Liquidity mining is a reward program that encourages users to make assets available for trading, lending, or another protocol function. Participants receive incentive tokens under defined eligibility and distribution rules. The word mining refers to earning these rewards, not necessarily to running proof-of-work equipment or validating blocks.
Rewards alongside the underlying position
A liquidity provider may deposit assets into a pool and then register or stake the resulting position to qualify for incentives. Other programs track eligible balances directly. Trading fees or lending interest can exist alongside the incentive distribution, but they come from different sources.
Rewards may depend on the amount supplied, participation time, active price range, or program-specific weights. A fixed reward budget shared among more eligible liquidity generally gives each unchanged position a smaller share, all else equal.
Incentives do not remove losses
An advertised yield can change as rewards, token prices, and participation change. Programs may end, and reward tokens may become difficult to sell.
The underlying position still carries its own risks, including impermanent loss in some trading pools, borrower or collateral risk in lending, and smart-contract failures. Evaluating the combined result requires counting incentives, operating income, fees, and changes in the deposited assets' value.