5. Risks of Liquidity Mining

Risks of Liquidity Mining Every investment strategy that has benefits comes with risks as well, which every investor needs to consider before investing, and liquidity mining is no exception. The risks involved in mining for liquidity include:

Impermanent Loss – one of the biggest risks faced by liquidity miners is the possibility of suffering a loss in the event that the price of their tokens falls while they are still locked up in the liquidity pool. This is called an impermanent loss since it can only be realized if the miner decides to withdraw the tokens with depressed prices. Sometimes this unrealized loss can be offset by the gains from the LP rewards; however, crypto assets are highly volatile with wild price movements.