Explained : Locked Liquidity (Must Read...) (2024)

FAQs

What does it mean if liquidity is locked? ›

Locking liquidity makes the funds immovable until they are unlocked. This means that a certain percentage of the asset has been locked and cannot be withdrawn by the developers which gives investors a sense of security against their investments. Liquidity is locked using time-locked smart contracts.

The $DROPS Token is the native currency of the DROPS Marketplace, and is used primarily to buy & sell locked liquidity through the platform. Liquidity may also be bought and sold using $ETH, should the seller be willing to incur the associated 10% brokerage fee.

Liquidity is the first thing that your investors check for and anything which stands out might make them uncomfortable. Ideally, you should lock all your liquidity, and at minimum 80%.

Open your preferred web browser and navigate to a reputable blockchain explorer. Enter the token contract address of the project you wish to investigate. Look for a section or label indicating “Liquidity Locked” or a similar term. This is where you'll find confirmation of the liquidity's security.

To lock your liquidity position, you must transfer your Uniswap NFT to the lock contract. In return, the contract mints a new NFT that it transfers to you. This new NFT represents your ownership of the locked position.

On the Web app: To remove Liquidity from Liquidity Mining, please go to your Liquidity Mining Page, scroll down until you see "My Liquidity", and then you can on the right side of the pool under "Actions", click "Remove".

If you're looking to sell tokens with low liquidity, you might want to consider using an over-the-counter (OTC) market or a trading desk at a cryptocurrency exchange.

- Removing liquidity pools or retaining leftover tokens/funds in the pools is not inherently illegal without contractual obligations or representations made to investors stating otherwise.

In the wake of Bitcoin's resurgence, the decentralized finance (DeFi) sector has achieved a significant milestone, with its Total Value Locked (TVL) crossing the $100 billion mark.

But it's also important to remember that if your liquidity ratio is too high, it may indicate that you're keeping too much cash on hand and aren't allocating your capital effectively. Instead, you could use that cash to fund growth initiatives or investments, which will be more profitable in the long run.

What is a good liquidity value? ›

Generally, a good Liquidity Ratio should be above 1.0. This indicates the company has enough current assets to cover its short-term liabilities. A higher Liquidity Ratio (above 2.0) shows the company is in a stronger financial position and may have spare cash available for investments or other opportunities.

Liquidity ratios are used to measure the immediate health of a business in terms of how well a company could potentially meet its debt obligations. A company with a liquidity ratio of 1 — but preferably above 1 — is in good standing and able to meet current liabilities.

If liquidity is unlocked, then the token developers can do what is infamously known as "rugpull". Once investors start buying token from the exchange, the LP will accumulate more coins of established value (e.g., ETH or BNB).

Selling locked liquidity is an effortless way to gain expedited access to funds which would otherwise remain illiquid. It entails the public listing of a locked liquidity pool owned by the seller, typically at a reduced rate compared to the ETH value it contains.

For example, low liquidity leads to slippage, an issue in which the actual returns on a token sale are less than what the expected price would have brought. In other words, the price received is less than the price named at the beginning of a trade. Volatility plays a role too.

Lock-up periods are when investors cannot sell particular shares or securities. Lock-up periods are used to preserve liquidity and maintain market stability. Hedge fund managers use them to maintain portfolio stability and liquidity. Start-ups/IPO's use them to retain cash and show market resilience.

A liquidity locker allows the developer to store LP tokens in a smart contract, revoking their permission to move these LP tokens until a set unlock time.

In addition, per the LCR Rule, the Company's HQLA Amount also excludes any Trapped Liquidity, which is the HQLA held at the Bank in excess of the Bank's total net cash outflows that are not transferable to non-bank affiliates.

Locking LP tokens prevents depositors of the liquidity from withdrawing their funds. It guarantees the community that liquidity will remain within the DEX to facilitate swaps, and not be cashed out by developers or project founders (like we've recently witnessed with the launch of $BALD token on Base Network).