select that during the withdrawal.

Binance — Withdraw into the BSC network.

The address should be the address provided to you by Metamask or TrustWallet, you can find it by clicking the Account at the top of the Metamask extension to copy it into the clipboard.

Third step — Visit PancakeSwap & Buy CAKE with your BNB

Then it is time to visit PancakeSwap, be sure to check that you visit the correct site and bookmark it, there are fake websites out there that try to scam you.

The easiest way is to visit PancakeSwap right away in the TrustWallet App. If you open the App and go into the DApps tab you should see a clickable PancakeSwap link.

TrustWallet — How to locate PancakeSwap safetly.

Or if you are using Metamask then visit the Browser tab and navigate to https://pancakeswap.finance/

Metamask — Metamask app has a built in Browser which helps connecting the wallet easier to PancakeSwap

Once inside PancakeSwap, you need to connect your wallet to begin trading. If you visit PancakeSwap through the browser inside Metamask or TrustWallet then simply press Connect Wallet at the top.

PancakeSwap — Connect wallet

Select your choosen wallet in the list.

PancakeSwap — Selecting your Wallet

You should now be connected and the first thing you need is to decide on if you want to Farm or Stake. If you are uncertain you can find more information on the Pancakeswap tutorial site. Beginners should stick to Pools (Staking) until they fully understand how everything works, at least in my opinion.

If you are going to farm then swap 50% of your BNB to CAKE.

If you are going to stake in a pool swap 95% of your BNB to CAKE. We leave a little BNB for future transactions.

To swap, enter the Trade tab in PancakeSwap and select Exchange. In here you swap your BNB for CAKE which we will need for both Stakes or Farm.

PancakeSwap — Exchange menu where you can select pairs to trade

Make sure you keep the same value in USD for both tokens if you are going to Farm. Once you confirm the exchange you will get your CAKE inserted into your wallet.

It’s time to move into the Earn tab. In Earn, you will find the two ways to start earning your passive income. Select the Farm or Pool depending on which one you want.

Fourth Step — Staking in Pools

When staking there are many different pools and they will yield you different rewards. If you stake in the CAKE pool you will be rewarded with CAKE, but there are pools for other tokens as well.

Always research the token you invest into, some might yield great rewards once their price increase, some might be very risky. Locate the pool you like, I recommend the AutoCake pool as it will automatically reinvest any CAKE you earn into the pool, making your earnings earn you even more.

The best thing about Auto is that there are also no transaction fees. However, PancakeSwap takes 2% of the earnings you make in AutoCake. So if you invest very much and you earn more than the transaction fees, then Manual Cake will be better.

PancakeSwap — AutoCake Pool with a few CAKE staked

Once you stake, there is a penalty cost if you want to withdraw your CAKE before 3 days have passed. After 3 days you are free to withdraw without penalty, there is no time limit to how long you have to stake.

Fourth Step — Farming

If you are going to Farm you will also need to exchange your BNB and CAKE for CAKE-BNB LP tokens. This is done in the Liquidity menu. You can skip this if you prefer a simple Stake in a Pool.

PancakeSwap — Adding Liquidity by swapping BNB and CAKE

Press the Add Liquidity to get to the next menu where you can select the token pair you want to farm.

PancakeSwap — Adding Liquidity

As you see in the image I have selected CAKE and BNB, you will get helped with the amount correlation of 50% distribution between the pair.

You will see all the available farms named by the Token pair needed to farm it, such as BNB-CAKE

To start farming with your LP tokens, press the Enable button in the BNB-CAKE pool and allow it to access your wallet. Then use the + button and set the amount of LP tokens you want to farm with.

PancakeSwap — Farming in the CAKE-BNB Pool.

To stop farming simply press — and enter the amount to withdraw. This will return the CAKE-BNB LP tokens to your wallet, which you can use to trade back the BNB and CAKE.

Fifth Step — Harvesting Rewards

Once your farm or pool has yielded you enough CAKE, you can Harvest (claim). This means that the earned CAKE will be deposited into your wallet. Remember to only harvest if your earned CAKE is worth more than the transaction cost.

The CAKE you earn can be swapped to BNB if you want to sell it to regular FIAT on Binance. PancakeSwap does not allow trading with regular FIAT, for that you need to trade the CAKE into BNB, deposit that BNB into Binance or other trading platforms and sell them.

There are other things to do with the CAKE, I take my farm yields and put them into AutoCake. You can also play the lottery to earn some big wins, however, it’s a gamble.

Conclusion

As I said before, it is not a get-rich-quick scheme.

However, at the time I bought in on CAKE the price was 10$ per CAKE, I then earned 2 CAKE by farming and staking. So that yielded me 20$ profit pretty quick, but the true profit comes when holding the earned cake, reinvesting, and staking it to gain more CAKE.

Then wait for a market pump, CAKE has once pumped to 40$ per CAKE, then my 20$ would be 80$ all of a sudden when that happens again. PancakeSwap offers a beginner-friendly way into cryptocurrency and allows you to reap some rewards easily. I like the fact that I can also gain new scary cryptocurrencies by staking my CAKE into the pools and grabbing some random tokens without risk.

Or the risk is that the token fails, but I will only have lost time spent staking.

I think that there is a future for these Defi apps and I want to be part of it. It’s a fun way to get into the crypto world, with the benefit of enabling a passive income, that steadily grows as time passes by.

So what are you waiting for?

Get out there and start baking some CAKE, but only if you can afford the loss!

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About Programming Percy
Programming Percy

Hey, I'm Percy Bolmér. I'm a software engineer, writer and tech enthusiast. I've been professionally building software for 7+ years, and absoluetly love sharing any ideas I come across.

Email : programmingpercy@gmail.com

Website : https://programmingpercy.tech

About Percy Bolmér

Hey, I'm Percy Bolmér. I'm a software engineer, writer and tech enthusiast. I've been professionally building software for 7+ years, and absoluetly love sharing any ideas I come across.

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