There is always a before and after: Michael Jordan, Albert Einstein, Breton Woods, the people and moments that changed history.

August 2020: This was a crucial crossroads for the world of cryptocurrencies. A month that meant three-digit percentage gains for some, but for everyone it represented definitive proof that blockchain is not a fad but a technology that is here to stay and change the financial world.

At that time, the market was suddenly flooded with an unprecedented surge of enthusiasm, any new asset instantly skyrocketing.

he was there DeFi Summerit was renamed this way because what had long been just a promise was finally coming true: financial services landed in the world of cryptocurrencies. Remember, the tools available at the time were still primitive, but for the first time the “buy it, forget it and hope the price goes up” model has been replaced by something new and closer to the traditional financial dynamics.

In fact, DeFi offers the possibility of renting one’s cryptocurrencies and making it “work” as if we were a bank.

You should know that traditional finance moves quadrillions of dollars each year, the numbers are so big it’s hard to count zeros, and with each pass, a small slice goes into the pockets of a handful of institutions and qualified companies…or “privileged” if you prefer. DeFi’s goal is to change this paradigm by making finance an accessible space. that everyone can make a piece of this big cake in their own little way.

There are many ways to do this and we will explore them all in the coming weeks; But today I want to introduce you to what is technically called “liquidity mining”, literally “undermining liquidity”.

It should be understood that while liquidity is not the “must have” underlying any transaction, it is one of the pillars of any financial instrument. Whether you want to sell a property, gold or stock, what you need is someone ready to offer you cash: The easier an asset is sold, the more liquid it is defined. Therefore, liquidity is the feature that allows us to move from one asset to another in the shortest possible time and at the lowest possible cost.

The problem is that if In traditional markets, liquidity is generated by financial operators who bring supply and demand in touch.. How to do it in a decentralized world with no middlemen?

born for this liquidity mining, which attracts liquidity by promising passive income in return achieved through the redistribution of commissions collected – often very generous – and the introduction of additional incentives. Ad hoc compensation schemes are actually quite common among DeFi applications: they serve to make the returns more attractive on the one hand, and to create a large enough incentive to offset the risks on the other.

You should always remember this sometimes it is possible to incur huge losses; we are talking about a world that is in a very rapid evolution, but is still very young. That’s why it’s always good to have a solid strategy and an awareness of what you’re doing before you go hunting passive income in DeFi.

We’ll stop here for today, we don’t want to bore you or overwhelm you with information: there will be a way to go into details in the future. The key information to take away from this article is this: DeFi introduces finance to the cryptocurrency worldgives us the ability to generate passive income, and providing liquidity is the most popular way to do so. More than two years have passed since that ominous summer, and the technology has not stood still, but we must not forget that we are still in an experimental stage that requires risks and the right precautions.