Decentralized finance (DeFi) has introduced innovative ways for people to earn passive income on their crypto assets. One popular feature that has gained traction over the last few years is liquidity mining. But what is it, and how does it work on DeFiChain?
In its simplest form, liquidity mining allows you to earn rewards for depositing your coins into certain liquidity pools. The term liquidity pool refers to a collection of tokens or digital assets locked in a smart contract that provide essential liquidity to decentralized exchanges.
By providing liquidity to these pools, you play an important role in facilitating trade on the network and making it run smoothly. And in exchange, you can earn yields through these newly created “liquidity mining” rewards.
On DeFiChain specifically, liquidity miners are paid in the native token DFI. When you add your digital assets like BTC, ETH, USDT, and many more to provide liquidity on DeFiChain, you receive – proportionally to the value of your assets and, depending on the liquidity pool – rewards in DFI. The more liquidity you contribute, the more mining rewards you can earn!
To start liquidity mining on DeFiChain, you must add an equal value of two tokens into a liquidity pool. For example, you would deposit 5 BTC and the equivalent USD value of DFI tokens into the BTC-DFI pool.
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By locking these paired assets into the pool, you facilitate easy swapping between the assets for other DeFiChain users. Your pooled coins are used to fulfill BTC<<>>DFI trades on the decentralized exchange. In exchange for providing this valuable service, your contribution is rewarded over time with DFI coin mining allocations.
If you’re holding assets like BTC, ETH, USDT, or DFI, you can put them to work today, earning attractive yields through DeFiChain’s liquidity mining. Providing liquidity is easy to set up, and allows you to generate income from your portfolio’s idle capital. Given the lucrative incentives, it’s an increasingly appealing option in the DeFi landscape.
By incentivizing liquidity providers with these rewards, protocols like DeFiChain can significantly deepen liquidity in their markets. This then allows more trading activity with less slippage to occur on-chain. It’s a win-win scenario – liquidity miners earn passive income on their idle crypto, and the protocol generates additional transaction volume from the deeper liquidity.
Given the high growth potential of DeFi, liquidity mining has become an extremely popular way to put your assets to work while supporting exciting new projects. In fact, liquidity mining is one of the key drivers spurring DeFi’s meteoric rise over the past years.
Liquidity mining puts the power back in the hands of crypto users while supporting protocols like DeFiChain. It’s a front-row seat to the future of finance!
If you want to know more about liquidity mining, please check out our blog post here: https://blog.defichain.com/what-is-defichain/#what-lm
