What is liquid mining?
In the Decentralized Finance industry, there is a technology called AMM (Automated Market Maker), which is different from the way of trading in centralized exchanges . Trading on a centralized exchange is done by way of pending orders, for example, when you want to sell BTC at 60000$, you only need to enter the price and quantity you want to sell, or you can actively sell to the buyer who offers the highest price.
There may be insufficient liquidity in any market. What does it mean to have insufficient liquidity? For example, you have 100 BTC in your hand, and you want to sell all of it for $60,000, but you find that most buyers only want to buy 0.01 BTC, all pending orders from the price of $60,000 to $20,000 price , the total amount does not exceed 10, you can’t sell all at $60,000, because there are not so many demand in the market, this is insufficient liquidity, if you want to sell forcibly, just sold out 10, the price will drop directly and reached 20,000$ .
Insufficient liquidity can also create an illusion of an inflated market value. Suppose there is a silly coin in the market with a total of 1,000 coins. The project party holds 990 coins. Only 10 coins are actually circulated to the market for everyone to trade, and there are 3 sellers. The price and quantity you want to sell for holding silly coins are as follows:
Price quantity
10$ 5
5$ 3
1$ 2
I only need to spend 1$X2+ 5$X3+ 10$X5=67$ to pull the price of the coin from 1$ to 10$, and then you want to sell it and find that no one buys this stupid coin at all. In reality, you find that a certain coin rises up like a mad dog. When you are about to sell, you find that no one is buying it. If you sell it a little bit, the price of the coin will drop directly below the floor. You still don’t dare to sell it all at once, you can only sell it a little bit, let the fool pick up the silly coin, otherwise it will fall sharply, if someone sees the price of the coin falling sharply, then sell together, then the rest of your coins can only be sold at a very low price with tears. Do you think it's fake? Insufficient liquidity, that's it, the example is false, but the truth is roughly the same. Any market may have insufficient liquidity and cannot support active trading.
Market makers are essentially agents that alleviate these problems and promote transactions. Some teams or organizations set up a centralized exchange to give some preferential activities, such as registering exchanges to send bitcoins, send usd, etc., to attract you and me To trade on this exchange, if a large number of people gather in this exchange (the exchange owns a lot of coins, they will also participate in it), for a coin, there will be many prices marked here, just like the vegetable market to buy potatoes, some people sell them for 1.1 USD/kg, some people hate to eat potatoes, and they can buy potatoes with a price of 0.5 USD. Some people want to eat them, and they can buy potatoes with a price of 1.5 USD, then you can see the exchange APP inside the trading area has a variety of pending orders to support the current price.
The automatic market maker is a new technology adopted by decentralized exchanges. Every user throws his tokens into the liquidity pool, and you become a small market maker, and you contribute to the decentralized exchange, allowing others to trade happily in it.The decentralized exchange must also give you dividends, because you put your tokens on the exchange to provide liquidity. Others trade on this exchange incurred a handling fee, and your dividends are derived from this transaction handling fee, which is often referred to as liquid mining.
There are many mining projects, and the income is still very high! So is there any risk in this? Yes, "Impermanent Loss". Take the trading pair of ETH and USDT as an example. When someone wants to buy ETH, the liquidity pool will give this user ETH, the liquidity pool will receive USDT. If someone buys ETH, the same thing. The liquidity of the ETH token is driven. And if you are mining liquidity, you can get the handling fee that belongs to you. The more tokens you put in, the more you contribute to liquidity, the more handling fee you will receive.
While making money, the risks are also in it. If ETH continues to fall, more people will want to sell ETH to USDT, and the liquidity pool will receive a large amount of ETH, and USDT will decrease, so you are recovering liquidity. At that time, there will be more ETH and less USDT, which is equivalent to the system automatically buying bottoms for you. Similarly, if it continues to rise and many people want to buy ETH, the liquidity pool will give a large amount of ETH to those who want to buy it, and the pool will receive a lot of USDT. At this time, when you withdraw liquidity, your ETH will be less. Yes, there will be more USDT, which is equivalent to the system helping you to sell ETH. If you replace ETH with the stupid coins mentioned earlier, if the price of the currency keeps falling, there will be more and more stupid coins in the liquidity pool, and less and less USDT, and then you have all the silly coins in your hand, which is almost like zeroing...
In general, liquid mining has both risks and opportunities. This requires you to study this project seriously. If you are going to gamble, I would like to remind you that there is no limit to the sea of suffering.
