What is liquidity mining? A very simple explanation.

Imagine two coins. One is in your pocket. The other is in a friend's wallet. You decide to combine them to lend. And here is a small reward for that. This is roughly how liquidity mining works in the crypto world.

Instead of regular money, here you have Bitcoin or Ethereum. You don't lend them to friends, but instead, you place them in a special "pool" on a DeFi platform. It seems quite simple. People use these cryptocurrencies for their needs, and you receive a reward for providing. That's it!

How it works

1. Deposit. You place two different cryptocurrencies in the pool. Like a common piggy bank where everyone can add their money.

2. Rewards: while your coins are in the pool, you earn a percentage. This is called APY. In 2025, the yield is not as high as in farming. But stable coins provide a steady income.

3. Withdrawal of funds: you can withdraw your cryptocurrencies at any time. Together with the reward.

What can I win?

The reward is usually in the form of additional crypto. Some platforms issue governance tokens. This is like tickets for voting on the platform's operating rules. Major protocols like Aave and Balancer provide various ways for liquidity providers to earn.

What are the risks?

Earnings are interesting, but not without risks:

• Volatile losses: while your crypto is in the pool, its value may change. Not always for the better.

• Hacks: smart contracts are not perfect. If a bug is found in the code, your funds can disappear.

• Rug pulls: some projects suddenly disappear along with the liquidity. And you are left with nothing.

Many investors choose pools with stablecoins. Less volatility - less risk, it seems.