Yield Farming vs Liquidity Mining: What’s the Difference?

Cryptocurrencies are inherently volatile and you should be prepared for big price swings on a daily basis. Your life savings probably don’t belong in a high-yield liquidity mining account. In financial markets, liquidity refers to how quickly an investment can be sold without negatively impacting its price. The more liquid an investment is, the more quickly it can be sold , and the easier it is to sell it for fair value or current market value.

In each pool, assets are normally set aside as reserves with a view to hedging against volatility and ensuring that lenders will be able to withdraw their funds once they wish to exit the protocol. Liquidity mining means adding tokens to liquidity pools of DEXs such as Uniswap, Sushiswap or PancakeSwaps. By providing liquidity to the market you allow the decentralized exchange to function, and in return you are rewarded with cryptocurrency. The two key concepts that govern the working of AMM are liquidity providers and liquidity pools.

The staker’s actions are in good faith if they have exhibited a financial interest in the protocol’s future success. Also, some liquidity mining experiments have used experimental and unaudited code, which can lead – and has led – to unintended consequences. A token is a type of cryptocurrency representing a specific use, like ownership in something or access to a service . I will break down what yield farming is, how to get into it, yield farming tips, and answer all questions about getting yield farming returns. Before investing, consider your investment objectives and Shrimpy.io’s fees and expenses. Whether you create your own strategy or follow a premium community leader, we believe the power to automate belongs in the hands of every crypto investor.

  • When implemented correctly, yield farming involves more manual work than other methods.
  • The primary difference is that liquidity providers are compensated with the platform’s own coin in addition to fee revenue.
  • DeFi shows no signs of slowing down and is on its way to being integrated with centralized exchanges like Coinbase.
  • If the exchange supports OTC trading, then the liquidity provider here is either the exchange itself or other institutional investors.
  • Participants contribute cryptocurrencies to liquidity pools for a certain exchange in return for tokens and fees depending on the quantity of crypto they contributed to the pool.
  • Liquidity mining is a passive income model with which investors utilize existing crypto assets to generate more cryptocurrencies on DeFi platforms.
  • Since digital assets are extremely volatile, it is almost impossible to avoid IL.

Then you go to Uniswap’s mobile app or browser-based portal to connect your wallet and add your tokens to the liquidity pool. Click on the “pool” button and then the “new position” link, https://xcritical.com/ select the Uniswap trading pair you want, and see how the rewards work out. Ethereum and Tether are one of the most popular pairings on Uniswap, so we’re going with those options.

Here’s How Uniswap Liquidity Works & How To Profit From It

Any individual with access to the internet and a supported crypto wallet may interact with DeFi applications. Willy Ogorzaly is the senior product manager at ShapeShift, an international, noncustodial cryptocurrency leader. He is responsible for advancing product strategy, defining new features and solutions, and ensuring new products meet the needs of an evolving, innovative and dynamic crypto and DeFi landscape.

liquidity mining meaning

The above material and content should not be considered to be a recommendation to invest in a strategy or any individual digital asset. Fresh projects may be established without any type of authentication or registration because all decentralized protocols provide anonymity. One example is Compounder Finance , where developers closed the project in 2020 and fled away with $10.8 million in investor funds.

These liquid stocks are usually identifiable by their daily volume, which can be in the millions, or even hundreds of millions, of shares. Some of the risks include smart contract risk, liquidation risk, impermanent loss, and composability risk. However, this does not mean that the exchange can not interfere with the trading process. For example, if the plan is to open large short positions and turn the market around. In this way, you can manipulate the market, make profits by betting on the fall of rates, and raise revenue through commissions.

Current Ratio

Just as importantly, given that intermediaries are removed from the process, users manage to gain some additional benefits not present in traditional finance. For instance, DeFi lending protocols provide higher interest rates for deposits and even lower fees, along with more favorable terms on loans. However, if you’re trying to earn what is liquidity mining passively in the crypto sector for the first time by “staking,” we recommend doing some study first to figure out what “value” you’re creating with your money. It’s a good idea to know what risks are involved and whether the corresponding benefit is justified (for example, “permanent loss” when locking up assets for a long time).

liquidity mining meaning

Crypto assets are stored into a smart contract-based liquidity pool like ETH/USD by investors known as yield farmers, and the practice is known as Yield Farming. These tokens can be borrowed for margin trading by users of the lending platform. Unlike centralized exchanges, decentralized exchanges do not have money stored somewhere to power transactions so they rely on third parties like the yield farmers to provide liquidity through liquidity pools. On top of this, you will earn rewards or bonus incentives from crypto networks to provide liquidity for their token. For example, by providing liquidity to the ETH USDC pair on Sushiswap, one can earn distributions of the SUSHI token in addition to the ETH USDC trading fees.


