With the rapid development of decentralized finance (DeFi) in the past year, people gradually realize that speculation is not the only way to generate profit, and liquidity mining has become a popular attempt for many sophisticated crypto users. Liquidity mining has increased the risk of loss, reduced rate of return, so that many users have changed their minds. Today, we will introduce a simple and high yield mining method – single sided liquidity mining.
Introduction
DeFi mining on the market is mainly dual-currency liquidity mining, single sided liquidity mining. Note: Both dual-currency and single sided liquidity are liquidity provision for the platform. Broadly speaking, they are liquidity mining. For ease of reading, this article divides them in detail.
The benefits and risks of dual currency liquidity miningÂ
Liquidity mining is the most lucrative and risky form of mining. Taking MDX-USDT as an example, this paper describes the benefits and risks of LP mining.
So the APY is up to 400%. However, in order to achieve such a profit, users must meet the following conditions: 1: MDX price should be low enough at the beginning, and then investment increases; 2: mining income needs to make up for the impermanent loss caused by currency price fluctuation, so that the income will not decrease. So all this means you should be pretty good at math.
We can do the calculation as follows:
Suppose the initial price of the MDX is about $1. Let’s say you have $10,000, and you want to exchange $5,000 for 5,000 MDX, so you can provide liquidity for the MDX/ USDT pool.If the MDX price rises and is now around $6, what is the value of your position? The answer is $24495.
So how do we calculate the impermanent loss?
If you bought $5000 of MDX and did nothing, your assets would be: 5000MDX* $6 +5000 = $35,000.
So the income that you should have receive, and now you don’t, is an impermanent loss: $35,000 – $24,495 = $10,505. So the impermanent loss is higher than…
