_Disclaimer and Risk Warning: This content is for general information and educational purposes only, without representation or warranty. It should not be construed as financial, legal, or other professional advice, nor intended to recommend purchasing any specific product or service. You should seek advice from appropriate professional advisors._

**Automated Market Makers (AMMs)** have revolutionized decentralized finance (DeFi) by enabling continuous, permissionless trading through **liquidity pools**. This eliminates the need for traditional buyers and sellers, ensuring liquidity, decentralization, and accessibility for users.

## **What is an AMM?**


An **AMM** is a decentralized protocol that facilitates trading without the need for an order book. Instead, trades are executed against **liquidity pools**, which consist of token pairs provided by **Liquidity Providers (LPs)**. These pools are governed by **smart contracts** that adjust token prices algorithmically based on the supply and demand of assets. This structure allows anyone to become a liquidity provider, earning rewards in the form of trading fees. 

## **How AMMs Transformed Decentralized Trading**


The first major implementation of AMMs occurred with Bancor in 2017, which introduced the idea of liquidity pools and algorithmic pricing. However, AMMs gained significant attention in 2018 with the introduction of the **constant product formula (x * y = k)**. This formula ensures that the product of the token reserves in a liquidity pool remains constant, providing continuous liquidity no matter the market activity.

## **Key Risks and Considerations in AMM Protocols**


While AMMs provide benefits, they also come with certain risks, particularly for **liquidity providers (LPs)**:



* **[Impermanent Loss](https://blog.pancakeswap.finance/articles/understanding-impermanent-loss-in-de-fi-and-how-to-avoid-it-a-guide-from-pancake-swap)**: This occurs when the price of one token in the liquidity pool changes relative to the other. If the price shifts significantly, LPs may end up with less of the more valuable token, potentially leading to a lower return than if they had held the tokens separately. This loss becomes permanent if the LP withdraws during market volatility.
* **Price Slippage**: Large trades can cause significant changes in the token ratio within the pool, leading to price slippage. This is the difference between the expected and executed trade price, which can negatively affect users, especially in pools with shallow liquidity.
* **Market Volatility**: High volatility in token prices can cause unpredictable changes in liquidity pools, increasing the risk of impermanent loss and slippage, which can significantly impact LPs’ profits.

## **The Evolution of AMMs and How DeFi is Mitigating Risks**


To address the challenges posed by **impermanent loss** and **slippage**, DeFi has introduced several innovations:


* **Concentrated Liquidity**: This allows LPs to concentrate their capital within specific price ranges, targeting active trading zones. This significantly improves **capital efficiency** and reduces the risks associated with [**impermanent loss**](https://blog.pancakeswap.finance/articles/understanding-impermanent-loss-in-de-fi-and-how-to-avoid-it-a-guide-from-pancake-swap)
* **Protection**: DEXs now offer different tools to LPs to offset potential losses incurred from volatility.
* **Dynamic Fees**: AMMs are adopting variable fees that adjust with market conditions, helping LPs compensate for periods of high slippage or volatility.
* **[Options](https://blog.pancakeswap.finance/articles/how-to-trade-options-on-pancake-swap) and [Hedging](https://blog.pancakeswap.finance/articles/exploring-hedging-with-options) Tools**: DEXs provide LPs with access to options and other financial instruments to hedge against impermanent loss and manage market volatility.

## **What’s Next?**


In the next episode, we will delve deeper into **Concentrated Liquidity**, explaining how it optimizes liquidity management, reduces slippage, and enhances capital efficiency in decentralized trading. Concentrated liquidity represents the next evolution in AMMs, and understanding its mechanics is key to navigating the future of decentralized finance. Stay tuned for a detailed exploration of this innovative solution!


Automated Market Makers (AMMs) have revolutionized decentralized finance (DeFi) by enabling continuous, permissionless trading through liquidity pools.

