Liquidity mining is a decentralized finance (DeFi) activity where users supply cryptocurrency to liquidity pools on decentralized exchanges in exchange for rewards. Participants earn a share of trading fees and often receive additional governance tokens as incentives. This mechanism helps to bootstrap and maintain liquidity for various digital assets.
Context
Liquidity mining is a prevalent topic in DeFi news, driving significant capital flows within the digital asset ecosystem. Reports often discuss the annual percentage yields (APYs) offered, the risks involved, such as impermanent loss, and the sustainability of various reward structures. Its continued evolution impacts the distribution of governance power and the growth of new DeFi protocols.
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