Investing in crypto assets is not regulated, may not be suitable for retail investors, and the entire amount invested may be lost. It is important to read and understand the risks of this investment which are explained in detail in this location. The liquidity mining fever is quite recent, in fact, many attribute to Compound this fact. It all started on 15 June of 2020, when Compound, took out its governance token COMP.
Yield farming is a general name for investing money into a Defi protocol to earn a yield. In essence, liquidity mining is a form of yield earning, but the latter focuses on lending protocols and centralized exchange (s). In contrast, liquidity mining focuses on providing liquidity to aid trading on a decentralized exchange. The first main benefit of participating in liquidity mining is that it’s a great way of earning passive income. The volume of trading fees is very high thanks to high trading activity in the crypto market. The value of bitcoin and other cryptocurrencies has surged, drawing the interest of the general public.
Decentralized exchanges are required to be liquid by nature, thereby implying the facility of rewards for users offering liquidity to them. While a yield farmer lends their tokens to a centralized liquidity pool, a liquidity miner invests in an exclusive, platform-centric liquidity pool. So, yield farming lets your investments interact with multiple blockchain networks, but liquidity mining limits itself to a single DEX chain.
One of the major advantages of Curve Finance is the assurance of reduced slippage due to using non-volatile stablecoins. Some investors often use the terms “liquidity mining” and “yield farming” interchangeably, but we can’t judge them because it’s neither necessarily right nor necessarily wrong. However, you need to know that liquidity mining and yield farming may sound interchangeable. Still, the most significant difference between them is related to the fact that they have different objectives.
They must then add assets to a liquidity pool on the DEX and wait for rewards to accrue over time. Liquidity mining involves lending cryptocurrencies to lending protocols and exchanges to help facilitate trading. It involves what is liquidity mining providing cryptocurrencies in trading pairs to ease the trading of such currencies on exchanges. Liquidity mining is an excellent source of income for investors because of its relatively low barrier to entry.
The profits from the LP rewards may occasionally be able to offset this unrealized loss, but cryptocurrency assets are extremely volatile and have dramatic price swings. The final category of protocols for liquidity farming includes growth marketing protocols, which are completely distinct from other two protocols. Such types of models rely on incentives for community members involved in marketing the project. Therefore, individuals could advertise the DeFi protocol or platform and earn governance tokens as their rewards. The AMM would then collect the fees and distribute them among liquidity providers as rewards. Now, the DEX would present a symbiotic ecosystem where different groups of users support each other.
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