Liquidity mining (Yield Farming) has become an important investment tool in the DeFi space, attracting a large number of investors in recent years. However, many people still know little about its operational mechanisms, profit models, and potential risks. This article will delve into the core principles, practical steps, and risk management points of this investment method.
Core Concept of Liquidity Mining
What is Liquidity Mining?
Liquidity mining refers to an investment model where investors provide cryptocurrencies to trading platforms or decentralized applications (DApps) in exchange for platform rewards or a share of trading fees. Unlike traditional mining, which relies on mining hardware consuming electricity to maintain the blockchain, liquidity mining does not require hardware support; it only requires providing liquidity.
What is Liquidity?
Liquidity reflects the ease of trading an asset. The higher the liquidity, the easier and faster the transaction can be completed; the lower the liquidity, the harder it is for trading counterparties to find each other. For example,