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What is Liquidity Mining?

Decentralized Finance (DeFi) has been a resounding success and it has witnessed an upsurge in public interest in recent years. Liquidity mining is considered to be one of the key components of this achievement. It gained immense popularity due to its potential to provide investors with insane returns and opened up an entirely new way of earning passive income.

Liquidity mining is a DeFi mechanism in which the users supply cryptocurrencies into liquidity pools, and are rewarded with fees and governance tokens based on their share of the total pool liquidity. This focuses on incentivizing the injection of liquidity into the protocol in exchange for tokens that give users access to the governance of the protocol. The more money the investor blocks on the platform, the more tokens and more rewards they obtain.  

These tokens are based on the protocol’s programming. Though most of these tokens cannot be applied outside of the DeFi protocol responsible for generating them, the creation of Decentralized Exchanges (DEX) as well as the hype surrounding these tokens contributes to the rise in their value.

Liquidity mining is closely related to yield farming. While yield farmers receive returns in the form of transaction fees and interest, liquidity miners receive governance tokens in addition to the rewards the yield farmers earn. In short, liquidity mining is a type of yield farming.

Top Liquidity Mining Protocols

Liquidity mining has the potential to completely revalue a protocol that takes advantage of it, which is the reason that this new concept has grabbed the attention of a large number of developers on different platforms and spawned a new trend in the crypto world.

The rapid growth of DeFi and the increasing interest in liquidity mining have led to the development of a wide range of DeFi protocols on a variety of blockchains including Ethereum, Binance Smart Chain and Polygon.

Top Liquidity Mining Protocols on Ethereum

1. Balancer

Balancer is a non-custodial portfolio manager, liquidity provider and price sensor. The protocol allows anyone to create or add liquidity to customizable pools and to earn fees and tokens. Its key mission is to introduce an elaborate financial protocol that offers programmable liquidity in a flexible and decentralized way as well as instant on-chain swaps with low gas costs. BAL, the native token of Balancer, can be used for governance and is earned by providing liquidity or by trading on the platform.

2. UniSwap

UniSwap is a Decentralized Exchange (DEX) and Automated Market Maker (AMM) that runs on the Ethereum blockchain. It doesn’t need any intermediaries or centralized parties to carry out trades and allows its users to efficiently swap between ERC-20 tokens in a decentralized manner. Similar to other liquidity mining protocols, a user who provides liquidity to UniSwap by depositing crypto will receive the native token, UNI.

3. Compound

Compound is an Ethereum-based decentralized money market protocol that supports the lending and borrowing of particular cryptocurrencies. Liquidity providers earn COMP tokens for their participation which can be exchanged internally on the platform or on both centralized and decentralized exchanges in order to obtain profits in other different tokens. COMP is also distributed to those who borrow assets on Compound.

4. Yearn.finance

Yearn.finance is a suite of DeFi products that is built on the Ethereum blockchain. One of the most interesting aspects of Yearn.finance is its ability to make use of various lending protocols like Aave and Compund for generating the highest yield. The protocol algorithmically seeks the most profitable liquidity pools and moves around the fund to generate a high return. The participants of this protocol receive the native token called YFI.

Top Liquidity Mining Protocols on Polygon (MATIC)

1. SushiSwap

SushiSwap is another DeFi protocol that is primarily known for its DEX. But recently, it has expanded its range of services to include lending, staking, yield farming and liquidity mining solutions. SushiSwap was originally forked from UniSwap and remains one of the most popular protocols on Polygon and is used by novice and experienced users alike. SUSHI tokens are given as rewards for liquidity mining.

2. QuickSwap

QuickSwap is a leading AMM and DEX on Polygon. The protocol that was forked from UniSwap allows its users to send any ERC-20 assets at a lightning-fast speed at near-zero costs. QuickSwap has several liquidity pools that provide highly competitive returns, along with a simple-to-use interface. Liquidity miners will receive the governance token QUICK.

3. Aave

Aave is a leading Ethereum money market protocol that is now live on Ethereum sidechain Polygon. It is a non-custodial protocol that helps users earn interest on deposits and borrow assets securely and efficiently. Aave distinguishes itself by the range of cryptocurrencies in which loans are available. The option of choosing from over 20 leading cryptocurrencies has made Aave popular among investors. Liquidity miners can earn AAVE, the governance token of Aave, by providing liquidity.

4. Dfyn

Dfyn is a DEX and AMM which is being built to be an inter-connected multi-chain AMM with nodes spread on several blockchains. This multi-chain approach has helped Dfyn to share liquidity across chains and seamlessly perform asset trades on several blockchains from a single interface. Dfyn is a top protocol on Polygon that takes advantage of liquidity mining. The protocol also provides extremely competitive returns on leading assets. DFYN is the native token of Dfyn.

Top Liquidity Mining Protocols on Binance Smart Chain (BSC)

1. PancakeSwap

PancakeSwap is a DEX and AMM built on the Binance Smart Chain. The protocol allows its uses to swap tokens, provide liquidity and earn rewards in the form of interest and tokens. The governance token is called CAKE. PancakeSwap is the biggest AMM based exchange on Binance Smart Chain and has several high return liquidity pools. The low transaction fees of BSC in comparison to Ethereum makes PancakeSwap even more attractive to investors.

2. Venus

Venus is a money market and stablecoin protocol based on Binance Smart Chain. Venus was forked from Compound and MakerDAO. The protocol introduces a simple-to-use asset lending and borrowing solution to the DeFi ecosystem, enabling high speed collateral backed borrowing and low transactions fees. The liquidity providers receive XVS, the governance token of Venus Protocol.

3. Autofarm

Autofarm is a suite of DeFi products that provides DEX aggregation and yield farming aggregation on BSC, Houbi ECO Chain (HECO) and Polygon. Autofarm supports Venus, PancakeSwap, MDEX and bDollar. The efficient and reasonable cost-pricing model of Autofarm alongside the optimal compounding strategy which aims for efficiency has helped it become of the best yield aggregators in terms of final APYs. AUTO is the native utility and governance token of Autofarm.

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