Liquidity and Yield farming
Liquidity mining is a DeFi (decentralized finance) mechanism in which participants supply cryptocurrencies into liquidity pools, and are rewarded with fees and tokens based on their share of the total pool liquidity. This focuses on incentivizing the injection of liquidity in the protocol in exchange for distributing among users a series of tokens that give access to the governance of the project, and that can also be exchanged for better rewards or other cryptocurrencies.
These tokens may or may not give voting power within the protocol. On Paçoca, providing liquidity for our native farm pairs guarantees you shares in our governance system.
Yield farming is the practice of staking or lending crypto assets to generate high returns or rewards in the form of additional cryptocurrency. In short, yield farming protocols incentivize liquidity providers (LP) to stake or lock up their crypto assets in a smart contract-based liquidity pool. These incentives can be a percentage of transaction fees, interest from lenders or a governance token. These returns are expressed as an annual percentage yield (APY). As more investors add funds to the related liquidity pool, the value of the issued returns rise in value.
At its core, yield farming is a process that allows cryptocurrency holders to deposit their holdings in smart contracts, which in turn provides them with rewards. More specifically, it’s a process that lets you earn either fixed or variable interest by investing crypto in a DeFi market.