Gate.io Cryptopedia: How to Get Liquidity Mining Yields?
2021-03-17 10:17:45 UTC
132972 読む
What is liquidity mining?
Liquidity mining is a way to earn a passive income with crypto by pledging or staking cryptocurrencies into a liquidity pool. This is a new trend in decentralized finance (DeFi), that enables investors to earn maximum returns on their digital assets. Liquidity mining is open to everyone and is the core of decentralized financial models. In a nutshell, this means that you can be generously rewarded by simply staking your cryptocurrency.
Why is liquidity mining so popular?
Firstly, we would need to understand Decentralized Finance (DeFi). DeFi is dedicated to providing decentralized, open, peer-to-peer financial services based on public chains and smart contract mechanisms. The new mining model provided by liquidity mining, based on Defi not only attracts users to invest their money, but also enhances the liquidity of the protocol. As long as money is injected into the liquidity pool, investors get high returns with good liquidity. This model makes it accessible to everyone and is one of the reason for DeFi’s popularity.
How does liquidity mining work?
Liquidity mining is closely related to liquidity providers (LP) and liquidity pools: liquidity providers fund liquidity pools aiming to obtain liquidity tokens (LP tokens), while liquidity pools provide a driving force to the market while generating fees. Liquidity providers l receive rewards according to their share of LP tokens.
However, there is still much room for liquidity mining to improve. For example, when a major player holds more than 50% shares, then he can easily control the liquidity pool and conduct arbitrage. Therefore, the mechanism design and liquidity of liquidity mining are very important. In general, if the liquidity pool has enough depth and enough decentralized LPs, it’s much easier to offer a better trading experience.
How do I get liquidity mining yields?
Users will receive reward tokens (liquidity tokens) for depositing assets into the pool. The pool generates fees whenever there are transactions, and the tokens are distributed according to the established reward rules, which are the liquidity mining yields.
The calculation of liquidity mining yields follows the metrics commonly used in traditional markets: annualized percentage rate (APR) and annualized return ratio (APY). Note: The liquidity mining market is highly competitive and yields are highly volatile. Regardless of which calculation method is used, the results shown are only a valuation and are for reference only.
*Note: The Annualized Percentage Rate (APR) is a measure of interest earned and the conventional formula is: sum of interest and fees / principal amount borrowed; while the Annualized Percentage Yield (APY) represents the annual percentage yield and will take into account compound interest, being able to earn additional interest from the principal and the interest earned on the principal.
Risks of liquidity mining
1. smart contract risk: code vulnerabilities or compatibility issues and hacking.
2. arbitrage risk: the liquidity pool is not deep enough and can be easily manipulated by large investors for arbitrage.
3. Potential risks: liquidity mining as a new product, there are still many areas that can be improved, there are still potential risks. For example, one of the major advantages of DeFi is that it is combinable, but on the flip side, if one of the links goes wrong, the risk could spread to the whole.
4. Currently, the threshold for participation in the DEX decentralized trading platform is high, as users need to use a digital wallet, understand and be familiar with private keys, helper words, etc., which is not convenient and demanding compared to the CEX centralized trading platform. Centralized platforms such as Gate.io offer a variety of token liquidity mining financial products, users only need to select the product to participate, without the need to use the wallet, private key, helper words and any other cumbersome steps, more convenient and secure, and cheaper rates, too.
Common DeFi protocols: Compound Finance, MakerDAO, Uniswap, Curve Finance, Balancer, Yearn.finance
Compound Finance
COMP is an ERC-20 asset that enhances community governance of the Compound protocol; COMP token holders and their representatives debate, propose and vote on all changes to the protocol. By putting COMP directly into the hands of users and applications, the growing eco will be able to upgrade the protocol and will be incentivized to collectively move the protocol into the future through good governance.
MakerDAO
MakerDAO (MKR) is an autonomous organization built on Ether that has created a digital asset token called DAI. DAI is a stable coin linked to the USD, each DAI token has a value of $1t at minimal cost. Currently this token is DAI, stable to the value of $1.
Uniswap
Uniswap is a decentralized exchange platform, based on the AMM approach. The liquidity provider deposits two tokens of equal value and traders can use this liquidity pool to trade. In return for providing liquidity, the liquidity provider can earn commission on fees for trades that occur in the pool.
Curve Finance
Curve Finance is a decentralized exchange platform focused on stablecoin exchange, specializing in efficient stablecoin trading and providing low-risk supplemental fee income for liquidity providers. Unlike Uniswap, Curve supports users in trading high-value stablecoins with relatively low latency.
Balancer
Balancer protocol is an Automated Market Maker (AMM) with certain key attributes that allow the platform to act as a self-balancing weighted portfolio and price sensor and a popular decentralized Token exchange platform.
