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Liquidity mining
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What *REALLY* moves currencies? Forex with Nick and Jack - Breaking down my interview with John Floyd

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Graeme Blackwood
Designer, musician, coder
What is yield farming? (DeFi) – An attempt at a simple explanation When someone lends their cryptocurrencies to a borrow / lend protocol, they are "providing liquidity". i.e. they are allowing their funds to facilitate loans, trades or other activities on the protocol. In return, the liquidity provider earns commission on each trade they facilitate. The commission is usually paid out in the same tokens they are providing. Yield farming, also called "liquidity mining", is when the liquidity provider earns a third token, in addition to their commission (or sometimes instead of commission). This third token is the "currency" of the borrow / lend protocol, and often confers certain rights to the holder, for example voting rights on protocol changes. This token is exchangeable for other tokens / digital currencies, so it has monetary value. Examples of protocols that support liquidity mining, and their respective tokens, include Compound (COMP), Curve (CRV) and iearn (YFI). Rewards are in proportion to the amount of liquidity each person provides. If you are the first to provide liquidity to a new protocol, you will earn 100% of the rewards, until someone else comes along and takes some of your market share. So it can be lucrative to be first. But there are risks with yield farming; broadly: - Scam risk (intentional – and frequent!) - Code risk (unintentional bugs – also quite frequent) - Network fee risk (only affects very small participants) Let me know if this is useful. There's more where that came... (More)