Understanding Automated Market Makers (AMMs): The Evolution and Importance in DeFi

_**Disclaimer and Risk Warning**: This content is for general information and educational purposes only, without representation or warranty. It should not be construed as financial, legal, or other professional advice, nor intended to recommend purchasing any specific product or service. You should seek advice from appropriate professional advisors._


## **How Single-Sided Liquidity Works**

Single-sided liquidity was introduced as a streamlined solution to the complexities of traditional liquidity provision in DeFi. Unlike conventional models that require users to contribute two different tokens, single-sided liquidity allows liquidity providers to **deposit just one token into a pool**. This approach aims to simplify the process while also addressing risks, such as impermanent loss, associated with managing two assets.

In single-sided liquidity, the protocol takes care of the other side of the liquidity pair, either through its reserves or by employing algorithmic strategies to maintain balance. **Once a user deposits a single token, the protocol automatically pairs it with another asset, ensuring a smooth addition of liquidity without the need for the user to manage multiple tokens manually.**


## **Benefits of Single-Sided Liquidity**


**Simplified Participation**

One of the most significant advantages of single-sided liquidity is its simplicity. Unlike traditional liquidity models that require managing two tokens in equal amounts, single-sided liquidity allows you to provide just one token. This opens up liquidity provision to a **broader audience**, including users who may find managing multiple assets complex or overwhelming.


**Streamlined Management**

By only having to provide one token, users **no longer need to worry about balancing or rebalancing their liquidity.** This significantly **reduces the ongoing management complexity** and allows you to focus on other aspects of your DeFi strategy. It simplifies liquidity provision for those who want a hands-off experience.


**Lower Exposure to Price Fluctuations**

Traditional liquidity pools expose users to **[impermanent loss](https://blog.pancakeswap.finance/articles/understanding-impermanent-loss-in-de-fi-and-how-to-avoid-it-a-guide-from-pancake-swap)**—a risk that occurs when the price of one token in the pair fluctuates more than the other. With single-sided liquidity, **exposure to price volatility** between paired tokens is minimized, lowering the risk. Although fluctuations in the single token still affect your position, this model typically offers **more stability** than managing two tokens with different price trends.


## **Potential Risks of Single-Sided Liquidity**

While single-sided liquidity offers many benefits, it is important to be aware of potential risks.


**Lower Liquidity**

Since this concept is relatively new, some pools may have **lower liquidity** compared to traditional dual-token pools. This could lead to **reduced trading efficiency** and possibly lower rewards for liquidity providers.


**Impermanent Loss Risk**

Although the risk of impermanent loss is reduced, it is not completely eliminated. If the protocol pairs your token with a more volatile asset, fluctuations in the paired token’s value can still affect the rewards..


**Smart Contract Vulnerabilities**

Single-sided liquidity, like most DeFi products, relies on **smart contracts** to manage transactions and balance liquidity. **Bugs or vulnerabilities** in these contracts could lead to **significant losses** for liquidity providers, even with thorough auditing.


## **Simplifying Liquidity Provision with PancakeSwap’s Zap Feature**

To further ease the liquidity provision process, **PancakeSwap has launched its [Zap feature](https://pancakeswap.finance/liquidity), powered by KyberSwap** for **BNB Chain v3 and 20+ selected Ethereum and Arbitrum pairs**. This feature allows users to add liquidity with just **one token**, making it easier and more attractive to use the platform. By reducing the need for manual token swaps or balancing pairs, PancakeSwap’s Zap feature simplifies the entire process.

Here’s what **Zap** can do for you:

1\. **Single-Token Liquidity Provision**: You only need to provide **one token** instead of two for liquidity pools. Zap will automatically convert part of the token into its corresponding pair and balance the pool, eliminating the need for multiple transactions. 

2\. **Automatic Rebalancing**: Even if your token pair is not in the default **50/50 balance**, **Zap will automatically rebalance it**, making liquidity provision straightforward and efficient. 

3\. **Seamless Liquidity Removal**: When you decide to remove liquidity, Zap allows you to choose which token you’d like to receive. It will handle the conversion and return your chosen token, making the withdrawal process effortless. 

4\. **Slippage Protection**: Zap helps protect users from high price impacts by adjusting the token amounts to minimize slippage during swaps.


