tl;dr please fill in this questionnaire on the upcoming liquidity mining dapp for Behodler
What is liquidity mining?
Firstly, what is liquidity? Liquidity is the depth of a market. In other words, how large a trade can be without disturbing the price. In the US treasury bond market, trading $10 million wouldn't even register as a blip. However, try dropping $10 million worth of cryptocurrency onto a decentralised exchange and you'll see the price noticeably drop. In the screenshot below, attempting to swap 10 million Dai for Eth on Uniswap results in a 76% price drop!
Decentralized exchanges work by accumulating vast pools of tokens to facilitate trades. For a given trade, the larger the pool of reserve tokens, the smaller the price impact. This means that liquidity is proportional to reserves. In the trade above, Uniswap has enough Eth to accommodate the trade but the trade is so large relative to the pool of tokens that the price slips 76.35%.
The larger liquidity in a decentralized exchange, the larger the trades it can handle. So it's in the interest of all the participants and stakeholders of a DEX that liquidity rises. To this end, modern DEXes have built in mechanisms to increase liquidity over time. Both Uniswap and Behodler charge a fee on trades to 'keep some back' in reserve.
In addition to fees, Uniswap issues a token to anyone who deposits tokens into the exchange to grow liquidity. The fees from trading then flow to these token holders. Similary, Behodler issues a liquidity token, Scarcity, to anyone who deposits liquidity. As liquidity grows, Scarcity can be redeemed for more and more reserve tokens.
Liquidity Mining is the act of providing incentives to users to add liquidity so that the DEX can be used in increasingly large and sophisticated use cases.
A liquidity mining dapp is about to be launched that will pay users Dai for staking Scarcity, the Behodler liquidity token. The dapp will also provide a platform for sponsors of the mining reward to advertise their logo, website and or just add a message. Please fill in this questionnaire to inform us of what you'd like in a liquidity mining dapp.