Yearn.finance
The purpose of yearn.finance is to act as a liquidity aggregator for lending platforms. yearn.finance eco consists of the following: 1) yearn.finance - acts as a lender for profit conversion to optimize loan yields (already online); 2) ytrade.finance - provides leveraged trading of stable coins (test network); 3) yliquidate.finance - 0 capital auto-clearing Aave; 4) yswap.exchange - unilateral auto-market maker (live); 5) iborrow. finance - acting as a lender agent library for smart contract to smart contract loans (beta network)
Related terminology notes
(For more blockchain learning material visit Gate.io Cryptopedia).
Liquidity: usually refers to the liquidity of the market. It refers to the speed at which transactions can be concluded or the ability of market participants to transact at market prices without causing significant price fluctuations.
Liquidity trap: refers to the point where interest rates are lowered to near zero and cannot be lowered any further, and any increase in the amount of money cannot have an effect on prices.
Mining: describes the process by which a computer calculates the cryptographic function of a digital currency to obtain a digital currency, i.e., proof of work (PoW).
Transaction mining: a concept that emerged in 2018, where a transaction is completed on an exchange to receive a corresponding reward.
Mining machine: a specialized computer used to calculate the cryptographic functions of digital currencies, uting only a single computational program and generally equipped with a specialized mining chip.
Mining Pools: A method of combining scattered computing power to operate together, a website with such functionality is a "mining pool".
Smart Contracts: First introduced by Nick Szabo in the 1990s, smart contracts are computer protocols designed to digitally create, disseminate, verify and enforce contracts.
Liquidity provider: A liquidity provider (LP) is generally a participant who can provide and enhance liquidity to the market, or in the case of DeFi, a user who provides funds and liquidity to the liquidity pool. More money in the pool often means better liquidity and more stable prices, and the liquidity provider gets more token revenue from more orders.
Liquidity token: A liquidity providing token (also called LP token) is a token that is generated when a liquidity provider invests and locks in funds into a liquidity pool. In a liquidity pool, the more money is invested, the higher the share of the liquidity token is. At the same time, the LP token is a mathematical proof of the assets in the liquidity pool, and participants must hold the LP token in order to recover their pool assets.
Impermanent loss: the loss of capital due to the spread that occurs when the price of a digital asset moves after an investor deposits it into an automated market maker liquidity pool. Irrespective of the direction in which the price of the digital asset moves, it will result in an impermanent loss, and the larger the deviation, the larger the impermanent loss. This is a key challenge for automated market makers today.
Multi-Token Exposure: like Impermanent Loss, Multi-Token Exposure is a key challenge for automated market makers today. Multi-token exposure refers to the fact that automated market makers typically require liquidity providers to deposit two different tokens to ensure that both parties provide equal liquidity, which means that liquidity providers cannot keep long-term exposure to one token and need to add additional reserve assets, thus increasing multi-token exposure.
Automated Market Maker (AMM): A Market Maker (MM) is an entity that provides trading liquidity to the exchange while performing price manipulation. Their trading activity is achieved by buying and selling assets with their own accounts, which creates liquidity for other traders while reducing slippage in large trades. Automated Market Makers (AMM), on the other hand, simulate the behavior of market makers in the DeFi market through algorithmic robots in order to achieve maximum liquidity and the highest average daily trading volume.
Slippage: refers to the deviation between the real transaction price and the preset transaction price. The deviation of slippage generally moves in a direction unfavorable to the investor and therefore prone to additional losses on the transaction.
Gate.io Money Management "DeFi Liquidity Mining Earn USDG" Benefit
Gate.io's new wealth management benefits product - "Daily Wealth Management" has been officially launched on October 12, at least one wealth management benefit every day at 12 noon, DeFi liquidity mining to earn USDG series of wealth management continues to be online, the latest phase of mining The latest phase of the mining plan will be launched this Saturday, with a 7-day lock-up period and a floating annualized rate of return of about 10%-15%, so stay tuned. For more financial products, please click Gate.io for more information.
Gate.io is an established exchange that holds integrity, transparency, and fairness to a very high standard. We charge zero listing fees and only choose quality and promising projects. Our exchange consists only of 100% real trading volume. Thanks to everyone who has joined us in our journey. We always
Gate.io is an established exchange that holds integrity, transparency, and fairness to a very high standard. We charge zero listing fees and only choose quality and promising projects. Our exchange consists only of 100% real trading volume. Thanks to everyone who has joined us in our journey. We always intend to improve and innovate to reward our users for their continuous support.
