Liquidity Mining
Also known as: DeFi Liquidity Incentives, Yield Staking, Token Farming
A DeFi strategy where users earn tokens for supplying liquidity to decentralized exchanges or protocols.
Liquidity mining is an incentive mechanism in DeFi where users earn rewards—typically in native or governance tokens—for providing liquidity to decentralized protocols. It helps bootstrap network effects, increase token distribution, and deepen liquidity. Common on platforms like Uniswap, Curve, and SushiSwap, liquidity mining often involves staking LP tokens in a reward contract. While it can offer high yields, it also introduces risks like impermanent loss, smart contract vulnerabilities, and volatile token rewards. Liquidity mining has been pivotal in the growth of DeFi since 2020’s 'DeFi Summer'.