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What is Liquidity Mining?
2021-12-16, 04:22
What is liquidity mining?
Liquidity mining refers to the act of providing liquidity to a blockchain and gaining interest based on the amount staked. This technique was devised in early 2020 by the developers of Hummingbot, which provided liquidity for autonomous transactions. In their white paper, the developers compared Liquidity mining to the PoW mechanism. Unlike the Proof of work system that utilizes powerful miners for validation, liquidity mining users pledge their tokens to provide token liquidity.
Liquidity mining is popular when it comes to DeFi projects or smart contracts. The transactions of most DeFi financial products rely on a set of rules. Liquidity helps to eliminate the need for brokers and save time. Without liquidity mining, users may spend a lot of time searching for willing traders to buy or sell their tokens. Besides, the user needs to ask one by one at a time which is a tedious task. The DeFi smart contracts solve this problem thanks to liquidity mining. Users that provide liquidity get rewarded a percentage of transaction fees or loan interest rates.
The annual return of liquidity mining
Participants get rewarded in Tokens for depositing their assets. Whenever transactions are made, the pool generates fees and distributes them to the users. The yields are calculated just like other markets using annualized percentage rate and annualized return ratio. Always check whether the pool has indicated APR or APY because it can be a little confusing. You should note that liquidity mining is very competitive hence making the yields volatile. Your stake and locking period determine the number of returns that you will get.
It’s common to find very high APY in DeFi. But you should know the higher the APY is, the higher the risks. For example, an APY of 8000% has a higher chance of impermanent loss than an APY of 8%.
What are the risks of liquidity mining?
Impermanent risk
One of the common risks that participants face is impermanent loss. The price can change drastically within a short period. This will cause your profitability to fall. You won’t lose your funds permanently, but the profits will reduce significantly.
Rug Pull
Project founders with bad intentions can shut down a project and vanish with the funds. It’s always important to carry out due diligence before investing in a project.
Project risk
If a crypto project faces any flaws, participants can lose money to hackers or inefficient software.
Arbitrage risk
Investors can manipulate the prices of tokens hence affecting the potential returns.
Advantages of Gate.io liquidity mining project
Safety- Gate.io offers many different features for users to secure their assets. Earn interest with ease, knowing that your assets are well safeguarded.
Vouchers and Discounts- Enjoy subsidized transaction fees to get the most out of your investments. Gate.io offers promotions to reward its customers. You can sign up now to receive a $100 voucher, among other rewards.
Wide variety of projects- There are hundreds of projects available for liquidity mining. Gate.io is the best-centralized exchange with high annualized returns. This offers participants the freedom to choose their favorite projects.
How to participate in Gate.io?
1.You can participate in liquidity mining by following these simple steps
2.Sign up on the official Gate.io website
3.Deposit or purchase assets
4.Visit the Gate liquidity mining center by clicking Finance>>Liquidity Mining
5.Choose your favorite pair
6.Click on the Add Liquidity button on the right side
7.Enter the size you wish to Add
8.Agree to the terms and conditions
9.Click the Add button, and Liquidity mining will begin automatically.
Answer questions to earn rewards
Liquidity mining refers to the act of providing liquidity to a blockchain and gaining interest based on the amount staked. This technique was devised in early 2020 by the developers of Hummingbot, which provided liquidity for autonomous transactions. In their white paper, the developers compared Liquidity mining to the PoW mechanism. Unlike the Proof of work system that utilizes powerful miners for validation, liquidity mining users pledge their tokens to provide token liquidity.
Liquidity mining is popular when it comes to DeFi projects or smart contracts. The transactions of most DeFi financial products rely on a set of rules. Liquidity helps to eliminate the need for brokers and save time. Without liquidity mining, users may spend a lot of time searching for willing traders to buy or sell their tokens. Besides, the user needs to ask one by one at a time which is a tedious task. The DeFi smart contracts solve this problem thanks to liquidity mining. Users that provide liquidity get rewarded a percentage of transaction fees or loan interest rates.
The annual return of liquidity mining
Participants get rewarded in Tokens for depositing their assets. Whenever transactions are made, the pool generates fees and distributes them to the users. The yields are calculated just like other markets using annualized percentage rate and annualized return ratio. Always check whether the pool has indicated APR or APY because it can be a little confusing. You should note that liquidity mining is very competitive hence making the yields volatile. Your stake and locking period determine the number of returns that you will get.
It’s common to find very high APY in DeFi. But you should know the higher the APY is, the higher the risks. For example, an APY of 8000% has a higher chance of impermanent loss than an APY of 8%.
What are the risks of liquidity mining?
Impermanent risk
One of the common risks that participants face is impermanent loss. The price can change drastically within a short period. This will cause your profitability to fall. You won’t lose your funds permanently, but the profits will reduce significantly.
Rug Pull
Project founders with bad intentions can shut down a project and vanish with the funds. It’s always important to carry out due diligence before investing in a project.
Project risk
If a crypto project faces any flaws, participants can lose money to hackers or inefficient software.
Arbitrage risk
Investors can manipulate the prices of tokens hence affecting the potential returns.
Advantages of Gate.io liquidity mining project
Safety- Gate.io offers many different features for users to secure their assets. Earn interest with ease, knowing that your assets are well safeguarded.
Vouchers and Discounts- Enjoy subsidized transaction fees to get the most out of your investments. Gate.io offers promotions to reward its customers. You can sign up now to receive a $100 voucher, among other rewards.
Wide variety of projects- There are hundreds of projects available for liquidity mining. Gate.io is the best-centralized exchange with high annualized returns. This offers participants the freedom to choose their favorite projects.
How to participate in Gate.io?
1.You can participate in liquidity mining by following these simple steps
2.Sign up on the official Gate.io website
3.Deposit or purchase assets
4.Visit the Gate liquidity mining center by clicking Finance>>Liquidity Mining
5.Choose your favorite pair
6.Click on the Add Liquidity button on the right side
7.Enter the size you wish to Add
8.Agree to the terms and conditions
9.Click the Add button, and Liquidity mining will begin automatically.
Answer questions to earn rewards
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