How Is the Concept of 'Liquidity Mining' Related to Impermanent Loss? ▴ Learn

How Is the Concept of ‘Liquidity Mining’ Related to Impermanent Loss?

Liquidity mining is the process of earning a protocol's native token as a reward for providing liquidity to an AMM pool. These token rewards are often used to offset the potential losses incurred from impermanent loss (IL), incentivizing users to provide liquidity despite the IL risk.

The rewards are a compensation mechanism for the risk taken.

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