This is provided by so-called liquidity pools, where investors can park their crypto assets to earn rewards in the form of crypto tokens or interest payments. The locked-in funds then serve as the lifeblood of the decentralized crypto exchange. Without this liquid base of digital capital at their fingertips, the DEX trading systems would quickly grind to a halt.

liquidity mining meaning

For many companies, accounts receivable is more liquid than inventories . “That’s Curve’s greatest gift to the DeFi ecosystem – being able to allocate your tokens to the future growth of the platform in the form of liquidity emissions, that’s an extremely powerful concept,” he said. Santoro, meanwhile, says Fei is plotting to pick a layer 2 to migrate its ecosystem to, which he believes would immediately establish it as a leader with Fei’s alternatives to liquidity mining. The unreleased project is already showing signs of tremendous popularity. One project that was released on Tuesday, veDAO, aiming to claim a controlling stake in Cronje and Sestagalli’s new protocol, reached over $785 million in total value locked in just hours. Right now the “kingmaker” protocol in control of Curve’s rewards is Convex Finance.

How To Market a Business With no Money (On Crypto)

Including a mobile app, wallet, and NFT marketplace, in addition to its core DEX aggregator functionality. From user-centric mobile apps to full-blown cross-platform enterprise ecosystems — we’ll bring your concept to life, exactly as you think it should look and work. Concerned about future-proofing your business, or want to get ahead of the competition? Reach out to us for plentiful insights on digital innovation and developing low-risk solutions.

Convex has hoovered a stunning 43% of all circulating CRV, and Convex’s governance token, CVX, accounts for 5.1 CRV in voting power per token, according to a Dune Analytics dashboard. Others, such as angel investment collective eGirl Capital’s pseudonymous Cryptocat, believe that the liquidity trade is a passing trend. Once DeFi’s top growth hack, a wave of new projects is reconsidering a yield farming staple. The quick ratio is a calculation that measures a company’s ability to meet its short-term obligations with its most liquid assets. Liquid assets, however, can be easily and quickly sold for their full value and with little cost.


Token swaps allowed the possibility of trading one token for another one in a liquidity pool. Users had to pay specific fees for every trade, such as 0.3% of the value of swapped tokens on Uniswap. Overall, decentralized exchanges like Uniswap, SushiSwap, and Balancer have played a significant role in the growth of the DeFi ecosystem. Providing users with greater control over their assets and the ability to participate in liquidity mining programs. The intuitive and user-friendly interface of 1inch also enables users to navigate and find the best prices for their trades with ease.

Liquidity Mining also offers the potential for high yield rewards – which is, indeed, the case with the service that we offer. In fact, at the time of writing, Cake DeFi users can potentially benefit from a highly competitive APR which can go as high as 80.11%. In addition, our platform also allows participants to easily determine how many of each pair are required and your potential returns based on the DEX-market price stability. So, you feel like you’re ready to climb up the upper echelon of crypto investing and enter the high-risk but high-reward world of Liquidity Mining. By reading this article, you’re already one step closer to advancing both your merits and portfolio as we cover the “ins and outs” of this highly-disruptive Decentralized Finance product.

Mangrove lève 7,4 millions de dollars pour la DeFi

DeFi platforms work by eliminating centralized financial intermediaries allowing market participants to interact in a peer-to-peer manner. To mitigate risks, go with one of the DeFi protocols – we have reviewed some in this article. Also, read this article on yield farming risks and how to mitigate them to obtain yields in yield farming platforms. You will need to deposit equal amounts of two cryptocurrencies into an existing pool or create your own pool to be a liquidity provider. Impermanent loss occurs when the AMM pair buys or sells one of the two assets in response to market price shifts.

Securities that are traded over-the-counter such as certain complex derivatives are often quite illiquid. For individuals, a home, a timeshare, or a car are all somewhat illiquid in that it may take several weeks to months to find a buyer, and several more weeks to finalize the transaction and receive payment. Moreover, broker fees tend to be quite large (e.g., 5-7% on average for a realtor). Current, quick, and cash ratios are most commonly used to measure liquidity. Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more.

Maximize Your Crypto Portfolio

Although not required, stablecoins connected to the USD are frequently used as the deposit method. USDT, USDC, BUSD, and other stablecoins are some of the most commonly utilized in DeFi. Cake DeFi is the most transparent, safe and easy way to invest in DeFi and Web3. Georgia Weston is one of the most prolific thinkers in the blockchain space.

DeFi Glossary: Learning the Slang

There are several decentralized exchanges that incentivize liquidity providers to participate within their platforms. The most popular are UniSwap and Balancer, which support Ethereum and Ether-related tokens on the ERC-20 standard. PancakeSwap is another popular DEX where you can liquidity mine with support for Binance Smart Chain-based assets. Essentially, the liquidity providers deposit their assets into a liquidity pool from which traders will access desirable tokens and pay trading fees for exchanging their assets on a decentralized platform. Liquidity mining incentives increase existing fees earned by providing liquidity to trading pairs on decentralized exchanges known as “automated market makers” or AMM’s.

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