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Crypto Terms:  Letter L
Jun 19, 2023 |
updated Apr 02, 2024

What is Liquidity Mining?

Liquidity Mining Meaning:
Liquidity Mining - a process or practice in which participants contribute crypto assets to liquidity pools in return for fees and tokens depending on their share of total pool liquidity.
1 minute

Let's find out Liquidity Mining meaning, definition in crypto, what is Liquidity Mining, and all other detailed facts.

Liquidity pools are made up of liquidity in the form of token pairs that can be accessed through Decentralized Exchanges (DEXs).

Crypto holders must contribute equivalent quantities of tokens to DEXs in terms of value. Meaning that, if you hold 4 ETH tokens and each is worth $2,500, you have a balance of $10,000. Thus, financing 4 ETH requires you to additionally supply 10,000 USDT.

Liquidity suppliers are compensated based on the quantity of liquidity they provide to the liquidity pool.

The transaction fees are evenly dispersed between all liquidity providers when the deal is completed. Smart contracts dictate what unfolds in the liquidity pool, in which every commodity exchange supported by it leads to a valuation.

So, liquidity mining is basically a money-making approach that allows crypto holders to benefit by using their current assets instead of storing them in a cold storage.

From a traditional finance (TradFi) viewpoint, brokerage houses and organizations operate as market makers, providing investors with buy and sell alternatives. Besides, they are reimbursed for the danger of keeping assets in order to supply liquidity to the market. Besides, they benefit from the gap between the bid and offer price of the asset.