“There are a number of ways to earn through the crypto industry and Liquidity Mining is one of the methods that can help the investors in becoming liquidity providers and earn passive income from the fees generated. Liquidity mining can be one of the best ways to put your idle crypto to work and earn passive income other than staking”.
What is Liquidity Mining?
The liquidity mining is the process of providing the liquidity to Automated Market Maker (AMM) based DEXs (Decentralized Exchanges) and earning rewards in return for providing the liquidity. The rewards that are reaped are known as Liquidity Pool Rewards and are calculated on the basis of the share of liquidity provided in a liquidity pool by the investor.
In a traditional market, the market makers act as the liquidity providers by buying assets that can be traded on an exchange. It required huge amount of funds to become a market maker but with the advent of AMMs in the crypto industry, the market making mechanism is decentralized and users with low amount can lock their idle crypto into liquidity mining pools at the Decentralized exchanges such as Uniswap. Any transaction that is performed on the exchange requires a fee to be paid by the user and a share of these fees is distributed among the liquidity providers.
The share of rewards is directly based on the share of the liquidity provider in the liquidity pool. For example, in a liquidity pool of total $50,000 a liquidity provider has a share of $5,000. This makes the share equal to 10% of the liquidity pool. Now, suppose the fee generated through the exchange amounts to $10,000, then the liquidity provider will get a 10% of the fees that is $1,000 as a reward for providing the liquidity.
How to Become a Liquidity Provider?
The first step is to have some crypto in your wallet. Wallets such as MetaMask can be used for providing liquidity across multiple DEXs such as Uniswap etc. Now, you must visit the pool page of any Decentralized Exchange on which you want to provide liquidity. On the pool page, select the pair and add the amount of crypto required from your wallet.
Once the liquidity is added to the pool, feel free to sit back and relax. Once the fees start generating, you will see the rewards in your dashboard that you can collect anytime. One of the most important things about liquidity mining is that your assets are not locked and you can withdraw them anytime without any fee.
- Liquidity Mining can be a great source of passive income from the idle crypto assets.
- The process of liquidity mining is quite simple and can be done by anyone who has certain crypto assets to invest.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
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