Recent trends around decentralised finance (DeFi) seem to suggest that liquidity mining is growing in importance for crypto investors. Market research has shown that DeFi-backed liquidity mining can ensure tokenised earnings, through driving mainstream growth of crypto landscape.
According to Grand View Research, a market intelligence firm, global DeFi market should clock a 46% compound annual growth rate (CAGR) between 2023-30. It’s believed that DeFi’s addition has caused a financial evolution for its market-based developments. “I think liquidity mining is essential for DeFi as it incentivises users to provide cryptocurrency liquidity to decentralised exchanges, promoting price stability and ensuring a flow of funds. This helps to increase liquidity and trading volume on DeFi platforms,” Punit Agarwal, founder, KoinX, a crypto taxation platform, told FE Blockchain.
From what it’s understood, DeFi-based liquidity mining can allow investors to expand on their crypto deposits, to sustain long-term investment plans. Insights from Blockchain Council, a blockchain-based platform, highlighted that liquidity mining through DeFi enables users to ensure equitable distribution of governance using native tokens. Reports have shown that DeFi-backed liquidity mining permits low-capital and high-capital investors to secure rights over local tokens for monetary purposes such as yield farming, loan acquisition and staking.
“I believe liquidity mining offers benefits to investors, such as generating passive income through the provision of liquidity and incentivising token holders to participate in governance. Additionally, rewards generated by liquidity mining can help offset risks of holding crypto assets,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, mentioned.
Reportedly, companies such as Uniswap, Aave, SushiSwap, 1inch, Curve, among others, have extracted benefits from DeFi-oriented liquidity mining. For example, 1inch, a decentralised exchange aggregator, unveiled a new liquidity mining initiative using Polygon, Ethereum’s layer-2 scaling solution and SushiSwap, a decentralised exchange, allows facilities such as governance tokens and rewards for liquidity suppliers.
Moreover, future indications predict that mainstream approach towards DeFi-based liquidity mining will enable growth of global DeFi ecosystem. Experts are believed to have held up the necessity for regulations to develop this prospect. As stated by 101 Blockchains, a blockchain research-oriented platform, DeFi’s liquidity farming protocols will be needed for advancement of decentralised exchanges (DEXs).
“As DeFi ecosystem grows and matures, we can expect to see the emergence of more protocols, which could create new opportunities for liquidity mining. However, market volatility and regulatory uncertainties are potential challenges that must be addressed,” Edul Patel, co-founder, Mudrex, a crypto-investing platform, concluded.