Thread by @cryptobafemi

Last week I wrote about Liquidity Pools. Today I'll be going deeper.
Kinda like a Part 2!

𝗪𝗵𝗮𝘁 𝗶𝘀 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗠𝗶𝗻𝗶𝗻𝗴?

A Thread 🧵

👇👇👇

From the word 'MINING', someone might think of Blockchain mining for example in terms of #Bitcoin but no it doesn't involve block mining at all.

In fact it's a much more simpler process.
1/n

DEFINITION:

Liquidity mining is an investment strategy in which participants within a DeFi protocol contribute their crypto assets to make it easy for others to trade within a platform.
2/n

Liquidity Miners (Liquidity Providers) are incentivised to provide token pairs into a Liquidity pool.

When a transaction occurs in a liquidity pool, fees are charged.

The fees charged go to the Liquidity Providers.
3/n

𝗦𝘁𝗲𝗽𝘀 𝗜𝗻𝘃𝗼𝗹𝘃𝗲𝗱

Let's take a look at a Decentralised App (#DApps) like #PancakeSwap for example.

1. You head to Pancakeswap website, add your wallet and click on Liquidity.

4/n

2. Like I said 1:1 dollar price pair of tokens.

E.g for a ETH/DAI pool, 1 ETH must be paired with 2,012 DAI (as required by current market price).

If we look at the picture below, we see that less than 0.01% of the liquidity is what is being provided.

5/n

3. You get LP tokens.

These LP tokens can be withdrawn at anytime and you make a profit depending on how much percentage of liquidity you provided.

It can also be staked or farmed to earn even much more yield.

6/n

PROS of Liquidity Mining

- Ability to provide liquidity to kick-start a platform and ensure initial growth.

- Intelligent and fair distribution of tokens promotes decentralisation of a project.

7/n

CONS

- Smart contracts could be hacked or vulnerabilities could be exploited.

- Little to No Regulations or KYC.

- Impermanent Loss.

8/n

Recap
0: Liquidity Pools (Part 2)
1: What is Liquidity Mining.
2: Definition
3: Explanation
4-6: Steps involved
5: Pros
6: Cons

If you found this thread educative, kindly hit the like and retweet button on the first tweet.

Check out my last thread on Liquidity Pools
👇👇👇