The main goal of blockchain technology and the cryptocurrency industry as a whole is decentralization – and they are moving towards it rapidly. With the introduction of Bitcoin in 2008, the world saw hope in building an almost flawless global financial system. The Bitcoin system is a pure P2P network that uses every participant on the network for keeping track of the transactions occurring on the network. That being said, this technology provides a platform for safe and decentralized transactions by getting rid of a third party such as banks, governments, or other financial institutions.
This technology has come a long way from where it started. Today, we have decentralized platforms of all kinds; ranging from decentralized wireless networks like Helium to decentralized exchanges like Mdex.
In today’s article, we are going to elaborate more on decentralized exchanges – Pancakeswap and Uniswap in particular. Additionally, we will try to tackle the drawbacks and benefits of both DEXs respectively.
What is Uniswap?
Let us touch upon the basics of Uniswap. This decentralized cryptocurrency exchange was founded in 2018 by mechanical engineer Hayden Adams. Unlike centralized cryptocurrency exchanges, Uniswap does not use the traditional market of buyers and sellers, but rather uses an automated market maker (AMM). This system is a big addition to the decentralized finance (DeFi) ecosystem, allowing decentralized exchanges to be truly independent. Through automated market makers, trading in Uniswap is automated and fully decentralized, making trades unstoppable whenever there is enough liquidity provided in liquidity pools.
When compared to most centralized exchanges, the trading fees in decentralized exchanges are usually lower. Moreover, centralized exchanges use trading fees to enrich themselves, while decentralized exchanges use trading fees to reward liquidity providers for adding liquidity to pools and making instant trading possible. This is a perfect scenario where we can see what centralization and decentralization mean in terms of fees. When it comes to Uniswap, their platform has a 0.3% trading fee for every trade that occurs – if you were to execute a trade worth $1000, you would pay a $3 trading fee to the liquidity providers.
To execute a trade on Uniswap, the coin that you want to swap must first be swapped to Ethereum, and then be swapped to the coin that you chose. For instance, if we want to swap some Shiba Inu to Dai stablecoin, our Shiba Inu will first be converted to Ethereum, and then that Ethereum will be converted to Dai.
Even though Uniswap is continuing to release new improved versions of its DEX, it is still built on the Ethereum network. This is not necessarily a bad thing, however, the gas fees of Ethereum tend to reach some very high level at times. That being said, the higher the gas fees of Ethereum, the higher the trading fees on Uniswap.
What is Pancakeswap?
Moving on, let us briefly talk about the fundamentals of Pancakeswap. This DEX is built on the Binance Smart Chain and was founded in late-2020 by a group of anonymous developers. Similar to Uniswap, Pancakeswap uses an automated market maker model, making trading instant and fully decentralized. As mentioned before, since there are no buyers and sellers, you trade with a liquidity pool that is filled with the funds of other users. Moreover, you can become a liquidity provider by locking your funds in a liquidity pool, getting continuous rewards. There are many risks that come with locking your funds on these pools, of course. Therefore, make sure to check our How To Use Pancake Swap guide.
One thing that distinguishes Pancakeswap from the rest of the decentralized cryptocurrency exchanges is its user-friendly interface. Moreover, Pancakeswap tries to incentivize people to use their platform by combining the pleasant-to-the-eye interface and its huge +100% returns in liquidity pools.
Pancakeswap decided to set a 0.25% trading fee amongst all the trades that occur on its platform; that is 0.05% less than Pancakeswap’s main competitor, Uniswap, which has a 0.30% fee for each trade.
Uniswap vs. Pancakeswap
The battle of the DEXs has been going on from the moment that there were two DEXs in the industry. Throughout the past months, Uniswap and Pancakeswap have been talked about the most. Additionally, they have both been swapping the first and second spots back and forth constantly. This continuous battle is proving to be quite positive for both the DEXs and the DeFi ecosystem as a whole – and this is because both opposing teams behind the DEXs are working continuously to bring something better than their competitor to the market.
