Your Complete Guide to Liquidity Mining: Strategies, Risks, and Returns

Liquidity mining has emerged as a compelling way for users to generate yield from their cryptocurrency holdings. On decentralized platforms utilizing automated market maker (AMM) technology, users can become liquidity providers by depositing assets into pools and earning rewards from swap fees and other revenue streams. Understanding how this mechanism works, what risks it entails, and how to calculate potential returns is essential for anyone considering participation.

Understanding the Liquidity Mining Basics

Liquidity mining operates through liquidity pools built on AMM models. By providing liquidity to these pools, you become a liquidity provider and participate in generating yield from transaction fees within the pool. The underlying mechanism uses the x × y = k rule—where x and y represent token quantities in the pool and k is a fixed constant—to ensure that the product of token quantities remains constant over time. This mathematical principle maintains pool stability but exposes providers to a specific risk known as impermanent loss, which occurs when token prices move significantly, causing your pool composition to differ from your original deposit ratio.

The beauty of liquidity mining lies in its simplicity: add tokens, earn fees. However, you can also amplify your returns by using leverage, which increases your liquidity value but introduces liquidation risks. Many users overlook this dual nature, and it’s crucial to understand both aspects before committing capital.

Getting Started: Supported Pairs and Token Requirements

Multiple liquidity pairs are available across the platform, each presenting different opportunities and risk profiles. Any tokens listed in active liquidity mining pairs are supported, allowing flexibility in your entry point. Before you can participate, however, you must complete identity verification—specifically, at least Lv. 1 Basic Verification—as KYC requirements apply to all individual traders. This security measure ensures account holders meet regulatory standards.

Notably, liquidity mining is restricted to individual users and is not available for business accounts. However, verified individuals can use subaccounts to participate, enabling strategy diversification across multiple accounts if desired.

Fee Structure and Account Prerequisites

When adding or removing liquidity, no direct fees are charged by the platform. However, substantial liquidity additions may result in slippage—the price movement resulting from your transaction size relative to pool depth. This is an important consideration when planning large deposits.

All unclaimed rewards can be reinvested immediately into the pool provided they meet the 1 USDT minimum threshold, allowing compounding of returns. When you eventually remove liquidity, any unclaimed yield automatically distributes to your Funding Account, streamlining the redemption process.

Calculating Your Liquidity and Expected Yield

Understanding how your liquidity value is calculated is essential for making informed decisions. Let’s walk through the calculation framework.

The system automatically rebalances your deposit into equal-value portions of each token pair based on current pool composition. For example, if you deposit 6,000 USDT into an ETH/USDT pool with an index price of 3,000 USDT per ETH:

• Without leverage: You’d hold 3,000 USDT + 1 ETH, totaling 6,000 USDT in liquidity value
• With 2x leverage: Your deposit remains 6,000 USDT, but your liquidity position effectively doubles to 12,000 USDT (6,000 USDT + 2 ETH equivalent), reflecting the leveraged exposure

The system updates these compositions every five minutes to reflect real-time price movements.

How Price Movements Affect Liquidity Value

Price fluctuations directly impact your position composition through the x × y = k formula. Consider this scenario: Trader A deposits 30,000 USDT into a BTC/USDT pool when BTC trades at 30,000 USDT. This gets rebalanced to 0.5 BTC and 15,000 USDT (k = 7,500).

If BTC rises to 36,000 USDT one year later:

• New composition: 0.456 BTC + 16,431.677 USDT
• Total value: 32,863.35 USDT
• Outcome: Profit (+2,863.35 USDT) but fewer BTC held

Conversely, if BTC drops to 24,000 USDT:

• New composition: 0.559 BTC + 13,416.408 USDT
• Total value: 26,832.81 USDT
• Outcome: Loss (-3,167.19 USDT) but more BTC held

Yield Calculation Framework

Your yield depends on your proportional contribution to the pool. The formula is:

Your Yield = (Your Liquidity ÷ Total Pool Liquidity) × Total Pool Yield

If the total pool generated 1,000 USDT in yield over 24 hours and your liquidity represents 0.8% of that pool, you’d earn 8 USDT in that period. Estimated APY is calculated by multiplying the pool’s base APY by your chosen leverage level. Note that the pool APY itself is computed from the previous three days’ actual performance, making it a trailing indicator rather than a guarantee of future results.

Your yield updates hourly, allowing you to track earnings in real time. Claims are made automatically, and unclaimed rewards can immediately be reinvested.

Managing Liquidation Risks and Alerts

Liquidation risk exists only when leverage is applied. Without leverage, your principal is solely exposed to impermanent loss and price fluctuations—not forced liquidation. However, leveraged positions face liquidation if either the index price or contract trading price falls below your liquidation price.

How Liquidation Differs from Derivatives Trading

Taking 2x leverage as an example, liquidity mining’s liquidation threshold sits at 1/4 of your entry price, whereas derivatives contracts trigger liquidation at 1/2 of entry price. This structural advantage—offering a 4x cushion instead of 2x—makes liquidity mining considerably safer than perpetual contracts when using similar leverage levels.

Understanding Liquidation Alerts

The system issues three alert levels:

1. First Alert (20% away from liquidation price): You receive email, app notification, and in-app alert urging you to deposit additional USDT to reduce leverage. This is your primary warning signal.

2. Second Alert (10% away from liquidation price): A more urgent notification reiterating the need to add funds immediately.

3. Liquidation Notification (at liquidation price): Your position is liquidated, and you receive details about the execution.

Each alert type (except the final liquidation) is delivered no more frequently than once per 24 hours per position to avoid notification spam. However, the platform strongly recommends active monitoring of your positions, as alert delays can theoretically occur. When you add funds to reduce leverage, these additions go toward repaying your leveraged lending portion, not toward increasing your liquidity pool amount.

Tracking Your Positions and Earned Rewards

Navigate to Liquidity Mining within your Earn Account (under Assets) to view your complete position history. Two tabs organize your information:

Effective Orders: Displays active positions with real-time details including pair, principal amount, current liquidity, liquidation price, APY, total yield generated, unclaimed yield, and other relevant metrics.

All Orders: Archives all historical positions, filterable by liquidity, claimed yield, liquidation events, swap activity, pair, date, and order type. This comprehensive view allows you to analyze your historical performance and identify patterns.

Key Constraints and Limitations

Each liquidity mining pair has defined minimum and maximum order sizes, viewable in the order placement interface. You cannot open multiple positions with different leverage levels in the same pool simultaneously—all orders for the same pool consolidate into a single position regardless of leverage chosen. To circumvent this limitation and maintain different leverage ratios in the same pool, you can deploy different subaccounts, each holding its own position with unique leverage settings.

The maximum leverage available varies by pair and is displayed during order setup. This flexibility, combined with position tracking tools, empowers you to execute sophisticated liquidity mining strategies while maintaining comprehensive oversight of your capital deployment.