In this article, you will learn everything you need to know about mining cryptocurrency on Quarry.so. You will also learn about the concept of mining liquidity, the difference between gas fees on the Ethereum and Solana blockchain networks, as well as the best blockchain to use for cryptocurrency mining operations.
What is Quarry.so?
Quarry.so is an open-source protocol that makes it easier for cryptocurrency and blockchain developers to launch their liquidity mining projects on the Solana blockchain network.
Worthy of mention is that the ongoing competition between the Ethereum and Solana blockchains fuels the success of this protocol. As an open-source protocol, Quarry.so makes it simpler for multiple liquidity mining pools to be launched on the Solana blockchain.
One of the major problems solved by this protocol is the composability of liquidity mining programs. Unlike other protocols that require sending of tokens to the liquidity pool, Quarry.so opted to build an ecosystem. Here, liquidity pools can be composed and enforced on-chain, thereby creating an inclusive ecosystem and reducing the costs of transactions.
What is a Liquidity Mining Protocol?
A liquidity mining protocol is a pool of crypto tokens or cryptocurrencies, which are crowdfunded with the intent of making trades easier on a Decentralized Exchange (DEX). We would like to mention that the pooled cryptocurrencies are locked in a smart contract (a self-executing code that automates transactions on a DEX). By locking the liquidity, the liquidity pool makes it a point of duty to use the available funds (cryptocurrencies or tokens) to ensure a smooth flow of transactions.
That is one aspect of a liquidity mining protocol. The other aspect is that the cryptocurrencies or tokens used in the pool are sourced from the holders of those cryptocurrencies. These persons are called Liquidity Providers (LPs) because that is what they do; provide liquidity for a smooth flow of transactions in the pool.
The third and most important aspect of the liquidity mining protocol concept is that the Liquidity Providers (LPs) are often rewarded with the native token of the pool. These rewards are disbursed on a specific timeline, such as daily, weekly or monthly. At the end of a pool cycle, the LPs receive the primary cryptocurrencies or tokens they contributed to the pool. They can also withdraw the native tokens they earn in the process of providing liquidity.
What is the History of Liquidity Mining?
Do you know the history of liquidity mining? When was the first token contribution made? Continue reading to find out!
Many cryptocurrency enthusiasts are of the opinion that liquidity mining is a new concept that became popular about a year ago. But liquidity mining actually goes back much further than that.
According to the information we have, the history of liquidity mining is linked to the cryptocurrency exchange IDEX. In 2017, the exchange introduced a concept called IDEX Rewards; a concept that would become a basis for liquidity mining.
In October of 2017, the exchange talked extensively about IDEX Rewards. Mention was made that the rewards program was an incentive for both the market Makers and Takers to be rewarded with the IDEX utility token. The rewards were shared on 50/50 between Makers and Takers.
The only requirement at the time was to place a limit order, which when executed, would be proportionally used for the distribution of the tokens. No special sign-up process with a specific cryptocurrency wallet was required for this to be done. Also, the IDEX exchange dedicated 200 million units (20%) of the 1 billion IDEX tokens to this purpose. From the information posted at the time, the users could request payment of the tokens at the end of each reward cycle.
The IDEX Rewards program also doubled as a community-growth mechanism, allowing the Liquidity Providers to earn additional rewards per contributions they made to the development of the platform.
The success of the IDEX Rewards Program opened more doors for the liquidity mining market, with the likes of Synthetix (powered by the Chainlink oracle) and Compound coming in between 2019 and June 2020 to make the liquidity mining ecosystem more attractive.
More liquidity mining protocols have graced the stage since then, including Uniswap, SushiSwap and the rest of them.
What is a DEX?
A Decentralized Exchange (DEX) is a type of trading platform that fulfills one of the core possibilities of cryptocurrencies, which is to facilitate trades on a Peer-to-Peer (P2P) basis. That is, the users of a DEX can transact within the ecosystem without relying on intermediaries.
Decentralized Exchanges (DEXs) also work by relying on underlying set of smart contracts, which are codes programmed to execute cryptocurrency transactions without anyone interfering.
Moreover, most DEXs work by requiring that cryptocurrency investors contribute to the liquidity, which helps ensure that users can actively buy and sell more easily.
In return, the Liquidity Providers (LPs) or those who contributed their tokens or coins were rewarded with either the native token of the pool or some other token.
Features of a DEX
Here are some of the features that make a Decentralized Exchange (DEX) outstanding:
1. Mode of Settlement
Unlike Centralized Exchanges (CEXs) that facilitate and record details of transactions on the internal database, a DEX uses a different model. In a Decentralized Exchange, transactions are both facilitated and recorded on the native blockchain.
2. Full Ownership of Crypto Assets
Cryptocurrency investors are not always lucky when using a CEX. This is because of the limited ownership opportunities. For example, you don’t own the private keys to your cryptocurrency wallet on the exchange.
The reverse is the case on a DEX, where your private keys are yours, and you are granted full access to the passphrases to your wallets. With this type of ownership, your crypto security is better protected.