## **Step-by-Step: Using the PancakeSwap Zap Feature**


**Zap In (Add Liquidity)**



1. Visit the [**Liquidity Page**](https://pancakeswap.finance/liquidity/pools): Navigate to PancakeSwap’s Liquidity page and choose "Add Liquidity." By default, the Zap feature is turned on for every user. 
2. **Select the Trading Pair**: Choose the pair you want to add liquidity to by selecting the two tokens.
3. **Choose One Token**: You can choose to provide either one token or both. If you decide to provide only one token, simply enter the desired amount. A message will appear—click "Click Here to Start" to proceed. 

![Screenshot 2024-10-09 at 3.18.43 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/d8ca1ebccf6cb8960c9ccd99f5c0d38c.png)

4. **Review the Transaction**:Zap will automatically convert half of your provided token into the other asset in the pair to maintain a **50/50 balance**. Before proceeding, review the details carefully. Zap will show you how many LP tokens you will receive and provide a breakdown of how the tokens are balanced. Please note, Zap will charge a fee for facilitating this service.

![Screenshot 2024-10-09 at 3.19.44 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/aaaf4f3343b2fc12d89d98f895e9ceb6.png)

5. **Confirm the Zap**: Once you’re satisfied with the transaction, click “Supply” to finalize the process. Your liquidity is now added to the pool with just one token.


#### **Zap Out (Remove Liquidity)**



1. **Visit the Liquidity Page**: Head back to the Liquidity page and locate your liquidity pair under "Your Liquidity."
2. **Click “Remove”**: Select the pair you want to remove liquidity from.
3. **Choose the Token**: Decide which token you’d like to receive when withdrawing liquidity. Zap will automatically convert the other token and provide you with your preferred token.
4. **Review and Confirm**: Verify the transaction details and click "Remove" to complete the process. Zap will handle the rest, ensuring you receive the correct amount in the selected token. 


With **single-sided liquidity** and the **Zap feature**, DeFi continues to evolve toward a more **user-friendly** and **efficient** system, opening the door for more participants to join and benefit from decentralized exchanges.

In single-sided liquidity, the protocol takes care of the other side of the liquidity pair, either through its reserves or by employing algorithmic strategies to maintain balance. 

Understanding Single-Sided Liquidity and How PancakeSwap’s Zap Feature Simplifies Liquidity Provision

_Disclaimer and Risk Warning: This content is for general information and educational purposes only, without representation or warranty. It should not be construed as financial, legal, or other professional advice, nor intended to recommend purchasing any specific product or service. You should seek advice from appropriate professional advisors._

**Concentrated Liquidity** is a transformative innovation within Automated Market Makers (AMMs), aimed at addressing inefficiencies that plagued earlier models. In traditional AMMs, liquidity is spread evenly across all possible price ranges, leading to inefficient capital use and higher exposure to **[impermanent loss](https://blog.pancakeswap.finance/articles/understanding-impermanent-loss-in-de-fi-and-how-to-avoid-it-a-guide-from-pancake-swap)**—a major risk for liquidity providers (LPs). Impermanent loss occurs when the relative price of tokens in the pool fluctuates, often resulting in LPs having less valuable tokens after significant price movements.


## **The Need for Efficient Liquidity**

AMMs revolutionized decentralized trading by automating liquidity provision, however,**the even distribution of liquidity across all price ranges meant that LPs had to lock up large amounts of liquidity, much of which was underutilized in less active trading ranges**. This inefficiency led to lower efficiency for LPs and higher slippage for traders, especially in large trades where liquidity at critical price levels might be insufficient.

The introduction of **Concentrated Liquidity** addresses this problem by allowing LPs to concentrate their capital in specific price ranges, where trading volume is expected to be higher. This change significantly improves capital efficiency by ensuring liquidity is deployed where it's most needed, maximizing fee rewards for LPs and reducing slippage for traders.


