How to Earn Passive Income with PancakeSwap (CAKE)

How to Earn Passive Income with PancakeSwap (CAKE)
Photo by Mae Mu on Unsplash, Edited

It’s now easier than ever to let your money work for you. If you’ve got enough money to spare, you don’t have to write a book or promote an online course to earn some passive income along the way. Cryptocurrency staking and liquidity providing is a relatively new and young phenomenon and, as of yet, very profitable.

Whereas the typical get-go for passive income with huge sums of money has been investing in stocks and getting paid in dividends, nowadays these dividends can be found in the cryptocurrency world. Just with stocks, the more you have, the bigger the rewards will be.

How and Why Does It Work

The site “PancakeSwap” is a so-called “yield farm”. It is, in fact, an exchange platform for “Binance Smart Chain” tokens. People typically use PancakeSwap to exchange the main Binance Coin (BNB) and other derivates of it to other tokens. For that to happen, the tokens need to be available. Liquidity has to be provided by people. You, as a liquidity provider, basically buy a share of these tokens to allow PancakeSwap to exchange them, backing them with your money and CAKE. In doing so, you get rewarded with more CAKE.

In simple terms — the token (CAKE) issued at PancakeSwap is a reward for providing that liquidity. And this rewarded token is a “proof-of-stake” (PoS) token, meaning it’s possible to stake it to get more of it. Allowing you to profit by giving out loans and throwing money in a large pool for other people to trade with, basically. (The mechanisms behind PoS are irrelevant for that matter.)

The more people who want to exchange tokens on PancakeSwap, the higher the demand and thus the higher the pay for liquidity provider. The more people who want to provide liquidity, the higher the supply and thus the lower the pay for doing so. Your provided liquidity (money) gets pushed around hundreds of times a day, each time earning you a share in the transaction fees.

PancakeSwap is limited to the BSC chain, so every token that’s situated on the blockchain of BNB. This means that it’s not possible to trade the original Bitcoin, Ethereum, or Dogecoin; all you can do is to trade derivative tokens that are, at best, pegged to the value of the original coin.

However, the safest way on making a sustained additional passive income on PancakeSwap is to simply stake CAKE and let it compound for months or even years. (More so later on in the story.)

The Risks Involved

No investment without risks. Especially so with cryptocurrencies. I, myself, have some money invested in these sites and I think it’s safe and legit but I could be mistaken. I am not a financial advisor but just a cryptocurrency enthusiast.

Apart from user error (like sending the money to the wrong addresses and wasting too much money on fees), there are also technical as well as market-related risks that could cause you to lose your invested money. If you forget your passphrase or someone else acquires it, you could lose access to everything. If the price of CAKE, BNB, or other coins falls, so does your investment. This market is much more dangerous and unpredictable than regular stocks, fonds and bonds are.

If you want to play it safe, do not continue.

Never invest more than you’re willing to lose. The cryptocurrency market is highly volatile and it’s not unlikely that your assets could be worth nothing tomorrow. Keep that in mind, please.

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Getting Started with PancakeSwap

Earning by staking CAKE is easily done even without any prior cryptocurrency experience. It is best advised to start with small sums first to test it out for yourself.

Step 1: Get BNB

As PancakeSwap’s CAKE is a Binance Smart Chain (BSC) token, you’ll inevitably need a Binance account to acquire and potentially sell BNB and CAKE for USD or EUR. This is the easiest way.

(If you want to do me a favor, you can sign up with the referral code “FPSZ1UAD” when you register at Binance.com. This saves you 10% on your trade fees and grants me a 10% commission on your trades. If you are from the US, you’ll most likely need a Binance.us account due to legal reasons. More details on that on Quora.)

Buying BNB directly.

At first, you want to register for a regular exchange account at Binance and complete the verification process to start trading in “fiat” (USD, EUR, RUB, INR, …) for cryptocurrencies (BNB, CAKE, BTC, …).

To get an overview of your exchange wallet, navigate from “Wallet” to “Fiat and Spot” to have a listing of all available fiat currencies as well as all cryptocurrencies Binance offers.

Check the upper left “Search Coin” function and look for BNB. Instead of transferring fiat currency via wire transfer from your bank, it’s also possible to buy BNB directly by credit card when you click “buy” in the right-hand side “Action” tab.

After you’ve received your BNB coins to trade into CAKE and pay for the transactions, you’ll need to set up your browser wallet.

Step 2: Setup PancakeSwap and a Browser Wallet

Now that you own BNB, it’s time to install a browser wallet like Metamask, TrustWallet, Binance Chain Wallet, or others, which are easily set up. The BNB on there will be used to pay the fees. (I am using Metamask.)

Setting up Metamask is pretty straightforward. By setting up Metamask, you’ll create yourself both an ETH wallet as well as a BSC wallet. If you already have a wallet to be imported, feel free to do so. If you do not, create a new one.

You’re asked to set a password at first. This is used for quick and easy access to your wallet from your browser. After setting a password, you will receive a secret backup phrase. This secret backup phrase has to be kept absolutely secret. Whoever knows these twelve words can recreate and access your wallet from anywhere in the world. Store them safely.

After you’ve finished setting up your wallet, click on “Custom RPC”. Enter the following parameters for the Binance network.

Network Name: Binance Smart Chain
New RPC-Url: https://bsc-dataseed.binance.org/
Chain ID: 56
Symbol: BNB
Block Explorer: https://bscscan.com
Binance Smart Chain Parameters.

