Liquidity mining
What is Liquidity Mining?
Liquidity mining (also known as yield farming) is a process in which cryptocurrency owners lend their assets to a decentralized exchange for some kind of rewards. These rewards are usually exist in the form of cryptocurrency tokens that allow to provide liquidity to other DeFi platforms and decentralized exchanges.
Most Liquidity Mining approaches reward users with governance tokens in addition to some of the trading fees earned by a particular liquidity pool for providing liquidity in the form of LP (Liquidity Provider) tokens.
Understanding of Liquidity Mining
To better understand how liquidity mining operates we need an example. Assume that users of the DeFi protocol can exchange two tokens, Token A and Token B. The protocol needs liquidity in the form of both tokens in order to allow trade. By adding Token A and B in equal amounts to the liquidity pool. Now we can assume that a user wishes to exchange 100 Token A for 100 Token B. Using the liquidity in the pool, the protocol will carry out the deal. The protocol will automatically alter the pricing to draw in additional pools and provide liquidity if there isn’t enough for the deal.
Depending on the protocol, providers can get rewards in the form of native tokens. According to each commitment to the liquidity pool, different amounts of tokens are given out to them. DeFi protocols employ liquidity mining as a means of rewarding users for facilitating trade and providing liquidity. There also can be a risk of temporary loss—which happens when the value of the tokens in the pool fluctuates in relation to one another—by offering liquidity. But the benefits of liquidity mining can make up for the temporary loss and even turn a profit.
Latest news about Liquidity Mining
- Arbitrum, a Layer 2 Ethereum scaling solution, is set to distribute a new governance token, $ARB, to eligible users as part of its transition. This is expected to be one of the biggest airdrops in crypto history. KyberSwap, a leading decentralized exchange aggregator and liquidity platform, will launch the first-ever $ARB token liquidity pools, liquidity mining, and trading campaigns on the Arbitrum Chain. This will catalyze significant liquidity inflows and provide more earning opportunities in the growing Arbitrum ecosystem.
- DWF Labs has partnered with BinaryX to increase liquidity for BNX tokens through the Binance Loans platform. This move signals confidence in the partnership and the growing importance of BNX tokens in the crypto space. DWF Labs is known for influencing cryptocurrency token trajectories, such as the “pump and dump” strategy, which can significantly sway market direction. Their cryptocurrency wallet, also known as the DWF Labs Crypto Wallet Chronicles, is another key feature of their operations. This partnership could indicate DWF Labs’ ambition to stay ahead in the ever-evolving crypto arena.
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About The Author
Viktoriia is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
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Viktoriia is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
