Liquidity Mining Around NFTs đ
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Dear Bankless Nation,
As DeFi and NFT projects continue to interact and take inspiration from one another, one thing weâve recently started seeing is the rise of liquidity mining, which originated in DeFi, in the NFT ecosystem.
These liquidity mining programs mark an easy way for projects to bootstrap themselves and a new way for users to earn crypto, so expect to see it much more as NFT projects keep reaching for the stars.
One such NFT-based project that just launched its own liquidity mining program is Unicly, a new NFT fractionalization protocol.
To give you a better idea for how this trend works and how itâs now taking place around NFTs, letâs explore Uniclyâs UNIC distribution in todayâs Metaversal đ
-WMP
The Unicly LM Case Study đ
Liquidity mining, a trend thatâs taken off in DeFi since last year, involves new projects âminingâ liquidity, i.e. amassing crypto deposits, which these projects need in order to bloom in their nascent days.
These DeFi protocols accomplish this mining by rewarding liquidity providers (LPs) with crypto rewards, namely the governance tokens of these respective projects.
These âgov tokensâ can be traded for other tokens like stablecoins, i.e. the olâ farm and dump maneuver, or they can be used as governance instruments for steering these decentralized projects via voting.
Since last year weâve also seen a boom of teams exploring DeFi x NFT melds, so weâre starting to see more NFT-centric projects explore liquidity mining programs.
These melds have already been particularly fruitful in the fractionalization sector, i.e. platforms where you can trade fractions of NFTs. Unicly is one such budding NFT fractionalization protocol, and the project just kicked off a textbook liquidity mining program. This phenomenon is here to stay in the NFT ecosystem, so letâs get a refresher on how it works by exploring Uniclyâs ongoing campaign.
Unicly: making NFTs easily tradable
Again, Unicly is an NFT fractionalization protocol. The project allows collectors to tokenize collections of NFTs, whether they be ERC-721s, ERC-1155s, or combinations thereof, into fractions called uTokens.
Every fractionalized collection gets its own unique uToken, so for example the uToken for the first Mystic Axie collection on the protocol has been dubbed uAxie.
Accordingly, the idea is that Uniclyâs uTokens can easily help users permissionlessly acquire fractions of highly-sought NFTs. But these tokens arenât useful if their markets are too illiquid. Thatâs why winning over and maintaining uToken liquidity is key for the up-and-coming Unicly project, hence the new UNIC liquidity mining program.
Earn UNIC for being an LP
UNIC is the native token of Unicly and is used to participate in the protocolâs governance, e.g. voting on new project parameters. The distribution of UNIC started last week with the launch of the projectâs new uToken liquidity pools.
![](https://bankless.ghost.io/content/images/public/images/f39d05b5-dccd-4bb2-a354-362d3bd8d973_1097x567.png)
To earn UNIC in this liquidity mining program, then, there are a series of boxes youâd first have to check. They include:
âď¸ Acquiring ETH & uTokens
Your aim would be to become an LP for one of these uToken pools, so youâd need to prep an equivalent amount of ETH and your desired uToken, e.g. uBEEPLE. To get uTokens, go to Uniclyâs Discover page, find the project you want, and then click on the âTradeâ button on the right side of the interface. Youâll be taken to a trading interface, e.g. Uniclyâs ETH-uMASK trading pair.
âď¸ Adding liquidity
Then youâd go to Uniclyâs Pool page, find your new uTokens, press âAdd Liquidity,â input the amount of tokens you want to deposit, and complete the transaction to receive Unicly LP tokens.
![](https://bankless.ghost.io/content/images/public/images/dfcdffb2-a646-400c-b03a-fe96fca12710_964x1544.png)
âď¸ Stake your LP tokens
Lastly, youâd go to Uniclyâs Farm v2 page, find your LP token staking pool, âApproveâ the transaction, and then press âStakeâ and confirm the staking transaction to start earning UNIC rewards. The staking awards for the largest uToken pool by market cap right now, the CryptoPunks-focused uPUNK, is presently ~1,000% APR.
Risks!
I wrote this post to offer a general sense of how a basic NFT-centric liquidity mining program works, because weâre undoubtedly going to be seeing more of them going forward so you may want to familiarize yourself with them now.
As interesting as they may be I didnât write this post as some blank stamp of approval for Unicly or its liquidity mining campaign, as liquidity mining does entail non-trivial risks for LPs and thus any money you deposit in can be exposed to multiple threats. Main ones are:
- Impermanent loss (IL) risk â You have to serve as an LP to earn UNIC rewards, and LPs face IL, which entails losing value via LPing as a result of trading volatility in a token pair. Would you have been better off simply holding ETH rather than serving as an LP across a specific time frame? Thatâs the threat of IL.
- Smart contract risk â Uniclyâs core smart contracts have been audited by blockchain security firm Sentnl, but thereâs always the non-trivial chance that something was missed that could later lead to an economic exploit against Uniclyâs smart contracts.
- Project risk â Unicly's team certainly has given no causes for concern to date, but previously we have seen malicious projects make off with usersâ money or undertake actions like mass sell-offs that have adversely affected users.
- Regulatory risk â This area is much grayer and more focused on the future. For example, though, thereâs always the chance that some jurisdictions will class fractionalized NFT tokens like uTokens as unregistered securities. How this plays out remains to be seen, but itâs a risk to factor in nonetheless.
Iâve personally been testing out the uPUNKs farm since this weekend, but Iâm also an expert and Iâm only doing so with a small amount of money that Iâm willing, and can afford, to see go to $0.
I suggest this approach to you, too, so you never overextend yourself when it comes to the possibility of things going bust. Learn about liquidity mining, maybe test it out some since itâs here to stay, but treat it more like an experiment especially if youâre just starting out!
Action steps
- đ Check out some of the NFT collections that underpin Uniclyâs uTokens. Which ones are most interesting to you, and why? Comment below đ