Network Name: Binance Smart Chain
New RPC-Url: https://bsc-dataseed.binance.org/
Chain ID: 56
Symbol: BNB
Block Explorer: https://bscscan.com

Now, you are able to receive your incoming BNB.

Metamask Wallet image
Copying the wallet address to the clipboard.

Next up, copy your wallet address into the “withdraw crypto” or “withdraw BNB” menu as the target. Alternatively, you can set up a wallet address book as a recommended safety feature as I have. This allows you to only send cryptocurrencies to previously verified wallet addresses.

Withdrawing BNB to the Metamask wallet.

After doing so, the BNB should arrive in your wallet within the next 30 minutes.

Step 3: Get CAKE

Unlocking the Metamask wallet.

Now on to PancakeSwap. Simply visit their site and click on “Unlock Wallet” and select “Metamask” (or any other browser wallet you’ve chosen previously).

Once you’ve connected Metamask to PancakeSwap, the Metamask wallet should automatically switch to the Binance Smart Chain network if it wasn’t selected.

After that, visit “Trade” and “Exchange” to trade BNB to CAKE.

This “Exchange” functionality is the primary feature of PancakeSwap as you can exchange any token against any other BSC token. We won’t be trading Alpacas against Venus today. All we want to do is exchange our BNB for some CAKE. Remember to keep some BNB left as it’s mandatory to cover the transaction fees. About 0.02 BNB (approx. $10) should be enough for everything.

Remember to keep some BNB for the fees left.

After swapping the CAKE, you’re done and ready to stake!

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Step 4: Staking CAKE in Pools

Pools are the easiest and most straightforward option.

You stake CAKE and get rewarded. The pool you’ll most likely want to stake the most is the “(Auto) CAKE” pool. There are two pools: the “Manual CAKE” pool and the other being the “Auto CAKE” pool.

The “Manual” pool does not automatically compound the staked CAKE and simply allows you to collect it after a while and manually re-stake or sell it; compounding the CAKE to earn interest on your interest has to be done manually. Contrary to this, the “Auto” pool automatically compounds the invested CAKE and adds it to the stake for a 2% performance fee.

PancakeSwap Staking Passive Income
PancakeSwap Pools Overview.

These two pools generate CAKE indefinitely for a varying APY of about 60–150% per year, which is an absurdly high return on investment. The more CAKE is staked over time, the lower the yield will be. Thus, it will decrease eventually.

If you are not interested in solely getting CAKE, you can acquire other and new cryptocurrencies that way too. Staking CAKE in other pools can offer you cryptocurrencies like QKC or KTN (as seen above). These pools, however, are not running indefinitely and are not compounding automatically. For the sake of simplicity, it’s advised to just stick to CAKE unless you find a very promising candidate to stake in.

Enabling the CAKE pool.

Either way, click “Enable Pool” and “Stake CAKE” and select the “Plus (+)” sign. After that, if you do not have CAKE in your wallet, you can choose to “Buy CAKE” (i.e. exchange the majority of your transferred BNB to CAKE if you have not done so) or stake it directly.

Staking CAKE.

After pressing “Confirm”, your Metamask wallet will pop up and ask you to confirm the transaction. The typical “gas fee” (transaction fee) should be about 0.001 to 0.005 BNB. You do not need to modify the default values; all you need is to click confirm.

If you’ve chosen the “Auto CAKE” pool, you’re done. You will now indefinitely and automatically compound CAKE. Alternatively, you would have to manually re-stake your CAKE if you’ve chosen other pools. But that’s no rocket science nor sorcery, as you see.

Step 5: Staking CAKE in Farms

If you want a higher risk and a higher reward, you can take a look at the “farms” too. For this, you will need “Liquidity Tokens” (LP tokens). These liquidity tokens can be acquired by selecting the “Trade” tab on the left side and going for “Liquidity” instead of “Exchange”.

Adding liquidity.

Supplying these two coins for the “CAKE-BNB” pair with an APR of about 61% results in “CAKE-BNB LP” which can be staked by selecting the “Farms” tab on the left side, looking for the pair, and selecting the “Stake LP” option in the details.

Liquidity farms on PancakeSwap.

There’s a huge variety of different pairs for different coins. Typically, the newer the pair, the less liquidity is provided and thus the higher the rewards.

These do not compound automatically and all reward CAKE which can then be re-staked via the Pools option described prior.

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Conclusion

Your typical finance platitude is that “time in the market beats timing the market”. The same seems to be true for cryptocurrencies. Buy now, forget about them for six years and come back as a wealthier person. As long as CAKE does not lose in value, staking it and getting more CAKE in return is basically just earning regular interest. However, if CAKE loses in value, you exponentially lose that earned interest as well.

Overall, PancakeSwap’s return and cryptocurrencies — in general — seem to be too volatile to make them a major source of reliable passive income. They come with a high risk but also offer a high reward. It’s more akin to lucrative gambling rather than a sound retirement plan. If enough money is invested, it could seriously bolster one’s income but, especially with compounding interest in mind, this is only relevant with multiple thousands in investment and thus not financially viable for the low-income household as a primary source.

And last but not least, please only invest what you’re willing to lose. Do not overburden yourself.


The above is for information purposes only. It is not investment advice. Seek a duly licensed professional for investment advice.

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