LIQUIDITY MINING:

HOW DOES IT WORK?

Liquidity mining is a potentially lucrative way to earn income in the DeFi market. Liquidity mining is one of the most popular income-generating opportunities in the global DeFi market, allowing you to earn above-average returns by depositing cryptocurrencies in a liquidity mining protocol.

What is liquidity mining?

Liquidity mining refers to depositing tokens into a DeFi protocol’s liquidity pool to earn rewards, usually paid in the form of the protocol’s governance token. There are many ways to farm yield, but the most common involves depositing crypto assets into a decentralized lending or trading pool to provide liquidity. In exchange for providing liquidity to these platforms, Liquidity Providers (LPs) receive a certain annual yield (APY), which is typically paid out in real time. DeFi projects enable liquidity mining to incentivize usage of their platforms and reward communities that contribute liquidity, which is the lifeblood of most DeFi platforms.

What is Liquidity in Cryptocurrency?

In the context of cryptocurrency, liquidity refers to the ease of buying or selling coins and tokens without significantly affecting their prices. High liquidity implies that there are many buyers and sellers, allowing for quick transactions. Conversely, low liquidity indicates fewer offers and trades, where large orders could potentially impact the asset's price. Therefore, assets with high liquidity are generally more attractive and less risky for traders.

The Role of Liquidity Providers in Liquidity Mining

The funds in liquidity pools come from individuals who own the coins or tokens in question. These individuals, known as liquidity providers, supply their assets to the liquidity pool. In return, they receive compensation in the form of fees and tokens based on their share of the total pool liquidity. This process of supplying cryptocurrencies to liquidity pools and receiving compensation is known as liquidity mining.