First of all, what is DeFi?
DeFi English is Decentralized Finance, which is decentralized finance, or distributed finance. They are products that run on public chains (such as Ethereum). These products have non-tamperable operating logic, that is to say, smart contracts that cannot be tampered with.
Why run on blockchains such as Ethereum? Instead of separately developing financial products to provide services to users? Because public chains such as Ethereum are composed of thousands of nodes, each node maintains the same network status record and code. All its transactions and states need to reach a consensus, and no single node can change the transaction history and state at will, nor can it change the contract code at will. Running financial products on the public chain means that it cannot be tampered with. At the same time, it does not require permission and everyone can participate. This is why DeFi is part of open finance. Finally, it is composable. It can be constructed, connected and combined based on these financial products, which leads to various innovations, which is why the term DeFi Lego often appears.
However, judging from current practice, due to the high gas cost on Ethereum and technical thresholds such as managing wallets, it is almost impossible to obtain good returns from small capital mining. From this perspective, the current DeFi liquidity mining cannot be regarded as inclusive finance or truly open finance, because it has a relatively high capital threshold and technical threshold. This is what the subsequent public chain and DeFi products running on it need to be solved by continuous iterative upgrades.
Since DeFi runs on the public chain, it is permissionless, non-tamperable, and composable, which means that anyone can participate and can conduct financial activities such as lending and trading. In short, DeFi is a whole new field.
Secondly, what is liquid mining?
At present, the liquidity mining of DeFi is mainly a product that occurs on the Ethereum blockchain. It gains revenue by providing liquidity for DeFi products on the Ethereum. To put it simply, you can deposit certain token assets to mine. The reason why it is called mining is to follow the industry argument of Bitcoin mining. Liquidity mining on Compound mainly involves depositing tokens or lending tokens on it, so as to obtain rewards of COMP governance tokens. The COMP token represents the governance right of the Compound protocol. COMP holders can vote to determine the development direction of the Compound protocol. If the Compound business has value, then COMP has natural governance value.
Liquidity mining on Balancer is to provide liquidity for the token pool of the transaction. For example, to provide liquidity for the BAL-WETH pool, the liquidity provider can deposit BAL and BAL at a certain ratio (such as 80:20). WETH tokens, and then according to certain rules, obtain BAL tokens and related transaction fees.
In short, liquidity mining is mainly through the provision of token assets to obtain income.