## **How Concentrated Liquidity Mitigates AMM Risks**



1. **Impermanent Loss Mitigation**: LPs can now choose specific price ranges to provide liquidity, allowing them to focus on more stable price zones. This helps mitigate impermanent loss by reducing exposure to extreme price volatility outside their chosen range.
2. **Capital Efficiency**: By concentrating liquidity in high-demand price ranges, LPs can provide the same level of liquidity with much less capital, maximizing their return.
3. **Lower Slippage**: Traders benefit from deeper liquidity in critical price bands, resulting in lower slippage, even in large trades. This enhances the overall trading experience, making AMMs more competitive compared to centralized exchanges.


## **PancakeSwap v3: Concentrated Liquidity in Action**

In **[PancakeSwap v3](https://blog.pancakeswap.finance/articles/introducing-pancake-swap-v3-a-more-efficient-and-user-friendly-dex-on-bnb-chain-and-ethereum)**, the introduction of **Concentrated Liquidity** has transformed liquidity provision on the platform, allowing LPs to control their positions with greater precision.


## **Key Features of PancakeSwap v3’s Concentrated Liquidity:**



* **Price Range Selection**: LPs can specify price ranges for their liquidity, concentrating assets in active trading zones. For example, an LP expecting BNB to trade between $550 and $600 can choose to provide liquidity solely within that range, receiving more fees with less capital.
* **Higher Potential of Fee Rewards**: With liquidity concentrated in active price ranges, LPs are more likely to earn fees as their capital is deployed where it’s most needed.
* **Reduced Risk of Impermanent Loss**: LPs can better manage risks by selecting more stable price ranges or actively monitoring and adjusting their liquidity positions based on market conditions.

Recently,**[ PancakeSwap integrates the concentrated Liquidity concept with Options Trading via Stryke](https://blog.pancakeswap.finance/articles/understanding-concentrated-liquidity-automated-market-maker-clamm)**, where LPs have the potential to earn option premiums on utilized liquidity ticks.

Concentrated Liquidity transforms AMMs by allowing LPs to target specific price ranges, enhancing capital efficiency and reducing impermanent loss. This innovation delivers deeper liquidity where it's needed, improving trading outcomes. As DeFi evolves, Concentrated Liquidity will play a key role in creating a more dynamic and efficient decentralized trading ecosystem.

Cheers

The Chefs

Ready to unlock the world of DeFi? Dive into [**PancakeSwap Academy**](https://blog.pancakeswap.finance/?category=Academy) – your essential guide to mastering decentralized finance from the ground up!


What is Concentrated Liquidity in AMMs: Optimizing Liquidity with PancakeSwap

_Disclaimer and Risk Warning: This content is for general information and educational purposes only, without representation or warranty. It should not be construed as financial, legal, or other professional advice, nor intended to recommend purchasing any specific product or service. You should seek advice from appropriate professional advisors._**

In DeFi, it's all about users taking control—trading, earning, and owning their place in the decentralized world. Explore how liquidity pools work to achieve these goals in DEXs, why they matter, and the latest developments driving their evolution.


#### **What Are Liquidity Pools?**

A liquidity pool is a collection of digital assets locked in a smart contract to provide liquidity for trading on decentralized exchanges. Liquidity, in this context, refers to the ease with which an asset can be traded without affecting its price. By pooling assets, these smart contracts allow decentralized exchanges to function without relying on order books, as is common in centralized exchanges (CEXs).

On a DEX, liquidity pools are essential because they allow users to trade directly with the pool rather than with another individual. This system is made possible through **Automated Market Makers (AMMs)**, which use algorithms to determine prices based on the ratio of assets in the pool, adjusting dynamically as trades occur.

**Liquidity providers (LPs) **are users who contribute their assets to these pools in exchange for rewards, typically a share of the transaction fees generated by the pool. This incentivizes LPs to keep the pool filled with enough liquidity, ensuring efficient trading for users.


#### **How Liquidity Pools Work**

When users, known as liquidity providers, deposit their assets into a pool, they are issued **liquidity pool (LP) tokens**, representing their share of the pool. These tokens can be redeemed for the underlying assets at any time, and LPs earn rewards in the form of trading fees or native tokens from the platform.

Unlike traditional exchanges, where order books are used to match buyers and sellers, DEXs rely on AMMs. AMMs use mathematical formulas to automatically determine the price of assets in the pool based on supply and demand. When a trade occurs, the AMM calculates how much of each asset in the pool needs to be swapped to fulfill the trade, ensuring liquidity is always available.

For example, on PancakeSwap, users deposit assets like BNB and USDT into a pool. As trades occur, liquidity providers earn a [percentage of the transaction fees](https://docs.pancakeswap.finance/products/pancakeswap-exchange/pancakeswap-pools) based on their contribution to the pool, creating a decentralized and incentive-driven trading ecosystem.


#### **The Importance of Liquidity Pools in DeFi**

Liquidity pools play several crucial roles in the DeFi ecosystem:



1. **Facilitating Trading on DEXs:** Liquidity pools provide the liquidity necessary for decentralized exchanges to operate. Without sufficient liquidity, trading would be inefficient, leading to high slippage and difficulty executing large trades.
2. **Decentralization :** By removing the need for centralized entities, liquidity pools enable more privacy and efficiency in transactions. Users transact directly with the smart contract, reducing the reliance on centralized exchanges.
3. **Incentivizing Liquidity Providers:** Liquidity providers are rewarded for locking their assets into pools. These rewards, often a portion of trading fees or native tokens, encourage users to contribute to the liquidity of the platform, ensuring a steady flow of assets for trading.
4. **Supporting Yield Farming:** Liquidity pools form the foundation for yield farming, where users supply liquidity to pools in return for rewards. This is distinct from staking, as yield farming involves earning transaction fees, often with the added benefit of receiving native tokens from the platform as an additional incentive.


#### **The Risks of Adding Liquidity**

While adding liquidity offers potential rewards, there are potential risks to consider. First, [**impermanent loss**](https://blog.pancakeswap.finance/articles/understanding-impermanent-loss-in-de-fi-and-how-to-avoid-it-a-guide-from-pancake-swap) happens when the value of tokens in the pool changes compared to their value at the time of deposit. If the price difference is large, the liquidity provider may end up with less value than if they had simply held onto the tokens.

Second, **smart contract risk** is present because liquidity pools are controlled by smart contracts. Any vulnerability in the code could be exploited, leading to a loss of funds. Even platforms with strong audits aren’t entirely free from these risks.

**Market risk** arises when the value of assets in the liquidity pool declines. In volatile markets, the tokens you’ve provided as liquidity can decrease value, resulting in potential losses. Additionally, during periods of high volatility or low liquidity, it might become challenging to exit your position. This can be especially problematic during a market downturn, as insufficient liquidity could prevent timely exits, potentially amplifying losses.


#### **Latest Developments in PancakeSwap’s Liquidity Pools: Concentrated Liquidity and veCAKE**

As DeFi evolves, so do the models for providing liquidity. **[Concentrated Liquidity Automated Market Maker (CLAMM)](https://blog.pancakeswap.finance/articles/understanding-concentrated-liquidity-automated-market-maker-clamm)** is an advanced system that allows liquidity providers (LPs) to focus their capital within specific price ranges instead of distributing it across all possible prices. This maximizes capital efficiency by enabling LPs to provide liquidity where trading activity is most likely, leading to higher fee generation. PancakeSwap’s CLAMM pools enhance this model, allowing LPs to earn more fees by concentrating liquidity in high-traffic price ranges, ensuring their capital is used more effectively. Additionally, PancakeSwap integrates **CLAMM options**, where LPs can earn both AMM trading fees and potential options premiums..

Another significant innovation is PancakeSwap’s **[veCAKE mechanism](https://blog.pancakeswap.finance/articles/introducing-gauges-voting-and-ve-cake-your-ownership-of-cake-emissions)**. By **locking up CAKE tokens**, users receive **veCAKE**, which grants them voting rights and boosts farming rewards. The longer users lock their CAKE, the more veCAKE they accumulate, giving them greater influence over CAKE emissions and governance. veCAKE holders participate in the Gauges Voting system, which can **direct CAKE emissions toward specific liquidity pools.** This allows users to **concentrate rewards in pools of their choice**. Additionally, **boosted gauges apply vote multipliers** to certain pools, further increasing the rewards distributed through CAKE emissions. The system also integrates a bribing mechanism, enabling third parties to **incentivize veCAKE holders** to vote for particular pools. This mechanism not only strengthens user engagement but also promotes long-term liquidity, while the lock-up reduces circulating supply and stabilizes liquidity across PancakeSwap.

