What Is Liquidity Mining?
Liquidity mining is a process where participants contribute cryptocurrencies to liquidity pools and receive rewards in the form of fees and tokens based on their share of the total pool liquidity.
These pools are created for trading pairs of coins or tokens and can be accessed through Decentralized Exchanges (DEXs).
Role of Brokerage Houses and Firms
In traditional finance (TradFi), brokerage houses and firms act as market makers by providing buying and selling solutions for investors.
They are compensated for the risk they take in holding assets to provide liquidity to the market and earn profits through the spread between the bid and ask prices of the assets.
Liquidity providers are incentivized based on the amount of liquidity they supply to the pool.
The transaction fee is distributed proportionally among all liquidity providers when a trade occurs.
Smart contracts govern the operations within the liquidity pool, adjusting the price with each asset swap facilitated by the smart contract.