Cryptocurrency Liquidity Mining in DeFi
In the past few years, we have seen the independent working of finance that is fully automated and doesn’t require any type of intervention of third parties. People have got their shares of control and can operate their digital money according to their own free will, however, this type of finance is based on a blockchain network that completely decentralized the entire digital finance due to the application of cryptography.
Where the cryptocurrencies are used instead of traditional currencies, no bank details are revealed and hence this entire concept is user-oriented, but what about the liquidity? Who is responsible for bringing liquidity to this crypto market?
Liquidity Mining Protocols
Its liquidity mining adoption rate has been skyrocketing for a year since its launch. According to DeFipulse, the number of DeFi platforms is over 120. With DeFi platforms using the same concept as Compound, you need to know how the different protocols work as well as the differences. Liquidity mining protocols are divided into three categories. If you are interested in bitcoin trading visit yuanpaygroup site .
Growth Marketing Protocol
It stands out among the categories of liquidity mining protocols. With this model developers market the project, who are more encouraged to be a member of the community.
DFYN is a multi-chain decentralized exchange, with many unrelated blockchains intertwined with it. Unlike on-chain platforms, DFYN allows cross-chain interactions between liquidity pools with other blockchains as well as helps prevent liquidity fragmentation and improves the efficiency of DEXs by making them liquid.
Benefits of Liquidity mining?
Liquidity Mining has become the easiest way to earn passive income, but it has many other benefits as well. Learn about the relevant benefits of liquidity mining with decentralized exchanges and segment providers. Next, we’ll talk about the benefits that DEXs provide to liquidity.
Innovative Inflow of Capital-
It also supports the active participation of its community that aims at providing the innovative way of inflow of capital through its incentive’s programs.
Community Loyal to a Project
This is the exact opposite of the ICO era, as investors are more focused on creating returns with investments. With a liquidity mining program, a community is created that is more trusting and at the same time supporting new types of projects. The main goal of liquidity mining is to generate income for the liquidity providers. The active community helps all the members to develop a large user base with their project. In some cases, the token holders of providers become more likely to be users with the protocol after the launch.
Risks of Liquidity Mining
Decentralized finance is provided security by blockchain decentralization, with centralization being somewhat lacking as all investors pull the rug and expose them to other risks. Rag bridge can also be called a kind of fraud scheme, as the liquidity pool developers plan to run away with all the investors’ money after closing the protocol and protocol developers. The openness, along with the decentralized protocol, allows the project to be launched without verification or registration with anonymity.
As for the temporary loss, it is when you deposit the token for the first time that the token price changes with the contribution made to the liquidity pool. When the price difference is high, the potential for permanent loss becomes high. When you decide to provide liquidity, the result is reduced to $USD when withdrawing it compared to its value. All this risk has to be offset by way of trading fees such as rewards to achieve profit. Due to the high volatility in the cryptocurrency market, one is cautious about the amount deposited with its liquidity providers.