Liquidity pools are critical for liquidity providers looking to earn yield and for traders seeking efficient, decentralized markets. As DeFi continues to grow, PancakeSwap is at the forefront of liquidity innovation, offering advanced tools like concentrated liquidity and veCAKE to ensure that both LPs and traders benefit from deeper liquidity, reduced slippage, and enhanced rewards. The future of DeFi relies on the continued evolution of liquidity pools, and PancakeSwap is committed to leading that charge.

**The Chefs**


Explore how liquidity pools work to achieve these goals in DEXs, why they matter, and the latest developments driving their evolution.

The Role of Liquidity Pools in DeFi and PancakeSwap

Slippage in decentralized exchanges (DEXs) refers to the difference between the expected price of a trade and the price at which the trade is actually executed. This phenomenon is prevalent in DEXs due to the nature of their trading mechanics and liquidity dynamics. Slippage often occurs during periods of high volatility when market orders are executed at prices that differ significantly from the quoted prices at the time of order placement.

**Causes of Slippage**

1. **Low Liquidity**: One of the primary causes of slippage is the lack of sufficient liquidity in a trading pair. In DEXs, liquidity is provided by liquidity pools, and if a pool does not have enough depth, large orders can significantly move the market price.
2. **High Market Volatility**: During periods of intense market volatility, rapid price changes can occur between the time an order is placed and when it is executed, leading to slippage.
3. **Order Queue Times**: On a blockchain, transactions including trades need to be mined and included in a block. Delays in this process can lead to discrepancies between the intended execution price and the actual execution price, especially in fast-moving markets.

**Impacts of Slippage**

- **Market Inefficiency**: High slippage can deter traders from participating, especially those looking to execute large orders, thus reducing the overall efficiency of the market.
- **Adverse Price Movements**: Significant slippage can lead to unexpected price movements, which might trigger a cascade of trades that further destabilize the market.

**Mitigation Strategies**

1. **Using Limit Orders**: Limit orders allow traders to specify the range they are willing to trade, providing control over execution price and preventing slippage.
2. **Trade in High Liquidity Pools**: Choosing trading pairs and pools with higher liquidity can help reduce slippage as larger orders can be accommodated.
3. **Slippage Tolerance Settings**: Most DEX platforms, like PancakeSwap, allow users to set a slippage tolerance level, which is the maximum percentage of slippage they are willing to accept. If the slippage exceeds this percentage, the trade will not be executed.

![Screenshot 2024-09-11 at 5.19.31 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/fefcf2b3cf2a139951053e184e7a878c.png)

PancakeSwap equips its users with advanced slippage mitigation tools, empowering them to manage transactions with precision. By leveraging slippage tolerance settings, traders can ensure that their trades execute within set parameters, which significantly enhances their ability to control and predict the outcomes of their actions. Coupled with robust liquidity pools, these tools provide an effective framework for engaging with the decentralized finance environment, fostering a more stable and manageable trading experience.

The Chefs

By leveraging slippage tolerance settings, traders can ensure that their trades execute within set parameters, which significantly enhances their ability to control and predict the outcomes of their actions. 

Slippage in Decentralized Exchanges: Causes, Impacts, and Mitigation Strategies

**DEX routing** is the process by which decentralized exchanges (DEXs) facilitate efficient trade execution by navigating through multiple liquidity pools or sources to find the best path for a transaction. The goal is to minimize [**slippage**](https://blog.pancakeswap.finance/articles/slippage-in-decentralized-exchanges-causes-impacts-and-mitigation-strategies), reduce fees, and optimize trade outcomes. Advanced algorithms assess factors such as liquidity, pricing disparities, and depth across various pools, often splitting orders across multiple liquidity providers to achieve the most cost-effective results. DEX routing is essential for ensuring smooth and efficient trading within DeFi ecosystem.