At the time of writing, Uniswap V3 holds the number one spot in Coinmarketcap. It has a daily trading volume of $1.2 billion and has more than 200 markets; while Uniswap V2 has a daily trading volume of less than $300 million. On the other hand, we have Pancakeswap that holds second place regarding daily trading volume, having a trading volume of around $600 million during the last 24 hours and more than 800 markets.
|Rank||Name||Trading Volume||No. Markets|
CoinBureau analyzed and pointed out the main differences between Uniswap and Pancakeswap. According to him, the biggest difference there is when it comes to these two DEXs is the gas fees and speed.
- Uniswap is slower, with transactions taking minutes or even hours to be executed; while Pancakeswap is way faster, with transactions being completed in a matter of seconds.
- Additionally, Uniswap’s gas fees are way higher than those of Pancakswap, with the latter having gas fees that nearly never go above $1. That being said, Uniswap has more liquidity and more trading pairs but it is not that fast and cheap, making it a better place for “whale investors”. On the contrary, Pancakeswap is faster and cheaper, making it a perfect place for ordinary investors to continuously trade.
Even though many things have changed from the time that video was made, the same problems are still around these particular DEXs.
Even with the release of Uniswap V3, the gas fees of Uniswap are still higher than those of Pancakeswap. As we mentioned before, the Ethereum network is continuously facing criticism when it comes to these fees. Its founders are working on a new version of Ethereum named “Ethereum 2.0” that will supposedly put an end to these issues. This would also serve as a big boost to Uniswap, lowering the costs of trading on this exchange tremendously. With the gas fees lowered, more market pairs, more liquidity, Uniswap might just keep the number one spot for longer than expected.
Both DEXs will always have a reserved spot when it comes to the DeFi ecosystem because they are the ones that are building this sector of DeFi rapidly. With a 24-hour combined trading volume of more than $2 billion, both of these DEXs have a bright future ahead.
At the time of writing, Uniswap is working more to improve itself, something that is seen by its continuous updates. Additionally, the statistics show that Uniswap is ahead of Pancakeswap in many aspects, be that by daily trading volume or number of users. Yet, even though the V3 update has proven to be quite beneficial for Uniswap, Pancakeswap is still ahead of it when it comes to speed and gas fees.
In conclusion, Uniswap is a great DEX, but its high fees make it impossible for ordinary traders to use it constantly; therefore, Uniswap is mostly used by whale investors, hence the enormous daily trading volume. Pancakeswap is also a great DEX, however, it is still very young. Being built on the Binance Smart Chain, Pancakeswap has high potential because of its speed and cheapness.
Frequently Asked Questions
When did Uniswap V3 Launch?
Uniswap V3 officially launched on the Ethereum mainnet in May 2021, however, it did not meet its expectations for quite a while after its release.
Is Uniswap better than Pancakeswap?
Not necessarily. Uniswap has been around for longer than Pancakeswap, therefore, it had more space to test itself and improve. However, Pancakeswap is faster and cheaper than Uniswap, making it a better platform for many.
What wallet do I need to use these DEXs?
- Decentralized Cryptocurrency Exchanges (DEX) are a crucial part of the Decentralized Finance (DeFi) ecosystem.
- At the time of writing, Uniswap V3 and Pancakeswap V2 are battling for the number one spot regarding daily trading volume – with Uniswap being way ahead.
- Uniswap is considered a DEX for whale investors because of its high liquidity and number of market pairs.
- Pancakeswap is considered a DEX for ordinary traders because of it is faster and cheaper than most DEXs.
- Because Uniswap is built on the Ethereum network, gas fees are a big problem for its platform.
- The number one spot regarding DEXs is constantly being passed around Uniswap V3 and Pancakeswap V2.
- All in all, both DEXs are continuously improving, make sure to do your research before using them. Additionally, use the one that fits you better.