⛏ Liquidity mining
Liquidity mining is a community-based approach to market-making and protocol governance. A token issuer or exchange can reward a pool of miners to provide liquidity for a specified token. For example, on the Compound protocol, users who deposit tokens will earn both interest and a share of the Compound governance token, COMP.
👨🌾 Yield farming
By leveraging the incentives of liquidity mining, your crypto can be put to work across a number of DeFi instruments. Yield farming attempts to maximize returns by earning native governance tokens on protocols, and typically applies recursive investing to achieve this. For example, adding 100 USD as collateral on Compound will earn you both interest and $COMP governance tokens. You could then borrow 70 DAI against your 100 USDC collateral, where you will pay a small interest fee but still earn more $COMP. Finally, you could swap the 70 DAI for 70 USDC and repeat the whole process. With large amounts of capital, an investment can thus be folded many times over in order to maximize the amount of governance tokens earned. To learn more, check out our article on yield farming with Synthetix, Balancer and Curve.