### **Types of Routing in DEX**

1. **Direct Routing**:

Executes trades within a single liquidity pool if enough liquidity is available for the desired token pair. This is the simplest and most efficient route.

**Example**: Swapping BNB for CAKE directly in the BNB-CAKE pool.

1. **Multihop Routing:**

Routes trades through multiple pools using intermediary tokens when direct liquidity is insufficient. This helps minimize slippage and optimize execution.

Example: Swapping BNB for TWT by routing through BUSD (BNB -> BUSD -> TWT).

1. **Aggregator Routing:**

Aggregates liquidity from multiple DEXs to find the best trade path, optimizing for price, liquidity, and fees across different platforms.

Example: A trade from BNB to ETH might split liquidity between three exchanges.

1. **Split Orders:**

Splits large trades across multiple pools or routes to reduce slippage and price impact. Each portion of the trade is executed simultaneously across different liquidity sources.

Example: A large BNB-BUSD trade split between two BNB-BUSD pools.

1. **Conditional Order Routing:**

Executes trades based on predefined conditions, such as limit or stop orders, which are triggered when a specific price or market condition is met.

Example: A limit order to buy BNB at a specified price, executed only when that price is reached.

**Advanced Routing Features**: **Navigating Costs and Customization in DEX Routing**

PancakeSwap demonstrates the advanced capabilities of DEX routing with tools such as the Smart Router V3. This tool efficiently harnesses liquidity from multiple sources to guarantee users the best trading prices. Moreover, PancakeSwap offers customizable routing options that allow traders to select specific liquidity sources and configure settings for multi hops and split routing, enhancing their ability to manage trading strategies according to personal or market-driven needs.

![Screenshot 2024-09-10 at 5.51.25 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/0ad04b4b9307689327ff44fff0fb48c9.png)
![Screenshot 2024-09-11 at 5.18.30 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/789fafd7820155fe87208ff24cbe0f73.png)

PancakeSwap provides detailed insights into transaction fees and the routing paths via user interfaces that display swap details and routing configurations. This level of transparency empowers users to make informed decisions about their trading strategies, optimizing their operations based on real-time data and personal preferences.

![Screenshot 2024-09-11 at 5.18.14 PM.png](https://sgp1.digitaloceanspaces.com/strapi.space/f4fba7ec835607e7aa3f7fc90bbb3b25.png)

Routing is a cornerstone of DEX, providing the necessary infrastructure to optimize trade execution across the increasingly complex landscape of DEX platforms. Its development and refinement continue to be pivotal in enhancing the efficiency, cost-effectiveness, and accessibility of trading. For those looking to leverage these advancements, understanding and utilizing DEX routing will be key to trade effectively.

The Chefs

DEX routing is the process by which decentralized exchanges (DEXs) facilitate efficient trade execution by navigating through multiple liquidity pools or sources to find the best path for a transaction.

Understanding DEX Routing: The Backbone of Decentralized Exchanges

_Disclaimer and Risk Warning: This content is for general information and educational purposes only, without representation or warranty. It should not be construed as financial, legal, or other professional advice, nor intended to recommend purchasing any specific product or service. You should seek advice from appropriate professional advisors._

In our previous posts, we explored the basics of options trading and how they are priced. Now, let's take the next step and understand Automated Market Makers (AMMs) and Concentrated Liquidity Automated Market Makers (CLAMM). We’ll continue using relatable examples to make these concepts easier to grasp.

### **Why an AMM is Important for Options Trading**

Imagine you're back in the world of booking vacations, but this time, the demand for hotel rooms varies wildly, with no set system to handle bookings. Without a stable mechanism to ensure fair pricing and availability, travellers and hotel owners would struggle to find common ground. This is where an Automated Market Maker (AMM) becomes crucial in the context of options trading.

In traditional financial markets, options are traded on exchanges where buyers and sellers agree on prices. However, in decentralized finance (DeFi), there's no centralized exchange to facilitate these trades. This is where an AMM comes into play. An AMM automatically sets prices and provides liquidity by allowing anyone to participate in the market as a liquidity provider, ensuring that there’s always a market for options trading.

