What Is Liquidity Mining?
Liquidity mining refers to injecting funds (in the form of digital assets) into liquidity pools, providing decentralized exchanges with liquidity to earn rewards.
DeFi users injecting funds into liquidity pools are called liquidity providers (LPs). Typically, they deposit two tokens into a decentralized trading pool to earn a share of the pool’s trading fees, plus protocol tokens paid out as incentives to LPs to provide liquidity.
Liquidity mining is enabled by decentralized exchanges that deploy automated market makers (AMMs), enabling LPs to contribute liquidity into a decentralized trading smart contract to allow traders to buy and sell the (usually) two tokens held in the trading pool directly from and to the smart contract.
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