The cryptocurrency and blockchain industry has grown tremendously, with a major contribution from Decentralized Finance (DeFi) — blockchain-based finance platforms that eliminate centralized interferences.
DeFi encapsulates all solutions through which users can earn passive income through various activities. One of these avenues is liquidity mining.
To understand how to earn extra perks from liquidity mining, let’s first learn what this concept actually signifies.
What is Liquidity Mining?
Liquidity mining is simply a strategy that allows you to provide liquidity, otherwise known as capital, to a liquidity pool on a decentralized exchange (DEX) and earn rewards in return. Liquidity mining is also called yield farming.
Rewards earned come from the specific pool to which you provide liquidity. Farms operate differently. Some may reward liquidity providers with the native token that governs the network.
Decentralized exchanges often need liquidity to facilitate trades between different token pairs. What this means is most liquidity pools are between trading pairs where, depending on the pool, users can deposit two different cryptocurrencies.
It’s also important to know that a salient difference exists between liquidity mining and liquidity provision. In the case of liquidity provision, users provide capital to a trading pair and are rewarded with transaction fees. Fees are charged when users swap tokens and it’s a fraction of these that is given to liquidity providers.
In liquidity mining, users provide liquidity and are rewarded with LP tokens which will still need to be staked in order to earn rewards meant for the mining campaign.
Besides rewards, liquidity mining comes with other benefits. We’ll take a look at some below.
Benefits of Liquidity Mining
Liquidity mining has its own set of benefits that makes them a highly rewarding set of investment opportunities.
- Transparent distribution of native tokens
- Equal benefits to both liquidity providers and DEX
- Innovations in DeFi
Transparent Distribution of Native Tokens
There are suggestions that the ICO rush in 2017 will be more favourable to institutional investors than retail investors. This, according to claims, was due to the lack of transparency and because institutional investors had more money at their disposal.
With liquidity mining came transparency, giving institutional and retail investors an equal opportunity to earn rewards. However, rewards depend on the amount of liquidity provided. This follows the concept of the higher the stake, the greater the reward.
Equal Benefits for Liquidity Providers and Decentralized Exchanges
Decentralized exchanges rely on liquidity providers to become liquid. As users provide liquidity to the smart contract protocol that controls the liquidity pool, the DEX becomes more liquid, allowing for secure transactions to take place.
Innovation in DeFi
As liquidity providers are incentivized, the native tokens of DEXs usually get to see some appreciation due to the inflow of liquidity. As developers increasingly get attracted to liquidity mining, it leads to more innovation in the DeFi ecosystem.
How Spherium is building a highly-scalable Liquidity Mining solution with HyperSwap
Spherium is a mobile-first cross-chain platform that offers a complete suite of financial packages.
Just like other DEXs, liquidity will be essential for the seamless operation of our HyperSwap protocol when it goes mainnet. HyperSwap is a fully decentralized cross-chain interoperable platform for swapping ERC-20 and BEP-20 tokens using cutting-edge Automated Market Maker (AMM) algorithms that allow liquidity providers to capture profits by reducing the price skew (for an asset in a pool) and bringing the asset price back to the market price.
With the Spherium bridge, tokens can be easily transferred between the Binance Smart Chain and Ethereum Blockchain. Moving ahead, more chains will also be added to build a bigger cross-chain support across HyperSwap network.
It’s expected that as HyperSwap goes mainnet, all benefits that come with liquidity mining and provision will be available for all users.
To learn more about $SPHRI, visit our website at www.spherium.finance and connect with us: