By now, you already know that PancakeSwap is a decentralized exchange, which facilitates peer-to-peer trading of BEP-20 tokens. However, as a liquidity pool-focused DEX, Pancakeswap is built on an automated market maker (AMM) system which allows users to trade directly with liquidity pools instead of other users. Since liquidity is at the core of PancakeSwap’s system, you are only able to trade tokens on PancakeSwap if there is enough liquidity for those tokens.
How does PancakeSwap ensure liquidity? In short, it relies on users to add tokens to their pools. PancakeSwap offers rewards as an incentive for providing liquidity to their pools in the form of liquidity provider (LP) tokens. Owning these tokens allows users to earn from the transaction fees when someone uses their pool, as well as allowing them to partake in PancakeSwap’s farms to generate additional yield.
Besides farms, PancakeSwap also offers a few other products which don’t require LP tokens: Syrup Pools. Lottery, Initial Farm Offerings (IFOs), Lottery, NFT Collecting, and Prediction Markets. These products all have different benefits, but overall allow users to earn additional BEP-20 tokens.