What is PancakeSwap?

PancakeSwap is a decentralized application (DApp) and decentralized exchange (DEX) known as an automated market maker (AMM). This means that there are no order books, bid/ask system, or limit/market orders. Instead, the users trading on PancakeSwap automatically draw liquidity from one or more liquidity pools, which then rebalance after the trade is complete. PancakeSwap runs on the Binance Smart Chain.

Trades conducted on PancakeSwap subtract liquidity from one side of the pool and add liquidity to the other, thereby changing the weights of the assets in that pool and their relative values. This liquidity is contributed by PancakeSwap users, known as liquidity providers (LPs), who add equal values of both sides of a liquidity pool (for example XEP/BUSD) to increase the total amount of liquidity available.

Users receive LP tokens that represent their share in that particular pool. These tokens need to be returned in order to retrieve their fraction of the pool. In return for providing liquidity, liquidity providers receive a share of the transaction fees generated by any pools they contribute to. PancakeSwap has a flat 0.25% transaction fee for makers and takers, most of which is shared among the liquidity providers.

PancakeSwap is generally accessed through a supported Web3 wallet, such as TrustWallet, MetaMask, or WalletConnect. Once configured to use the Binance Smart Chain, these wallets are used to interact with the PancakeSwap smart contracts via the PancakeSwap frontend.

The platform is funded by the PancakeSwap treasury, which currently receives 15% of all the trading fees generated. According to the official documentation, funds from the treasury can be used for a variety of purposes related to the upkeep and maintenance of the platform. These include PancakeSwap’s salaries, hosting, bounties, audits, prizes, and more.

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