Liquidity mining
A protocol distributes its native token to liquidity providers as an incentive to grow TVL. The close cousin of yield farming, focused specifically on the emission boost.
Aliases: liquidity rewards, lp emissions
Liquidity mining is a programme in which a DEX or DeFi protocol pays its own token to liquidity providers (LPs). The goal is to grow TVL at launch or to bootstrap a new pool by pulling liquidity away from competing protocols.
How it works
- The protocol issues a native token (e.g. STON for STON.fi).
- Part of the supply is reserved for LP rewards.
- An LP deposits assets into the pool and gets an LP token.
- The LP stakes the LP token into a farm contract.
- The farm pays out the native token at an APR that depends on emission size and total stake.
Liquidity mining vs yield farming
The two terms are often used interchangeably. To be strict:
- Liquidity mining — the protocol’s programme: “we pay X tokens per day to LPs of pools A, B, C”.
- Yield farming — the user’s behaviour: “I search for the highest-yielding venue and rotate my liquidity into it”.
Liquidity mining is the source of yield. Yield farming is the behaviour of capturing it.
History and evolution
The pattern blew up during DeFi summer 2020 when Compound started distributing COMP, then SushiSwap “vampired” Uniswap liquidity with SUSHI emissions. Liquidity mining has been a standard DEX-launch tool ever since.
On TON, STON.fi (STON), DeDust (DUST), Storm (STORM) and most smaller protocols have run liquidity-mining campaigns.
Risks
- Emission tokens often depreciate faster than they accumulate. A 200% APR headline can collapse to a real 30% once converted to TON.
- Vampire mining: a newer protocol out-pays APR and drags liquidity over, leaving the older venue thinly funded.
- End of programme: when emissions stop, APR collapses; many LPs leave and depth drops with them.
A healthy signal is a pool that stays liquid after the programme ends because raw swap fees alone keep it attractive. Most farm programmes never reach that point.