Gate.io Team
March 17, 2021
Get 40% of all referees' trading fees in the affiliate program at https://www.gate.io/referral
Click to Sign up ：https://www.gate.io/m#/register
Download it now at: https://www.gate.io/mobileapp
Follow us on social
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Twitter: https://twitter.com/gate_io
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Liquidity mining is a way to earn a passive income with crypto by pledging or staking cryptocurrencies into a liquidity pool. This is a new trend in decentralized finance (DeFi), that enables investors to earn maximum returns on their digital assets. Liquidity mining is open to everyone and is the core of decentralized financial models. In a nutshell, this means that you can be generously rewarded by simply staking your cryptocurrency.
Why is liquidity mining so popular?
Firstly, we would need to understand Decentralized Finance (DeFi). DeFi is dedicated to providing decentralized, open, peer-to-peer financial services based on public chains and smart contract mechanisms. The new mining model provided by liquidity mining, based on Defi not only attracts users to invest their money, but also enhances the liquidity of the protocol. As long as money is injected into the liquidity pool, investors get high returns with good liquidity. This model makes it accessible to everyone and is one of the reason for DeFi’s popularity.
How does liquidity mining work?
Liquidity mining is closely related to liquidity providers (LP) and liquidity pools: liquidity providers fund liquidity pools aiming to obtain liquidity tokens (LP tokens), while liquidity pools provide a driving force to the market while generating fees. Liquidity providers l receive rewards according to their share of LP tokens.
However, there is still much room for liquidity mining to improve. For example, when a major player holds more than 50% shares, then he can easily control the liquidity pool and conduct arbitrage. Therefore, the mechanism design and liquidity of liquidity mining are very important. In general, if the liquidity pool has enough depth and enough decentralized LPs, it’s much easier to offer a better trading experience.
How do I get liquidity mining yields?
Users will receive reward tokens (liquidity tokens) for depositing assets into the pool. The pool generates fees whenever there are transactions, and the tokens are distributed according to the established reward rules, which are the liquidity mining yields.
The calculation of liquidity mining yields follows the metrics commonly used in traditional markets: annualized percentage rate (APR) and annualized return ratio (APY). Note: The liquidity mining market is highly competitive and yields are highly volatile. Regardless of which calculation method is used, the results shown are only a valuation and are for reference only.
*Note: The Annualized Percentage Rate (APR) is a measure of interest earned and the conventional formula is: sum of interest and fees / principal amount borrowed; while the Annualized Percentage Yield (APY) represents the annual percentage yield and will take into account compound interest, being able to earn additional interest from the principal and the interest earned on the principal.
Risks of liquidity mining
1. smart contract risk: code vulnerabilities or compatibility issues and hacking.
2. arbitrage risk: the liquidity pool is not deep enough and can be easily manipulated by large investors for arbitrage.
3. Potential risks: liquidity mining as a new product, there are still many areas that can be improved, there are still potential risks. For example, one of the major advantages of DeFi is that it is combinable, but on the flip side, if one of the links goes wrong, the risk could spread to the whole.
4. Currently, the threshold for participation in the DEX decentralized trading platform is high, as users need to use a digital wallet, understand and be familiar with private keys, helper words, etc., which is not convenient and demanding compared to the CEX centralized trading platform. Centralized platforms such as Gate.io offer a variety of token liquidity mining financial products, users only need to select the product to participate, without the need to use the wallet, private key, helper words and any other cumbersome steps, more convenient and secure, and cheaper rates, too.
Common DeFi protocols: Compound Finance, MakerDAO, Uniswap, Curve Finance, Balancer, Yearn.finance
Compound Finance
COMP is an ERC-20 asset that enhances community governance of the Compound protocol; COMP token holders and their representatives debate, propose and vote on all changes to the protocol. By putting COMP directly into the hands of users and applications, the growing eco will be able to upgrade the protocol and will be incentivized to collectively move the protocol into the future through good governance.
MakerDAO
MakerDAO (MKR) is an autonomous organization built on Ether that has created a digital asset token called DAI. DAI is a stable coin linked to the USD, each DAI token has a value of $1t at minimal cost. Currently this token is DAI, stable to the value of $1.
Uniswap
Uniswap is a decentralized exchange platform, based on the AMM approach. The liquidity provider deposits two tokens of equal value and traders can use this liquidity pool to trade. In return for providing liquidity, the liquidity provider can earn commission on fees for trades that occur in the pool.
Curve Finance
Curve Finance is a decentralized exchange platform focused on stablecoin exchange, specializing in efficient stablecoin trading and providing low-risk supplemental fee income for liquidity providers. Unlike Uniswap, Curve supports users in trading high-value stablecoins with relatively low latency.
Balancer
Balancer protocol is an Automated Market Maker (AMM) with certain key attributes that allow the platform to act as a self-balancing weighted portfolio and price sensor and a popular decentralized Token exchange platform.
