What Is Bybit Liquidity Mining?

Liquidity mining allows participants to provide some of their crypto assets to various liquidity pools, from which they’re rewarded with tokens and fees.

Bybit Liquidity Mining provides the following functions:

Supported Leverage

Leveraged liquidity mining allows you to increase your leverage up to 3x to maximize your yield, which can be reinvested anytime if it's ≥ 1 USDT. However, if you choose a leverage that‘s higher than 1x, liquidation risks may be incurred. Please take note of your liquidation price. 

Auto Rebalance

For a liquidity provider, if you've chosen to add a pair of tokens the system will automatically process conversion to ensure that the two tokens are of equal value when they're added to the liquidity pool. If you choose to add a single token, the system will automatically convert half of its value to another token in the pool.

There is no fee incurred for conversion. However, if your position is relatively large, you are at risk of slippage. 

Swap Your Tokens

When trading one token for another, reduced slippage and trading times are two of the benefits that a large liquidity pool provides for traders. 

How Does It Work?

With Bybit Liquidity Mining, we provide a variety of liquidity pools that are based on theautomated market maker (AMM)model. Each pool contains a pair of tokens. You can deposit your tokens into Bybit’s liquidity pools to become a liquidity provider and earn yield — a share of the swap fees — generated by transactions in the selected pool.

In addition to the swap fees, liquidity providers can also earn yield from trading fees, as the assets you add to the pool also provide liquidity to the derivatives market on Bybit. In this way, liquidity providers' capital utilization can be maximized, allowing them to earn higher yields than with traditional AMMs.

Who Can Benefit From Bybit Liquidity Mining?

Risk-tolerant investors who are looking for long-term stable yield can profit from Bybit Liquidity Mining by using leverage to obtain higher returns. Please note that leveraged liquidity mining may entail liquidation risks. 

Liquidation Risk

Liquidation price is only applicable if you've added leverage that's higher than 1x. Your positions will be liquidated if the mark price hits the liquidation price.

For liquidity providers, exact liquidation prices are derived when their product plans start, which is approximately five minutes after each order is successfully submitted. You can view the liquidation price under My Liquidity.

Liquidation Price Calculation

Suppose Trader A adds the following liquidity to a pool:

Liquidity Pool: ETH-USDT

Principal: 6,000 USDT 

Leverage: 2x 

Index price: 3,000 USDT = 1 ETH 

Trader's liquidity: 12,000 USDT

Formula

Liquidation Price = 1.05 × Index Price × [(Trader’s Liquidity − Principal)/Trader’s Liquidity]²

In this case, the liquidation price is 787.5 USDT, based on the following calculation:

1.05 × 3,000 × [(12,000 − 6,000)/12,000]² 

Please note that all principal investment can be lost if a position is liquidated. You may add more USDT to reduce your leverage and minimize liquidation risks. 

Advantages of Bybit Liquidity Mining

Taking 2x leverage as an example, the liquidation price in Liquidity Mining is 1/4 of the entry price, while the Derivatives Contract is 1/2 of the entry price. Therefore, the risk of Liquidity Mining is lower than that of Derivatives Contracts.

To learn more about how to calculate the liquidation price of USDT contracts, please refer to Liquidation Price (USDT Contract).

Liquidity Calculation

Bybit's Liquidity Mining allows you to add a single token or two tokens to the corresponding pool. The system will automatically balance the token quantities based on the current pool composition.

Your liquidity depends on your liquidity composition and the index price of the Derivatives Contracts. Let’s run an example:

Please note that our liquidity composition and liquidity amount will be updated every five (5) minutes. 

Mining Yield Calculation

The actual amount of liquidity that’s been added to the pool is calculated with leverage. Please note that your yield will be calculated based on your liquidity amount.

Formula

Your yield = (your liquidity/total pool liquidity) × total yield from the pool 

Example

Let’s say that the BTC price is $40,000, and Trader A adds 0.1 BTC into the BTC-USDT liquidity pool with 2x leverage at 12AM (midnight) UTC.

In this case, Trader A's principal will be $4,000 (or 0.1 × 40,000), and their liquidity will be $8,000 (or 4,000 × 2). If the total amount of liquidity in the pool is $1,000,000 and its total yield in the last 24 hours is 1,000 USDT, Trader A can claim 8 USDT (i.e., 8,000/1,000,000 × 1,000) at 12AM (midnight) UTC on the next day.

Potential Risks

Bybit's Liquidity Mining is not a risk-free product. Liquidity provision is subject to impermanent loss, and the yield amount isn’t guaranteed. 

Impermanent Loss: With liquidity mining comes the risk of impermanent loss, a phenomenon that occurs due to price changes in the underlying assets. 

To learn more about how you can manage impermanent loss, please refer toHow to Avoid Impermanent Loss When Providing Liquidity in DeFi.

Liquidation Risks With Leverage: Leveraging of positions naturally comes with increased risk of liquidation, although liquidation risk is lower with Liquidity Mining as compared to Derivatives Contracts. In this case, you may add more USDT to lower your leverage in order to avoid liquidation.

The Bottom Line

Only individual users who have successfully verified their identity (at least Lv. 1 Basic Verification) can trade Liquidity Mining on Bybit. To learn more about KYC verification, please refer to the Individual KYC FAQ.

Please note that liquidity mining is not available for business users. In addition, subaccounts are not supported.