How Does the Concept of “Liquidity Mining” Influence the Observed Token Velocity?

Liquidity mining, which rewards users with tokens for providing liquidity, generally increases the observed velocity initially as the rewarded tokens are often quickly sold or moved. However, the underlying tokens used for liquidity provision are locked in smart contracts, reducing the circulating supply available for other transactions.

This creates a complex effect: a higher transaction velocity for the reward tokens, but a lower effective velocity for the locked base tokens. The effect is often temporary, lasting only as long as the incentive is high.