What Is a “Liquidity Mining” Program, and How Is It Used to Launch a New DeFi Protocol?

Liquidity mining is the process of distributing a protocol's native governance or utility token to users who provide liquidity to its pools. A new DeFi protocol uses this to rapidly bootstrap its liquidity and user base by offering high token rewards (yield).

This attracts capital quickly, making the protocol functional and competitive, though it often leads to high initial token inflation.