The entry of institutional investors tends to increase market volatility. Large trades can move prices significantly, especially in less liquid markets. While their involvement often signals increased legitimacy and potential for growth, it can also trigger sharp price fluctuations due to the size of their positions and trading strategies.
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Liquidity mining is a process where users provide liquidity to decentralized exchanges (DEXs) or lending platforms and, in return, earn native tokens as rewards. These tokens are often issued by the platform to incentivize liquidity provision. While liquidity mining and yield farming are similar in that both involve providing liquidity for returns, liquidity mining specifically refers to earning the platform's native governance or utility tokens, whereas yield farming might involve earning fees or other assets. The rewards in liquidity mining can often be more volatile because they are linked to the success and governance of the platform issuing the tokens, making it riskier but potentially more profitable for investors looking for exposure to the project’s ecosystem.
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Key aspects of tokenomics to focus on include the total and circulating supply of tokens, as high inflation can devalue the asset over time. The distribution plan is crucial—tokens should be fairly allocated to the community, team, and investors to prevent centralization. Look at the token's utility within the project—does it have real-world applications or is it just for speculation? Also, check the incentives for holding, staking, or using the token. A strong tokenomics model aligns the interests of all stakeholders and ensures long-term viability for the project.
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