All You Need to Know about Locking Liquidity | How to Check If Liquidity is Locked
What is a Liquidity Pool?
A liquidity pool is a sum of tokens that serves as a buffer or a reserve. These are the tokens users buy when they invest in the project. Without this pool, a user would have to wait for the necessary amount of tokens to be sold to get them. A liquidity pool provides an opportunity to buy instantly.
But pool doesn’t consist of just one token, instead, it matches the token with another one, forming a pair so that users would take a necessary amount of the first token and put back the equal sum in a different one. Which in turn, forms the token price.
Tokens are usually paired with a stablecoin or a coin native to the system they use. So it can be BNB, CAKE, or else.
A liquidity pool can be compared to an exchange reserve. And it’s needless to point out that this reserve is crucial to the project and the token. It has to be safe so that the investors would be confident in their choice.
Why is locking liquidity relevant?
Security is crucial to any crypto project, especially to a new one. It’s not just a question of prestige, it’s all about providing the best experience to your investors.
By locking liquidity a project can show that it’s planning to be in business for a long time.
It can make sure that no one from the team or the owner will at any point, as long as the liquidity is locked, take away the liquidity, leaving the pool empty.
How does it work?
Locking liquidity doesn’t mean relinquishing control of the pool, instead, it means using an external service to block the liquidity. As long as it’s locked, no one has access to it. It can’t be moved, spent, or rugpulled, and the unlocking works automatically at the date the owner sets beforehand. It’s impossible to unlock the liquidity sooner. The funds stay secured in one place.
Each project is locked in its own contract and doesn’t affect any others. So just because the other project has been unlocked doesn’t mean that anything could happen that yours will.
What’s a rugpull?
Rug pull is a malicious action performed by a team member or anyone who has access to the initial smart contract. Usually, it’s the owner. When users start buying the new token, they fill the liquidity pool with the stablecoin, the second coin in the pair that usually has a stable exchange rate. The pool presents value, and it’s an attractive option for any disreputable owner to take the stablecoin out of the pool and sell it, leaving the projects and its investors with a coin that’s virtually impossible to sell, i.e. pull the rug from under their feet.
This action is impossible to perform if the liquidity is locked.
What are team tokens?
Team tokens are required for development processes, payments to and from the team, and other endeavors, related to the day-to-day life of the project. However innocent that sounds, team tokens still present a certain danger to the investors. If they are simultaneously released in a large sum, they may in certain situations drive the token price down. Which results negatively on the investors’ financial well-being.
What is team Vesting?
Team vesting is the process of gradual release of team tokens. Usually, teams make a promise to their users to release the tokens in smaller parts so that it wouldn’t affect the price. However, the investors have to trust the team to follow through.
What is Team Tokens Locking?
Essentially Team Tokens Locking is similar to Liquidity Locking. However, there are several differences.
The tokens are locked into a contract with the instruction to release a specific amount at a specific time. Said time is available to the investors and other users and is not subject to a change. This way, the investors can be prepared for a token release and control their own investment.
With Team Tokens locker investors don’t have to blindly trust the team’s promise. Instead, they can rely on an automatic system that will release the tokens at a previously stated date and time.
Why is it relevant?
It’s a question of trust and the project leaders’ willingness to commit to their word and plans. This way they are more likely to follow the initially stated roadmap, and it’s impossible for them to accidentally or on purpose drop the token’s price.
This is important for the investors and the project owners. It’s a positive marketing element, that can attract users, that are looking for a secure project.