Liquidity mining is a DeFi mechanism where users provide liquidity to a decentralized exchange or protocol in exchange for rewards, typically in the form of tokens. Users deposit their assets into liquidity pools, which are then used to facilitate trading on the platform.
In return, they earn a share of transaction fees and additional tokens, often native to the platform. This incentivizes users to lock up their funds, increasing the protocol’s liquidity and enabling smoother trading operations.