What are liquidity mining yields?

The DeFi ecosystem consists of various users earning a passive income with the help of “liquidity mining yields”. Dive deep into the article in order to get deeper insights into this topic

What is liquidity mining?

Liquidity mining is a market practice wherein users can pledge or stake their Cryptocurrency or asset in a liquidity pool and earn passive income through this route. This is an upcoming concept in the DeFi market wherein it’s focus is on helping users earn the maximum returns by staking their digital assets. Liquidity mining acts as a core mechanism of the DeFi ecosystem while the entry barrier associated with it is as good as nothing. Thus in layman terms liquidity mining helps users get generously awarded for simply staking away their digital assets.

How does the liquidity mining process work

Liquidity mining works in collaboration with various liquidity pools. The providers of liquidity pool fund these pools in the hope of gaining liquidity tokens. Along the way these pools act as the driving force of the market while generating fees along the way. Thus any liquidity provider gains rewards according to their share of the liquidity tokens in the pool. However these liquidity pools still have a massive room for innovation because there are still some existing shortcomings.

There are instances wherein sometimes a majority player directly commands around more than 50% of the entire market. Thus he directly controls the entire liquidity pool and as a result he conducts arbitrage.

This is the primary reason why the mechanism design and the liquidity associated with the liquidity pool are very important. However if the liquidity pool has a good enough depth as well as a good amount of decentralised liquidity pools help in providing a better trading experience.

What is the reason behind liquidity mining gaining massive traction

Liquidity mining is gaining massive traction because the entire ecosystem is based on DeFi which works on the mechanism of providing decentralised financial services paired with various public chains and smart contracts mechanisms. This model which is a core of DeFi investors, in order to invest the money as well as enhance the overall liquidity of the entire pool. Because the model works in a simple manner wherein everyone gets higher returns.