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  1. Products
  2. Exchange

Liquidity Pools and Adding Liquidity

PreviousExchangeNextHow to Trade on the PancakeSwap Exchange

Last updated 4 years ago

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allow you to provide liquidity by adding your tokens to liquidity pools or “LPs”.

When you add your token to a liquidity pool (LP), you will receive FLIP tokens (PancakeSwap’s version of liquidity provider tokens).

As an example, if you deposited $CAKE and $BNB into a liquidity pool, you would receive CAKE-BNB FLIP tokens.

The number of FLIP tokens you receive represents your portion of the CAKE-BNB liquidity pool. You can also redeem your funds at any time by removing your liquidity.

It’s not all bad for liquidity providers as you will also be given a reward in the form of trading fees. Whenever someone trades PancakeSwap, the trader pays a 0.2% fee, of which 0.17% is added to the liquidity pool of the swap pair they traded on.

For example:

  • There are 10 FLIP tokens representing 10 CAKE and 10 BNB tokens.

  • 1 FLIP token = 1 CAKE + 1 BNB

  • Someone trades 10 CAKE for 10 BNB.

  • Someone else trades 10 BNB for 10 CAKE.

  • The CAKE/BNB liquidity pool now has 10.017 CAKE and 10.017 BNB.

  • Each FLIP token is now worth 1.00017 CAKE + 1.00017 BNB.

Providing liquidity is not without risk, as you may be exposed to impermanent loss.

To make being a liquidity provider even more worth your while, you can also put your FLIP tokens to work whipping up some fresh yield on the , while still earning your 0.17% trading fee reward.

“Simply put, impermanent loss is the difference between holding tokens in an AMM and holding them in your wallet.” - Nate Hindman
CAKE farms (here)
PancakeSwap pools