3. Transparency of Transactions
Blockchain technology is one of the subsets of Distributed Ledger Technology (DLT). It works by redistributing the information recorded on the network. Blockchain is also the primary network that powers Decentralized Exchanges (DEXs).
As to be expected of the network, transparency is optimum. This is evident in the open-source code in most DEXs that allows developers to see how the platform works. It is also possible for the existing code of the DEX to be used as a basis for developing a similar trading platform.
4. Unlimited Crypto Projects can be found in DEXs
The flexible process of creating the tokens and setting up liquidity pools for them makes it easier for developers to launch more projects.
Potential Downsides to a Decentralized Exchange
Using a DEX can be risky, and here is why:
Most Tokens are not Vetted. The flexibility of the DEX ecosystem can make it porous sometimes, because the numbers of non-vetted or unverified crypto tokens are increasing by the day.
For such tokens, investors tend to be exposed to greater risk, because developers can suddenly remove the liquidity, thereby, tanking the value of the coin. This is based on a concept called Rugpull – more about this later in this article.
Various Implementations of a DEX
You may understand Decentralized Exchanges (DEX) to be platforms that allow cryptocurrency traders to buy and sell different kinds of cryptocurrencies without using the services of an intermediary or middleman.
However, not all the DEXs function that way. The first set of DEXs focused on swaps. By this, we mean trade executions between the liquidity pool and user wallets. Since the trades are not initiated via order books, the value of the assets is calculated as Token Value Locked (TVL). The DEXs you can find under this category are:
- Kyber Protocol
The second implementation of DEXs is the ones that use order books, the same way Centralized Exchanges (CEXs) do. In this case, the DEX uses the order book to publish important information, such as the prevailing market prices, buy orders, sell orders, and the spreads. Examples of such DEXs are:
- Loopring Exchange
- Tomo DEX
- Binance DEX
- Nash Exchange
Last but not least is the DEX that is based on aggregation. This type of DEX aggregates or sources liquidity from both the Centralized Exchanges (CEXs) and other Decentralized Exchanges (DEXs). Examples of this type of DEX are:
- 1Inch Exchange
What are the Pros and Cons of Liquidity Mining?
These are some of the advantages and disadvantages of liquidity mining in the cryptocurrency ecosystem.
|Liquidity mining can double as marketing strategy for a cryptocurrency project.||The liquidity mining ecosystem is largely unregulated, making it a porous ground for all kinds of scams.|
|Decentralized Exchanges (DEXs) have more liquidity with more token contributions.||The chances of rugpulling are higher because tokens can be created or minted at will, and most times, wouldn’t be vetted before listing.|
|Most DEXs using a liquidity mining protocol often activate an inclusive governance model that allows the users or Liquidity Providers (LPs) to vote on future developments of the cryptocurrency project.||Technical risk exposures, such as smart contract hacking.|
|Decentralized projects, thanks to the fair distribution of the native tokens of the cryptocurrency projects.||Impermanent Loss tendencies, no thanks to the greater changes in the price differences from the time you deposited tokens in the liquidity pool.|
|Liquidity mining creates an opportunity for both low-capital investors and institutional buyers to earn passive income.||Inside information may give some persons undue advantage over the others.|
|Through liquidity, it’s possible to create a large user base and active community for cryptocurrency projects.|
|With the passive income tendencies, there is a higher chance of more innovations in the space, as more investors would want to explore other opportunities.|
What are the Best Layer 1s (L1s) to Mine Crypto?
Cryptocurrency mining refers to the process of validating or confirming cryptocurrency transactions facilitated over the blockchain network. It also means the process by which new cryptocurrencies are entered into circulating supply.
Cryptocurrency mining is done over the blockchain network, and this has been the case since Bitcoin (the largest cryptocurrency by market capitalization) was introduced. Layer-1 Blockchain networks were popularized at the time. Bitcoin and Ethereum used the Layer-1 network to scale mining operations. Solana would later offer Layer-1 scaling solutions.
However, the fusion of Solana into the Layer-1 solution came with a twist. Unlike Bitcoin, which depended on the Proof of Work (PoW) consensus algorithm, Solana settled for a Proof of History (PoH) consensus mechanism that allows the Solana blockchain to be fast and decentralized at the same time.
Have you been wondering about the type of Layer that is used for fast-tracking cryptocurrency activities. If so, you’re not alone, because many other cryptocurrency enthusiasts are torn between Layer-1 and Layer-2 options. With Ethereum 2.0’s anticipated open-source development and upgrades, options are likely to increase.
First, understand that the Layer-1 refers to a blockchain network, while the Layer-2 is a third-party integration or a blockchain network designed to confirm transactions faster than the primary blockchain network. Also, the Layer-2 can be used for several other purposes, such as decongesting the main blockchain network, processing smaller transactions, and reducing the transaction fees.
The Layer-1 blockchain network appears to be one of the major blockchain networks for cryptocurrency mining operations. This is arguably because of the acceleration of block confirmations and the increased amount of data stored on each block.
Bitcoin is one of the leading Layer-1 blockchain networks used for cryptocurrency mining. The network tackled major problems early-on, including facilitating transactions and reducing transaction fees. As the adoption rate of Bitcoin grew, it became evident that the blockchain (Layer-1) network may be unable to fulfill a multitude of needs. The protocol would later be filled up, no thanks to the thousands of transactions waiting for confirmations every minute.
