I consider myself a veteran bitcointalk OG miner. I have conducted millions of dollars’ worth of group buys here on bitcointalk, owned my own large scale farms, I have had access the latest miners before they have hit the market, I have worked with power stations and some of the largest mining hardware manufacturers in the world.
Mining has been a big part of my cryptocurrency journey; I have been involved with mining in a big way. This brings me to my next point.
There is a new form of "mining" that has some great benefits over traditional Proof-of-Work mining. Most notably higher profitability. This new method is called Liquidity "Mining"
It's a big part of a recently booming segment in blockchain, DeFi, and I am here to share my knowledge and experience.
What is Liquidity "Mining"?
Generally, most Defi protocols earn revenue from 2 main sources:
Source 1: Trading fees – Some users will want to swap one token for another on a decentralized exchange protocol (e.g., UniSwap). The protocol takes a fee (~0.3%) but gives most of it (~0.25%) to users who loan tokens (i.e., provide liquidity) to the protocol, which is needed to enable trading.
Source 2: Borrow interest – Some users will want to borrow tokens on a borrow/lend protocol (e.g., Aave), generally to leverage up their trading positions. The protocol will charge borrowers an interest, keep some of the interest for themselves, but give most of it to users who loan tokens (i.e., provide liquidity) to the protocol, which is needed to enable the loans.
Liquidity mining = being a Liquidity Provider. This means holding tokens of projects you believe in and loaning it to various protocols to enable their function. In return, you earn some trading fees (Source 1) and borrow interest (Source 2). The kicker is these protocols often will give you additional token rewards (denominated in their tokens) to incentivize participation, which will boost the earned interest of your loaned tokens to pretty high values (20-100%). If you don’t believe in any project, you can also loan out stablecoins (e.g., USDT, USDC) and earn 5-20% interest on them.
Let’s take a look at some of the challenges traditional miners face:
- Hardware Cost:
PSU costs
Miner costs
Connection costs (switches and cables)
Racking
Transportation costs
Long-time miners will admit that would have had much greater returns if they just bought cryptocurrency and HODLd instead of buying hardware to mine with.
-Electricity Cost:
Miners are power hungry; they are expensive to run, even when sourcing a cheap power.
-Miners become obsolete:
Miners are not constant money printers, there becomes a time when the power cost exceeds mining rewards even in bull markets, this is because mining is an arms race and eventually a newer more efficient miner is created, rendering older miners obsolete.
-Heat / extraction expense:
Miners produce heat, this becomes an issue when you have multiple miners running at once. I have experienced timber warping as a result of too much heat. Miners have to invest in extraction to keep miners running at a healthy temperature, this adds to direct costs and on-going costs as you need to power your extraction solution.
-Miner housing and security:
Miners need to be housed and watched over, this adds yet again more expenses to an already expensive process.
-Miner maintenance and miner management:
Hashboards fail, stability issues, connection issues. One miner may be manageable but have you ever managed 100? 1000? you get to a point where they need full time maintenance / management.
-Setup time:
I remember when I got my first 100 miners; I was under-prepared and certainly underestimated the time / man power involved with setting up. This is often overlooked.
Scalability issues:
1 miner is easy to cope with, but how about 1,000,000 miners? Even with dedicated teams and farms I could consider this close to impossible.
Hardware Scammers and vapourware:
There are many hardware scammers. People impersonate manufacturer representatives and pop-up manufacturers that sell vapourware with no intention of producing any hardware.
Pre-Orders / delays:
Many hardware manufacturers fail to meet delivery dates, in some cases when buyers place orders miners are super-profitable but by the time the hardware is delivered profit is almost non-existent.
Mining difficulty increasing and manufacturers over producing:
Mining difficulty goes up in general meaning miner profitability goes down over time.
In some cases manufacturers produce so many miners that profitability absolutely crumbles. For example I remember when bitmain over-produced hundreds of thousands of Antminer D3s that were earning hundreds per day, by the time they got delivered users got unprofitable, unstable, shitty miners.
Now let’s take a look at some of the issues Liquidity miners face:
Rugpulls and unsafe platform operators:
Some platform operators are straight up thieves (much like hardware scammers). It is important to assess the risks involved with each platform.
Impermanent loss (also known as IL):
When providing liquidity. You often provide a pair of assets. As these assets diverge in price, they lose a bit of value compared to if you just held them alone. This is because the value balances of the assets in the pair need to remain 50:50, so if one of the assets decreases in price then a portion of the other paired asset will need to be sold to buy more of the lesser valued asset. However, this is usually offset by some juicy platform returns or by only providing one asset to "mine" with. Keep in mind that single assets will not produce as high returns as paired assets.
Capital:
It takes money to make money; you are literally making returns from your capital. The more capital you have, the greater the returns.
Benefits of using Defi platforms and Liquidity Mining over traditional Proof-of-Work mining:
Higher returns:
APRs can be crazy high, especially if you get in as soon as platforms open. (in some cases we are talking hundreds of % per year)
Considerably more scalable and manageable than mining:
With a $100 million investment, liquidity mining on Defi platforms is much more manageable as you can spread the capital across multiple platforms. Some platforms have billions of dollars of total value locked. I would hate to imagine the work involved with a $100 million dollar mining farm.
Significantly less costs:
No power cost, no hardware maintenance costs, no rent costs, no security costs, no heat extraction costs, no transport costs, no hardware costs, no setup costs.
It is possible to avoid impermanent loss:
If users choose "mine" or farm with a single asset then they will never suffer IL, however the rewards will be considerably lower than Liquidity mining with a pair of assets.
Now I am here to share my knowledge of what I have learnt so others can experience what I have experienced, I have been totally swayed from traditional mining and knowing what I know now.....I will not go back to PoW mining. I mean as a hobby mining can be fun but this Defi stuff is an absolutely incredible life changing opportunity.
I am going to keep this thread alive and share helpful information that can hopefully help you all some good returns. Keeping in mind this is not financial advice and I am not a financial adviser, remember to DO YOUR OWN RESEARCH and read up about risks involved. I will do my best to share safe farms with honest operators and answer any questions you have.
Most of these platforms communicate with Metamask wallet, the first step would be downloaded metamask and creating a metamask wallet and adding the network you want to farm / mine on.
By default the Ethereum network will be added but you will need to add other networks, some suggestions would be:
-BSC network (Binance Smart Chain)
-Matic network (polygon)
Keeping in mind there are many more networks.
STAY TUNED FOR SOME EXCITING OPPORTUNITIES!