Yearn.finance
The purpose of yearn.finance is to act as a liquidity aggregator for lending platforms. yearn.finance eco consists of the following: 1) yearn.finance - acts as a lender for profit conversion to optimize loan yields (already online); 2) ytrade.finance - provides leveraged trading of stable coins (test network); 3) yliquidate.finance - 0 capital auto-clearing Aave; 4) yswap.exchange - unilateral auto-market maker (live); 5) iborrow. finance - acting as a lender agent library for smart contract to smart contract loans (beta network)
Related terminology notes
(For more blockchain learning material visit Gate.io Cryptopedia).
Liquidity: usually refers to the liquidity of the market. It refers to the speed at which transactions can be concluded or the ability of market participants to transact at market prices without causing significant price fluctuations.
Liquidity trap: refers to the point where interest rates are lowered to near zero and cannot be lowered any further, and any increase in the amount of money cannot have an effect on prices.
Mining: describes the process by which a computer calculates the cryptographic function of a digital currency to obtain a digital currency, i.e., proof of work (PoW).
Transaction mining: a concept that emerged in 2018, where a transaction is completed on an exchange to receive a corresponding reward.
Mining machine: a specialized computer used to calculate the cryptographic functions of digital currencies, uting only a single computational program and generally equipped with a specialized mining chip.
Mining Pools: A method of combining scattered computing power to operate together, a website with such functionality is a "mining pool".
Smart Contracts: First introduced by Nick Szabo in the 1990s, smart contracts are computer protocols designed to digitally create, disseminate, verify and enforce contracts.
Liquidity provider: A liquidity provider (LP) is generally a participant who can provide and enhance liquidity to the market, or in the case of DeFi, a user who provides funds and liquidity to the liquidity pool. More money in the pool often means better liquidity and more stable prices, and the liquidity provider gets more token revenue from more orders.
Liquidity token: A liquidity providing token (also called LP token) is a token that is generated when a liquidity provider invests and locks in funds into a liquidity pool. In a liquidity pool, the more money is invested, the higher the share of the liquidity token is. At the same time, the LP token is a mathematical proof of the assets in the liquidity pool, and participants must hold the LP token in order to recover their pool assets.
Impermanent loss: the loss of capital due to the spread that occurs when the price of a digital asset moves after an investor deposits it into an automated market maker liquidity pool. Irrespective of the direction in which the price of the digital asset moves, it will result in an impermanent loss, and the larger the deviation, the larger the impermanent loss. This is a key challenge for automated market makers today.
Multi-Token Exposure: like Impermanent Loss, Multi-Token Exposure is a key challenge for automated market makers today. Multi-token exposure refers to the fact that automated market makers typically require liquidity providers to deposit two different tokens to ensure that both parties provide equal liquidity, which means that liquidity providers cannot keep long-term exposure to one token and need to add additional reserve assets, thus increasing multi-token exposure.
Automated Market Maker (AMM): A Market Maker (MM) is an entity that provides trading liquidity to the exchange while performing price manipulation. Their trading activity is achieved by buying and selling assets with their own accounts, which creates liquidity for other traders while reducing slippage in large trades. Automated Market Makers (AMM), on the other hand, simulate the behavior of market makers in the DeFi market through algorithmic robots in order to achieve maximum liquidity and the highest average daily trading volume.
Slippage: refers to the deviation between the real transaction price and the preset transaction price. The deviation of slippage generally moves in a direction unfavorable to the investor and therefore prone to additional losses on the transaction.
Gate.io Money Management "DeFi Liquidity Mining Earn USDG" Benefit
Gate.io's new wealth management benefits product - "Daily Wealth Management" has been officially launched on October 12, at least one wealth management benefit every day at 12 noon, DeFi liquidity mining to earn USDG series of wealth management continues to be online, the latest phase of mining The latest phase of the mining plan will be launched this Saturday, with a 7-day lock-up period and a floating annualized rate of return of about 10%-15%, so stay tuned. For more financial products, please click Gate.io for more information.
Gate.io is an established exchange that holds integrity, transparency, and fairness to a very high standard. We charge zero listing fees and only choose quality and promising projects. Our exchange consists only of 100% real trading volume. Thanks to everyone who has joined us in our journey. We always
Gate.io is an established exchange that holds integrity, transparency, and fairness to a very high standard. We charge zero listing fees and only choose quality and promising projects. Our exchange consists only of 100% real trading volume. Thanks to everyone who has joined us in our journey. We always intend to improve and innovate to reward our users for their continuous support.
Gate.io Team
March 17, 2021
Get 40% of all referees' trading fees in the affiliate program at https://www.gate.io/referral
Click to Sign up ：https://www.gate.io/m#/register
Download it now at: https://www.gate.io/mobileapp
Follow us on social
Facebook: https://facebook.com/gateioglobal
Twitter: https://twitter.com/gate_io
Telegram：https://t.me/gateio
Instagram：https://www.instagram.com/gateioglobal
Medium：https://medium.com/@gateio
