Liquidity mining; DeFi’s fascinating investment opportunity

liquidity mining

What is liquidity mining?

The transformation was pretty quick. It was so promising that it was adopted almost instantly by the people. It seemed logical enough -even to the laypeople- that even the most dubious people couldn’t ignore it. Bolder investors took the lead in using it to solve many shortcomings of the traditional financial systems. It took a short time for DeFi to grow in such massive popularity. Soon, investment opportunities that seemed almost impossible with traditional banking were introduced one after the other. One of the myriad opportunities is very attractive to investors: liquidity mining. Let’s see what it is and how it works.

 Liquidity mining (sometimes called yield farming) is the act of lending your cryptocurrencies to a cryptocurrency platform or a DeFi protocol in exchange for rewards. The reward, often in the form of the platform’s native token, can then be reinvested for higher yields or sold. In essence, it is pretty much like putting your money in the bank and receiving interest. Therefore, when you do liquidity mining, you lend your liquidity to mine (i.e., generate) cryptocurrency. This kind of investment is one of the smartest ways to earn passive income during a bear market.

What are the benefits of liquidity mining?

Of course, every kind of investment is considered a win-win approach for both parties. Let’s consider the example of investing in the bank. The bank needs your money to grow its business, start new projects and invest in large-scale projects. Without people’s money, no bank would be able to do any of those things. On the other hand, the investor lends their money to the bank and receives interest. Liquidity mining is the same, except for the fact that you are investing in blockchain and DeFi projects. This can have benefits for both the investee and investor.

So, how do DeFi projects take advantage of it? By lending your cryptocurrencies to a project, you are helping it achieve its goals. For a start-up blockchain project to follow its roadmap successfully, it must be crowdfunded. Crowdfunding is a way to raise money from many people to fund a project and kickstart ideas. With the money the project raises, it can plan its future milestones more realistically and robustly. 

On the other hand, the investor gains profit by investing in the project. Depending on the nature of the project, the investor may receive a share. For example, those who have invested in a decentralized exchange (DEX) may receive a percentage of the transaction fees. Because of its high profits, more and more people are investing their assets in liquidity mining protocols, but before anything, you need to check some things out to ensure your capital stays safe.

Things to consider before liquidity mining!

Perhaps the most prominent and yet important thing is to do your research revolving around the project. Make sure you check the project’s credibility by reading its whitepaper and its roadmap. Finding out how much the project has been able to keep up with its milestones set in the roadmap can be reassuring. 

Moreover, see if its accounts on social media like Discord and Twitter are active and if there is a strong community formed around these social media. So, if, after looking into this information meticulously, you find yourself trusting and seeing a good future in it, you’re good to go. 

Last but not least, it’s important to know that in liquidity mining, you often receive the native token of that project as your interest. This could be different from what you’ve invested initially. When investing, you are given several options for the cryptocurrency you are locking into the project. For example, in return, you can lock your USDT in the CrowdSwap project and receive CROWD tokens.

Earn rewards with CROWD mining

As of August 2022, CrowdSwap launched its CROWD mining opportunity, which gives rewards to the participants who provided liquidity. By providing liquidity to CrowdSwap, CROWD market capitalization increases, contributing to less volatility and a steady price increase. On the date of publishing of this article, CrowdSwap offers one CROWD staking and two CROWD mining opportunities. If you don’t know the difference between yield farming and staking, make sure you read the difference here. To get more information about these fascinating investment opportunities, launch the app.