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What is Liquidity Mining (Explained with Diagram)

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What is Liquidity Mining? In the field of cryptocurrency, liquidity mining is a

What is Liquidity Mining (Explained with Diagram)

What is Liquidity Mining? In the field of cryptocurrency, liquidity mining is a form of blockchain technology application. It generates income by exchanging digital assets for another cryptocurrency and depositing it into a smart contract for circulation and trading.

When the price of Bitcoin falls (often referred to as “Black Thursday”), liquidity and funding sources are provided, leading to significant price fluctuations due to congestion in the Bitcoin network. To avoid this situation, there are two methods that can help users profit: using liquidity mining to obtain tokens; users holding these assets in cryptocurrency exchanges or wallets can sell their assets or earn profits on the platform.

Liquidity Mining Explained with Diagram

Liquidity mining is an incentive mechanism focused on cryptocurrencies that aims to improve transaction efficiency.

Currently, there are two types of tokens in the market, one called “Sushi,” which is an ERC20 token developed based on the Ethereum protocol (similar to stable coins), and the other as a reward system for cryptographic assets.

In this article, we will explain why we call it liquidity and the staking concept in DeFi: liquidity holders will be able to receive rewards and pay a certain fee to participate in network governance; they can earn interest by using staking yield or locking in profits; they will also receive additional service fees, service fees, and transaction fee income. These funds are often used to buy cryptographic art and various other products and services, which is exactly what liquidity and stake in DeFi are all about. What is liquidity mining? First, we need to understand what liquidity mining is. It refers to determining the difference in value between different cryptocurrencies by comparing the prices of certain cryptocurrencies and then determining the weighted average price held by each person. Simply put, when the value of cryptocurrency changes, investors will receive a certain amount of cryptocurrency as a reward. However, due to the market’s extreme volatility, this may not always happen. Therefore, for those who want to benefit from it, liquidity mining can help increase their returns, benefiting the entire industry. What is liquidity mining? Liquidity mining is a new model that encourages users to actively join the network. The principle of liquidity mining is the process of executing an operation on the chain. In other words, as long as you are willing to provide some cryptocurrency to your wallet, it will be fine. But to ensure that your assets are not affected, there needs to be a smart contract to run this program. For example, the launch of ETH2.0 may cause a surge in gas consumption. If someone wants to use a new blockchain, they can establish their own system on Ethereum and send it to another address (such as Uniswap), and easily create liquidity pools and obtain returns without worrying about any external attack events. How does liquidity mining work? Similar to automated market makers, liquidity mining also supports the buying and selling orders of automated market makers, while allowing liquidity providers to exchange cryptographic assets using their liquidity pool. The purpose of liquidity mining is to make the user experience more fair, interesting, and reduce impermanent loss risks. In most cases, the goal of liquidity mining is to complete all transactions without predetermined conditions, instead of relying solely on specific technical requirements. For example, when ETH1 starts generating blocks, liquidity changes over time.

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