Liquidity Mining vs Yield Farming
A simple guide to understanding two of the most interesting phenomena in the world of crypto, Yield Farming, and Liquidity Mining. What is the difference between these two?
For fans in the world of cryptocurrencies and the Blockchain, 2020 is definitely the year of Defi: believe it or not, the shifted numbers and interest around this topic have boomed in recent months. According to some, DeFi is nothing more than the umpteenth bubble within a world still in its infancy in which FOMO, the promise of exorbitant returns and the use of phantom governance tokens are depopulating. As analyzed in the previous articles, DeFi is undoubtedly a cauldron in which we find an infinity of strategies, terms and projects in the most diverse fields, from DEX to Synthetic assets passing through the Lending Platform and the Asset Management Platform.
In this article, we try to clarify two terms that are too often confused and used one instead of the other, namely Liquidity Mining and Yield Farming.
Liquidity Mining: earning tokens by giving liquidity
Liquidity mining arises from two very important concepts in the world of cryptocurrencies, liquidity and mining. By liquidity, we mean the availability of coins/tokens in a given platform, essential for the creation, growth and expansion of DeFi markets. By mining, on the other hand, we mean the PoW-based technique in which by making the computational power available you receive new coins just minted by the algorithm. These two concepts, although distant from each other, can be joined together to create a process that has certainly favoured the boom of some DeFi projects.
Basically, a person who wants to do liquidity mining “lends” liquidity to a certain pool (basically on Uniswap) and depending on the time and the amount of liquidity provided receives new tokens just minted. Let’s take an example to clarify possible doubts.