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Author: Admin | 2025-04-28
Yield farming and liquidity mining are two terms which are often disorienting for beginning DeFi investors. Some people in the blockchain ecosystem confuse yield farming with liquidity mining, thinking that these two terms refer to the same thing. However, this is far from the truth: yield farming and liquidity mining are two different concepts, and they both have their unique advantages and disadvantages. But what are yield farming and liquidity mining exactly, and which of these two methods of gaining blockchain-based passive income will be better for you? What Is Liquidity Mining? Liquidity mining means adding tokens to liquidity pools of DEXs (decentralized exchanges) such as Uniswap, Sushiswap or PancakeSwaps. By providing liquidity to the market you allow the decentralized exchange to function, and in return you are rewarded with cryptocurrency. But first things first: what exactly are “liquidity pools”? When you use a centralized exchange like Binance or Coinbase, the liquidity is provided by the company which owns the exchange. Since decentralized exchanges don’t have their own reserves, liquidity is provided by the users who lock their own funds in liquidity pools. Simply put, liquidity pools are what allows you to buy and sell crypto on DEXs. Adding liquidity to decentralized exchanges is called “liquidity mining” because it can bring you profit just like mining cryptocurrencies such as Bitcoin or Ethereum. Both liquidity mining and mining crypto are excellent ways of generating blockchain-based passive income. However, from a practical standpoint liquidity mining and crypto mining are very different. Crypto mining requires you to buy very expensive hardware which consumes massive quantities of electric energy. Liquidity mining is nothing like it – all you have to do to start profiting from it is to lock some cryptocurrency in a liquidity pool. Low starting requirements are by far the biggest advantage of liquidity mining. Anyone can add liquidity to a pool, even people with no technical knowledge and not much crypto experience. No huge initial investment is needed either – even a small amount of tokens locked in a liquidity pool can start making you profit. To sum up: liquidity mining
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