Risks of Liquidity Mining
Liquidity mining also comes with certain risks, which you should know. Here are some of them.
Impermanent loss: Impermanent loss (IL) relates to the prices of the tokens held in the liquidity pool. A liquidity provider may have pooled their assets with a certain expectancy that may not be met depending on the volatility. It’s also not uncommon to encounter an overhyped project that doesn’t meet the investors’ standards. All the same, IL can lead to substantial, permanent losses.
Smart contract risks: Liquidity mining depends heavily on the proper coding and execution of smart contracts. If developers write the smart contract code poorly, it opens doorways to cyberattacks. This factor is especially true for projects that don’t audit smart contracts.
Last updated
Was this helpful?