101: Core Concepts
Liquidity Mining
The problem with unsustainable mining incentives
Introduction to Liquidity Mining
101 Level Core Concepts Course
Liquidity mining is a type of program in which a cryptocurrency project incentivizes people to provide liquidity to a particular exchange or trading pair by rewarding them with token-based yield. This is typically done to increase the liquidity of a particular asset on a decentralized exchange, which can make it easier for people to buy and sell that asset. It can also help to attract more users to a particular exchange or platform. Some people see liquidity mining as a way to earn rewards for providing a valuable service to a cryptocurrency project, while others view it as a potential investment opportunity.
The jury is still out on whether liquidity mining is sustainable in the long term, as it ultimately depends on the specific details of each liquidity mining program and the market conditions. Liquidity mining can be beneficial for both the exchange and the users of the platform, as it can make it easier to buy and sell the asset. Unfortunutely, most liquidity mining programs are predatory and unsustainable, and are designed to extract value from the end users while providing "exit liquidity" to large token holders. Tokemak is designed to resolve this misalignment of incentives by balancing governance power, rewards, and revenue between the various parties equitably.