Liquidity Mining

Liquidity mining is a subset of yield farming. It involves providing liquidity to DEX/AMM protocols to receive trading fees and any extra token rewards. Many decentralized exchanges provide an extra token reward to incentivize liquidity providers to provide liquidity to a specific pool. These tokens are usually an arbitrary token representing some utility such as governance. Trading fees earned by a liquidity pool are based on the amount of trading volume that the pool experiences over a given timeframe, hence different DEX’s may have varying levels of volume. Liquidity providers may shift their liquidity across different decentralized exchanges based on the token reward APR being offered, the desirability and market sentiment of the reward token as well as the trading volume of the pool.

Liquidity Mining is a feature of DeFi that when utilized within a specific framework can generate Sharia compliant returns. The majority of Marhaba’s efforts will be geared towards Sharia compliant liquidity mining framework.

It can be observed that trading fees in Liquidity Mining follows the concept of ‘Mudharabah’ and the incentivized rewards follow the concept of ‘Hiba’. Therefore, Liquidity Mining can be utilized as long as the tokens being used in the ‘Mudharabah’ are compliant as well as the tokens being earned in the ‘Hiba’.