What Is the Primary Risk Associated with “Liquidity Mining” Reward Tokens?

The primary risk is the high inflation and potential price collapse of the reward token, often called "farm and dump." Protocols issue these tokens to incentivize liquidity provision, but the constant selling pressure from LPs who harvest and sell the rewards can drive the price down rapidly. If the value of the reward tokens earned does not sufficiently cover the impermanent loss incurred, the liquidity mining strategy can result in a net loss for the provider.