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. The PancakeSwap decentralized exchange operates as an automated market maker (AMM). This means PancakeSwap doesn't use a traditional order book model when executing trades. Instead, a smart contract manages trades, and users trading on the platform automatically withdraw liquidity from one or more liquidity pools. After the trade is completed, the liquidity pool balance is recalculated. Trades executed on AMMs like PancakeSwap subtract liquidity from one side of the pool and add liquidity to the other side.