My interest in crypto stems mostly from its technology and potential for massive institutional disruption. But this piece is not about any of that.

This is about making money 🤑. So please excuse the click-baity title and bear with me as I point out the obvious:

This is not financial advice and I am no financial advisor. Just sharing my direct personal experience here.

About a week ago I happen to stumble upon some news, that there was a new defi (decentralized finance) related crypto project out there called DeFiChain. And that they were offering a limited-time-only rewards scheme for adding liquidity to the DEX (decentralized exchange) running on their chain.

After doing a little bit of due diligence research I decided to give it a go. I've never done liquidity mining before so I figured it's a good chance to get my feet wet.

No better way to learn about the ever-elusive "impermanent loss" than to see it happen to my own crypto-assets, ARE YOU WITH ME?!! 😅

Well after 72h, I'm happy to report that things are looking quite dandy indeed: approx. 1.25% return per day, paid out in DeFiChain's own native token they call $DFI. I can reinvest the gains into liquidity mining if I want (to compound the gains) or I can take the rewards out of DeFiChain and exchange for a stablecoin or whatever I want. If my calculations are correct, that would be a (theoretical) APY of approx. 8000%, assuming constant dollar valuation of both BTC and $DFI and assuming weekly reinvestment of profits back into the same liquidity pool.

VERY NOICE!!!

These crazy returns, as mentioned above, are due to a limited-time-only extra reward and I don't think the team has said exactly how long this will apply. I'm assuming we're talking no more than a few weeks. If it goes on like this for 4 weeks, and I reinvest profits every week, we're talking 40% gains in 4 weeks.

As I understand, the returns also get spread across the entire liquidity pool, so the more people invest into DeFiChain liquidity mining, the smaller the returns for the individual investor.

I.e. the sooner you get in the better.

Introduction to DeFiChain

Since I only have a superficial understanding of the project, I'm going to keep this short, but let me try and give you a little intro into DeFiChain.

The project was founded by Austrian-born crypto educator and serial entrepreneur Julian Hosp and Singaporian blockchain developer U-Zyn Chua.

They seem to have started two projects in parallel: The open-source cryptocurrency project DeFiChain and the defi business Cake Defi, both geared towards developing financial instruments related to Bitcoin and other cryptocurrencies.

DeFiChain is a full-fledged cryptocurrency blockchain network. Its underlying program code is based on the original Bitcoin code on github, i.e. they forked the codebase of Bitcoin itself sometime in late 2019 or early 2020. Just to be clear: DeFiChain is not another Bitcoin fork like Bitcoin Cash, Bitcoin SV and the lot. It's not a fork of the Bitcoin blockchain. It's a fork of the Bitcoin program code.

In the 6 months (!) it took them from beginning development to going live with their mainnet they have made a few fundamental changes to the original bitcoin code:

• replacing Bitcoin's proof-of-work with a form of proof-of-stake that is additionally anchored to the Bitcoin mainnet thereby profiting from Bitcoin's rock-solid consensus security. It does this by adding part of DeFiChain’s block headers into Bitcoin‘s blocks every so often – so called block anchoring.
• adding more sophisticated smart-contract capabilities geared specifically towards defi needs and applications. The DeFiChain smart-contract platform puts constraints on the code allowed to be executed on it (as opposed to the Ethereum's Turing-complete EVM e.g.). This means, among other things: faster and more secure development of smart-contract applications.

As I understand it, the main application running on DeFiChain today is its DEX, allowing the users to swap between its native token $DFI and wrapped version of BTC, ETH, USDT and more to come. By supplying liquidity to this DEX one can take part in liquidity mining on DeFiChain today.

Going forward, I believe the DeFiChain team intends to add any and all sorts of financial instruments – like the ones we're seeing pop up on Ethereum and other platforms – attempting to be faster, cheaper and offer better security than the other DeFi platforms out there.

So I'll leave it at that for the DeFiChain intro.

If you want to go deeper into how it all works, have a look at their quite informative White Paper.

Risks

Don't hold me to account for any of the following, but here are the risks I'm aware of when participating in Liquidity Mining on DeFiChain (or any other platform).

(DYOR!)

• technical platform risks of the DeFiChain blockchain: Network attacks, buggy smart contract code, malicious scammy coding team.
• technical platform risks of cakedefi.com (intermediary custodial wallet - optional). 
• "Impermanent Loss": The principal financial risk specific to liquidity mining. More info on that e.g. here.
• market risks: collapse of value of underlying funds while holding crypto (as always in crypto)
• Diminishing rewards, as more people participate in DeFiChain liquidity mining. End of limited-time-only special rewards program.
• Loss or theft of your private keys (as always)
• sending funds to wrong addresses on wrong blockchains and all the myriad possible stupid user errors. (as always)
• transaction fees. (In my experience these are negligible with one exception: sending BTC in and out of cakedefi accounts on Bitcoin mainnet)

How to get those sweet sweet liquidity mining rewards

So here are the steps I took to get started in liquidity mining on DeFiChain:

• open an account on cakedefi.com (KYC registration required)
• send BTC to cakedefi wallet (takes ~30min)
• download and install DeFiChain wallet from defichain.com
• wait for DeFiChain blockchain to fully sync and create your $DFI wallet
• withdraw your BTC from cakedefi.com to your DeFiChain address
• use DeFiChain's own DEX to swap approx. 50% of BTC value into $DFI
• swap $DFI token into $DFI native asset (This is a nuisance I do not fully understand – requires some command line commands)
• commit BTC and $DFI to Liquidity Pool
• watch in disbelief as $DFI balance rises minute by minute.

Here's an alternative way to get your funds into DeFiChain (not how I did it, but should work):

• Buy $DFI token on any crypto exchange that supports it
• setup DeFiChain wallet on your computer
• send $DFI from crypto exchange directly to your DeFiChain account

If you need support I can recommend the DeFiChain Telegram Channel.

And one more thing:
You do have the option to do liquidity mining directly on cakedefi.com. This is much more convenient but the rewards are not quite as juicy. And of course: Not your keys, not your $DFI.

Your choice.

So that's all folks. Happy Yield farming on DeFiChain and let me know how it goes in the comments!