Since 2008, the term mining has been given a new meaning. It no longer refers to the process of mining for wealth by miners but has become the process of mining digital currency. With the launch of Compound and Balancer projects, the popularity of cloud mining has exploded. Most investors don’t understand liquid mining. So, what exactly is liquid mining?
What is liquid mining?
"Liquid mining" in the DeFi refers to the process of depositing or lending designated token assets according to requirements through DeFi products with a mining mechanism to provide liquidity for the product's fund pool to obtain revenue. This benefit may be the native token of the project or the governance rights it represents.
Liquidity mining is also called Yield Farming, or cloud mining. It uses smart contracts to transfer users' funds between different lending markets to maximize returns. As a reward, users can get token rewards.
As for why it has to be transferred between different lending markets? For example, for example, during this period, the rate of return in the lending market of A is higher than that of B, and the smart contract will transfer the funds to the A market. After a period of time, the income of the C lending market The rate is higher than that of A, and the smart contract transfers funds to the C market so that high returns can be maintained at every time period. The assets pledged by users are equivalent to providing a liquidity capital pool for smart contracts, and users do not need to transfer assets in various lending markets, eliminating the need for complicated handling fees.
The function and role of cloud mining:
1\. Improve liquidity, the cold start of the project
2\. Unicom value islands to promote price discovery
As more and more DeFi products provide liquid mining and cloud mining, funds will flow to the most profitable place, and finally a balance of three aspects: the balance of risks and returns within the product, the balance between different DeFi products, and DeFi The balance between the industry and the real world.
Therefore, in liquid mining, the participants' arbitrage behavior not only assumes the obligations of LP (liquidity supplier) but also plays the role of Oracle (oracles).
The risks of liquid mining:
1\. The risk of being liquidated
2\. Smart contract risk
3\. Systemic risk
Decentralized financial products are inevitably indispensable to lending agreements. Similar to traditional financial banking systems, DeFi lending agreements can also provide services similar to deposits and withdrawals, financial derivatives, investment portfolios, etc., while being separated from decentralized institutions, for the majority of Users provide lower entry barriers and higher return on investment.
Why choose leveraged mining?
Those who can borrow money in the loan agreement are not short of money. What they lack is more robust investment options; for DeFi players with small amounts of funds, from manual cloud mining, pledge mining, and aggregate mining, to liquid mining have more and more advanced means of participating in revenue, but low mining efficiency has always been a pain point. One sentence summary: Existing "excess mortgage" loan agreements are extremely inefficient in the use of funds, which greatly hinders the development of the DeFi market.
Leveraged mining uses leverage to amplify the user's cloud mining principle, thereby increasing the utilization rate of funds, and allowing users to obtain higher cloud mining returns with fewer funds. At the same time, revitalizing the "dead" assets in the wallet, making them flow into various projects in the DeFi field, has the potential to benchmark the basic business of traditional financial banks, so there is also a huge market value imagination.
Leveraged liquidity mining in DeFi and its future
From the above analysis, it can be clearly seen that leveraged liquidity mining provides a unique opportunity to earn the highest income on DeFi encrypted assets. In addition, these strategies can range from conservative (mining stablecoins or hedging pseudo-triangular neutrals) to high-yield and high-risk speculative (leveraged long and short), thus attracting a wide range of users.
On its basis, since most of the benefits of leveraged liquidity mining do not come from the token rewards of the platform, but from higher capital efficiency, it can be said with certainty that leveraged cloud mining is the most sustainable in DeFi One of the parts.
In short, leveraged liquidity mining not only solves the main problems of capital efficiency and sustainability, but also currently provides mature products with high-income potential. Therefore, we believe that leveraged cloud mining protocols will continue to grow as a basic building block and DeFi.