Liquidity Mining/staking for 5 years old

You must have heard of Uniswap, Sushiswap, Pancakeswap, and all these Swap sites if you're even a bit interested in Crypto. And you also probably know that they pay hefty Liquidity mining rewards.

Liquidity mining is a very simple concept actually. Think of it as an exchange, you have blue gems and red gems, and due to external factors, the price of 2 blue gems is 1 red gem. As a marketplace or an exchange, you enable users to swap one gem into another.

Let's assume you start with 1000 blue gems and 500 red gems (1000/500). And, for each transaction, you charge 2% (for simplicity).

If a user wants to buy 50 red gems, you take 100 blue gems but provide 49 red gems instead of 50 (after commission). Your gems pool is now 1100/451 red gems. As you can see, the pool is not equally balanced, but the value has increased that its initial value.

Let's say after 1000 transactions later, the ratio is 1500/600. You kind of earned 500 blue gems and 100 red gems for doing absolutely nothing other than enabling users to swap their gems.

And this is how independent of your market is going up or down, you'll always have more gems than you had initially. So, these sites can almost always provide positive returns.

But as you can probably observe, this is an asset-heavy business, and hence to satisfy some large orders they need to have high liquidity. So, these sites share their profit (and risk also) with people who have some assets to spare.

As an investor, you can put some money into these websites to give them more liquidity and always get positive returns. Though few cons/risks to notice here are,

1. If there are no transactions(swaps), you won't be earning anything at all.
2. If you don't do your homework and the website that you've put your money on is a Ponzi website, you may lose your money.
3. If one of the coins (red or blue gems) lose their money, you may incur some loss, but if a lot of transactions are happening nonetheless, usually you might gather enough low-value gems, that you'd be still in profit.