Liquidity Mining
A DeFi incentive mechanism where users provide liquidity to a protocol and receive bonus token rewards on top of standard trading fees. Protocols use liquidity mining programs to bootstrap initial liquidity and distribute governance tokens to the community. Rewards are typically temporary and decrease over time.
“SushiSwap launched with aggressive liquidity mining incentives, distributing SUSHI tokens to users who migrated their liquidity from Uniswap — a strategy nicknamed the 'vampire attack.'”
Liquidity Pool
A collection of funds locked in a smart contract that enables decentralized trading on AMM-based exchanges. Liquidity providers (LPs) deposit paired tokens in equal value ratios and earn a share of the trading fees generated by swaps in that pool. Pools replace traditional order books in DEX architecture.
Yield Farming
The practice of strategically deploying crypto assets across DeFi protocols to maximize returns through a combination of trading fees, token rewards, lending interest, and liquidity incentives. Yield farmers actively move capital between protocols to chase the highest yields, often compounding returns by reinvesting rewards. Higher yields typically come with higher risks, including impermanent loss, smart contract exploits, and token devaluation.
DeFi (Decentralized Finance)
An ecosystem of financial services built on blockchain networks that operate without traditional intermediaries like banks, brokerages, or insurance companies. DeFi uses smart contracts to provide lending, borrowing, trading, insurance, derivatives, and yield generation in a permissionless, transparent, and composable manner. Anyone with a wallet can participate.
Governance Token
A token that grants holders voting rights in a decentralized protocol's governance process. Governance tokens allow the community to propose and vote on changes to protocol parameters, treasury allocation, fee structures, upgrades, and strategic direction. Voting power is typically proportional to token holdings, though some systems implement quadratic voting or delegation to reduce plutocratic influence.