What is Liquidity Mining?

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Accepted Answer

Liquidity Mining is a core decentralized finance (DeFi) mechanism where users provide capital to a decentralized exchange's (DEX) liquidity pool and are rewarded with a distribution of the protocol's native governance token, in addition to a share of the trading fees generated by the pool. This process incentivizes users, known as liquidity providers (LPs), to bootstrap the platform's liquidity, which is essential for efficient trading and the overall functionality of the DeFi ecosystem.

Liquidity Mining

What is Liquidity Mining?

What are the core mechanics of Liquidity Mining and how are rewards calculated and distributed to participants?

What are the primary risks, such as Impermanent Loss, that participants in Liquidity Mining must understand and manage?

How does Liquidity Mining function as a foundational component of the broader DeFi ecosystem and crypto infrastructure, particularly for stablecoins?

What factors determine the overall profitability of a Liquidity Mining strategy, and what are some advanced techniques used by yield farmers?

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