Liquid Mining in Defi

Blockchain created the financial revolution, innovation and decentralization has become the center of the financial world, Ethereum and the Defi pursuing the existing financial environment and continuously reshaping to meet the changing needs of the financial world, every day a large number of transactions occurred on Etehreum network in order to runs thousands of decentralized applications on Defi based smart contracts.

Defi subverted the intermediaries organizations such as banks and other institutes shifted the approach of legacy financial applications to blockchain-based applications, because of the many advantages of decentralization and ease of use, banks, insurance companies, and ever-changing currency markets are trying to avail the unique characteristics of the Defi ecosystem. The objective of the Defi system is to provide a democratic system for everyone, without any intermediaries and institutions.

Liquid mining in Defi is referring to the rewards generated by locking the collateralizing the encrypted assets in the mining pool, in order to receive the rewards the crypto asset holder must add funds to the liquidity pool and become the liquidity provider, and against such deposits the crypto asset holder will return the profit on the label of interest which is incurred by the Defi platform.

The liquidity pool in Defi is basically the smart contract mechanism of computerized code and algorithm, the code will execute automatically and triggers when certain conditions are met, due to Defi and Etehreum network there is no need for centralized authority for enforcement and management of interaction between borrowers and lenders, Defi based system are same as a traditional financial system but the difference is that the rules and regulation are pre-written in a smart contract, users pool the crypto assets, through a smart contract where borrowers seek lending resources.

These type of applications are not new in our financial world, these application already exists in our traditional financial system where borrowers need to put in collateral to get loans, Defi allows you to add your cryptocurrency into smart contracts as collateral, the value of the loan must be equal to the value of the loan, the type of currency as collateral depends on the connected lending pool, however, users swap, move their tokens into different smart contracts to obtain the high rewards from the lending platform. Those who provide the funds to the pools are referred to as liquidity providers or liquidity miners.

The Pool work like a bank that is open for everyone, whoever needs the designated amount, the liquidity pool gives the services to the borrower, traditionally banks generate so much profit against the loans but in this case, the liquidity miners benefit from the interest. In order to attract more profit, miners need to add more funds into the liquidity pool.

Due to the very large volatility of the native tokens like Bitcoin, ETH, never used as currency in the liquidity pool but stable coins which are relatively stable as the US dollar, there are many types of coins that are available for liquid mining but the USDT and DAI are common ones, these token can be further divided into two categories the on-chain mortgage and off-chain mortgage, the DAI is the on-chain mortgage currency that will be obtained by the staking the Ethereum in the MakerDao, whereas the USDT is the centralized one and obtained through the exchange of US dollar, the ratio is always 1:1.

Source: https://medium.com/cryptocurrencies-ups-and-down/liquid-mining-in-defi-6cb5c5ee419a?source=rss——-8—————–cryptocurrency