Introduction to Liquidity Mining on Bybit
Liquidity mining is a decentralized finance mechanism that allows participants to provide some of their crypto assets to various liquidity pools, from which they’re rewarded with tokens and fees.
With Bybit Liquidity Mining, we provide a variety of liquidity pools that are based on the automated market maker (AMM) model. Each pool contains a pair of tokens. You can deposit your tokens into Bybit’s liquidity pools to become a liquidity provider and earn yield — a share of the swap fees — generated by transactions in the selected pool.
In addition to the swap fees, liquidity providers can also earn yield from trading fees, as the assets you add to the pool also provide liquidity to the derivatives market on Bybit. In this way, liquidity providers' capital utilization can be maximized, allowing them to earn higher yields than with traditional AMMs.
Leveraged liquidity mining allows you to increase your leverage up to 3x to maximize your yield, which can be reinvested anytime if it's equal to or greater than 1 USDT. However, if you choose a leverage that‘s higher than 1x, liquidation risks may be incurred. Please take note of your liquidation price.
For a liquidity provider, if you've chosen to add a pair of tokens, the system will automatically process conversion to ensure that the two tokens are of equal value when they're added to the liquidity pool. If you choose to add a single token, the system will automatically convert half of its value to another token in the pool.
There is no fee incurred for conversion. However, if your position is relatively large, slippage may occur.
Swap Your Tokens
When trading one token for another, reduced slippage and trading times are two of the benefits that a large liquidity pool provides for traders.
Bybit's Liquidity Mining is not a risk-free product. Liquidity provision is subject to impermanent loss, and the yield amount isn’t guaranteed.
Impermanent Loss: With liquidity mining comes the risk of impermanent loss, a phenomenon that occurs due to price changes in the underlying assets.
To learn more about how you can manage impermanent loss, please refer to How to Avoid Impermanent Loss When Providing Liquidity in DeFi.
Liquidation Risks With Leverage: Leveraging of positions naturally comes with increased risk of liquidation, although liquidation risk is lower with liquidity mining as compared to derivatives contracts. In this case, you may add more USDT to lower your leverage in order to avoid liquidation.