How does PancakeSwap price work?

Liquidity provider tokens or LP tokens are tokens issued to liquidity providers on a decentralized exchange (DEX) that run on an automated market maker (AMM) protocol . Uniswap, Sushi and PancakeSwap are some examples of popular DEXs that distribute LP tokens to their liquidity providers.

Most AMM and liquidity pool uses the constant product formula which is x * y = k . This is the formula that mathematically determines what the market price of the token in the pool should be. x and y represents the respective token balance of a pairing and k is a constant that will never change.

The liquidity pools operational in decentralized exchanges are for trading purposes. On PancakeSwap, traders using liquidity from these pools pay a fee of 0.20%. From this amount, 0.17% goes to its treasury . This money helps in the maintenance and upgrades of the platform.