# Liquidity Mining & Yield Farming - Beginners Guide

{% hint style="danger" %}
Please note, the guides and any other documentation in this section are **not financial advice**. Please always double-check sources on keep educating yourself and do your own research (DYOR).
{% endhint %}

### What is liquidity mining?

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. Besides, they regularly offer access to interest or rewards that are paid regularly to their holders. In this way, the more money they block on the platform, the more tokens they receive and the more rewards they obtain, thereby making higher profits.

### What Is Yield Farming?

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 (see liquidity mining). 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 lock up their holdings, 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.

Simply put, yield farming involves lending cryptocurrency via the Ethereum network. When loans are made via banks using fiat money, the amount lent out is paid back with interest. With yield farming, the concept is the same: a cryptocurrency that would otherwise be sitting in an exchange or a wallet is lent out via DeFi protocols (or locked into smart contracts, in Ethereum terms) to get a return.

### Useful articles:

<https://3commas.io/blog/what-is-liquidity-mining-and-how-does-it-work>

<https://academy.bit2me.com/en/que-es-liquidity-mining/>\
\
<https://coinmarketcap.com/alexandria/article/what-is-yield-farming>\
\
<https://decrypt.co/resources/what-is-yield-farming-beginners-guide>

### Videos about Liquidity Mining & Yield Farming:

{% embed url="<https://www.youtube.com/watch?v=tc7Tlo_cGwk>" %}
Video: Liquidity Mining on Cake DeFi explained simply and quickly. (Under 3minutes!)
{% endembed %}

{% embed url="<https://www.youtube.com/watch?v=ClnnLI1SClA>" %}
Video: What is yield farming?
{% endembed %}

{% embed url="<https://www.youtube.com/watch?v=boKYRAxREJY>" %}
Video: A DeFi Lesson: What is Yield Farming?
{% endembed %}


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://autofarm.gitbook.io/autofarm-network/how-tos/defi-beginners-guide/beginner-guides/liquidity-mining-and-yield-farming.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.