By using mathematical formulas, AMMs create liquidity pools that allow traders to buy and sell options without needing to directly match with another trader. This is similar to a system that automatically adjusts hotel prices based on demand, ensuring that travellers can always find a room at a fair price, and hotel owners can maximize their occupancy.

### **What is an AMM and CLAMM?**

An **Automated Market Maker (AMM)** is a protocol that facilitates the buying and selling of assets directly between traders and liquidity pools, without the need for a traditional order book. Instead of matching buyers and sellers, AMMs use mathematical formulas to price assets, allowing anyone to trade at any time.

Now, take this concept a step further with **Concentrated Liquidity Automated Market Makers (CLAMM)**. PancakeSwap’s CLAMM powered by Stryke takes the flexibility of AMMs and enhances it by allowing liquidity providers to focus their funds within specific price ranges. This is similar to strategically offering certain hotel rooms at better rates during peak travel times, maximizing both occupancy and revenue.

### **Addressing Key Challenges with CLAMM**

### **Liquidity Fragmentation**

In traditional AMMs, liquidity is spread across all possible price points, which can lead to inefficiency—like spreading your travel budget thin across multiple dates and room types, only to find that your top picks aren’t getting the attention they deserve. CLAMM addresses this by allowing liquidity providers to concentrate their assets within narrower price bands where they believe the most trading activity will occur. This concentration reduces liquidity fragmentation and ensures that liquidity is used more effectively.

### **Capital Efficiency**

Imagine being able to allocate your travel budget exactly where it will generate the most value, ensuring you get the best possible trip without wasting resources. CLAMM improves capital efficiency by allowing liquidity providers to allocate their capital precisely where they expect the most trading activity. This focused approach ensures that capital is not wasted on price points where little to no trading occurs, much like choosing the best travel dates to get the most out of your budget.

### **Composability**

Just like how you might combine different travel deals—such as flights, hotels, and tours—into a single vacation package, composability in DeFi refers to the ability to integrate various financial protocols seamlessly. CLAMM’s design enhances composability by enabling options trading within the same liquidity pools used for other DeFi activities. This allows traders and liquidity providers to create more sophisticated strategies, much like combining different travel perks into a well-rounded vacation package.

### **What You Can Do with PancakeSwap CLAMM Options powered by Stryke**

Now that we’ve covered the basics of what AMM and CLAMM are and what problems they solve, let’s take a closer look at what you can do with PancakeSwap CLAMM Options powered by Stryke.

- **Trade with Precision**: PancakeSwap CLAMM Options powered by Stryke allows traders to execute options strategies with precise strike prices and expiration dates, giving you control over your positions. This is akin to selecting exact travel dates and times to get the best deals.
- **Utilize a Variety of Expiration Timeframes**: Whether you’re looking for short-term trades or longer-term strategies, PancakeSwap CLAMM Options powered by Stryke offers a range of expiration timeframes, from just a few hours to several days. This flexibility is like having the option to choose between a weekend getaway and an extended vacation.
- **Take Advantage of Auto-Exercise Features**: With PancakeSwap CLAMM Options powered by Stryke, you can set your options to automatically exercise if they become profitable, much like setting up alerts for price drops on your favourite travel sites. This feature ensures you don’t miss out on potential gains.
- **Earn Premiums as a Liquidity Provider**: If you’re providing liquidity on PancakeSwap CLAMM Options powered by Stryke, you can earn premiums from options contracts that utilize your liquidity. It’s like renting out your vacation home during peak season, earning additional income while your assets are in use.

In our next post, we’ll dive deeper into how you can leverage these features to optimize your options trading and liquidity provision strategies on platforms like PancakeSwap CLAMM Options powered by Stryke. 

Now, let's take the next step and understand Automated Market Makers (AMMs) and Concentrated Liquidity Automated Market Makers (CLAMM)

CAKE Total Supply Reduction:

Achieving CAKE Total Supply Reduction through Net Minting:

July Mint Breakdown

July Burn Categories

Proof of Burn for July: