To understand liquidity locks, it’s important to first understand how decentralised exchanges (DEXs) and Liquidity Pools work and operate. If you aren’t already familiar, we recommend checking out the following video.
When you list a token on a decentralised exchange such as Uniswap or contribute to an existing token pair pool, you receive what are known as ‘Liquidity Pool (LP) Tokens’.
These LP tokens represent part ownership of the tokens that are inside the Liquidity Pool.
For example, if you create a Liquidity Pool for SWAP/ETH on Pancakeswap and have 50% of all tokens in the pool, you are entitled to 50% of all the LP tokens and 50% of any trading fees that are generated.
A liquidity lock is a smart contract that token holders can send their LP tokens to and ‘lock’ them. The exact duration of the lock depends on the token holder - this can be set for as much or as little time as desired. Until the lock expires, the token holder cannot access the tokens.
Once the lock expires, the token holder can withdraw their LP tokens via the Team Finance ‘Claim Token’ dashboard. These LP tokens can be redeemed for the token pair inside the liquidity pool on a decentralised exchange (e.g. SWAP/ETH on Uniswap).
Liquidity Locks are a crucial element to build trust and credibility for any web 3 project. Primarily, they help investors protect against one of the most common crypto scams - Rug pulls.
Rug pulls occur when the primary liquidity provider in a liquidity pool redeems all their LP tokens at the same time. This drains most of the liquidity in the pool, meaning that users and investors have no option to sell their tokens. This causes the price to collapse.
- 1.Bulletproof smart contracts. You don’t want to be taking bets or risks on unproven solutions with something as important as your LP tokens. We’ve held up to $6 billion USD in total value locked (TVL) via our smart contracts and worked with +30,000 projects.
- 2.World-leading features. For any need you have, we (most likely) have a solution:
3. 24/7 support. We understand the importance of getting your locks right. That’s why we have comprehensive support via Telegram or Intercom to help with any questions or issues, day or night.
- 1.Under “Create New Lock”, select the appropriate chain
- 2.In step 2 select: “Liquidity Tokens” and follow the steps
Make sure you connect with a compatible wallet such as Metamask to complete the above steps.