The Ethereum blockchain uses the same PoW model as Bitcoin. The same issues of delay in processing transactions and higher gas fees triggered a demand for something cheaper. At a time, Ethereum miners charged as high as 60% of the total amount of the transaction before validation.
This issue is not limited to the chain alone, as some liquidity pools and Decentralized Exchanges (DEXs) built on the Ethereum blockchain face similar challenges. This and many more issues led to the calls for an upgrade to the Ethereum network – an upgrade called Ethereum 2.0.
Under Ethereum 2.0, chances are that most of the existing issues will be addressed. For example, staking of 32 Ethereum coins would be required, as this is the major basis for becoming a validator on the blockchain. As a validator, you are allowed to add new blocks to the Ethereum blockchain, store data on the network, and process transactions.
The Solana blockchain is also a part of the Layer-1 solutions for cryptocurrency mining. This blockchain has been termed a competitor to the Ethereum blockchain, because it is poised to do everything that the Ethereum blockchain network couldn’t do.
The Solana blockchain operates a hybrid network that combines the duo of Proof of History (PoH) and Proof of Work (PoW). The PoH consensus mechanism allows for the timestamping and faster verification of transactions, while the PoW consensus algorithm is used for enabling transaction validation, based on the number of coins you hold.
The trio of Bitcoin, Ethereum and Solana are excellent Layer-1 solutions for mining or validating cryptocurrency transactions. Just take note that Solana has the upper hand currently. Ethereum is looking to make a rebound with its network upgrade, while Bitcoin is trying to measure up, provided transactions are not locked up more than it can handle at a time.
What is a Rugpull Scam?
Have you heard about a crypto asset that had a ton of hype behind it, and all of a sudden, a bunch of investors lost their money? Sometimes, this is caused by a coin’s having inherent flaws that end up causing it to lose value for legitimate reasons. But this can also take place when the rug is pulled out from under excited retail investors who may not have done much research into a coin’s ownership background.
The rug can be pulled out from under a cryptocurrency in several ways.
The first is that the creators or developers remove a large sum of liquidity from the pool, thereby, making it tougher to confirm transactions.
The second is that they released an excess of native tokens, thereby overwhelming the liquidity pool and having a colossal deflationary effect.
What are the Best Platforms to Mine on $SOL?
At the time of writing, Etherscan and Solscan are the two major platforms for making a comparison between the gas fees on both networks.
The table below shows the amount of gas fees needed per transaction:
|0.000005||103 Gwei ($9.61)|
How can You Track Your Liquidity Mining Projects
You can stake your cryptocurrency in a liquidity pool both to provide liquidity and to earn passive income in the form of new tokens to be added to your portfolio for free.
Sometimes, keeping an eye on your investments (especially when it involves multiple liquidity pools) can be tiresome. You are looking for a sort of automated mechanism to help you track your liquidity mining projects. It is possible to do that via Liquidity Pool Trackers.
Liquidity Pool Trackers evaluate the performance of your crypto tokens and coins invested in specific pools. Guess what? With the right Liquidity Pool Trackers, you can gain valuable insights on the potential APYs or ROIs of the liquidity pools, as well as important analytics/data that will help you make informed investment decisions.
There are lots of these trackers out there, with each offering different services. These are some of the popular ones and how they work:
- Revert Finance: You can use this Liquidity Pool Tracker to check both the past and the present/current positions you held or currently holding in the pool. It also has a Historic Pool Function that lets you into important insights about the overall performance of the positions you held in the liquidity pool.
- Vision: This is one of the most advanced Liquidity Pool Trackers in the sense that it allows you to check the real-time market price quotations, find out potential APYs, discover availability of liquidity pools across many Decentralized Exchanges (DEXs) and for tracking impermanent loss.
- Croco Finance: You would be surprised to discover that holding your cryptocurrencies could be way better than staking them in a liquidity pool. You can discover the profitability of doing so by using the Croco Finance Liquidity Pool Tracker.
What is the Best $SOL Solana Wallet?
Are you looking for the best cryptocurrency wallet for storing your Solana $SOL coin? Here are some of the options to consider:
- Trust Wallet: You can use this only for storing, sending and receiving the Solana ($SOL) token. It is not possible to use it for staking operations.
- Zelcore: This can be used for several purposes, including storing, transacting and connecting $SOL to DApps.
- Coin98: You can only use this cryptocurrency wallet to send and receive $SOL.
- Phantom: The Phantom cryptocurrency wallet now allows the users to store, send, receive, stake and swap their Solana ($SOL) tokens on the Solana blockchain network.
- Sollet: This is a non-custodial web wallet used for sending and receiving both $SOL and any other SPL token.
- SolFlare: This wallet has multiple uses, such as sending, receiving, and staking any SPL token.
The Solana ecosystem has come a long way and continues to give Ethereum a run for its money. We hope that the same tempo (and even something bigger than that) is sustained to make cryptocurrency mining faster, cheaper and more decentralized than it has ever been.