Is it illegal to create a crypto token, create a liquidity pool, immediately remove liquidity &/or sell your own supply (2024)
A:Based on the details provided, there is likely no outright illegal activity here from a criminal law perspective. However, the token creator would still have some civil liability risks related to securities regulations and anti-fraud laws. A few key points:
- Simply creating and selling one's own cryptocurrency token does not violate criminal laws against fraud or theft absent blatantly false statements or hacking/stealing funds. There may still be civil liability though (see below).
- 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.
- Not advertising or promoting an essentially worthless token helps minimize liability risk related to misleading investors, wire fraud, etc. But securities violations may still be possible if token buyers interpret it as an "investment."
- The automatic trading bots do take on market risk purchasing such tokens, but their operators likely understand the highly speculative nature. Still, the token creator could face civil charges of operating an unregistered security without proper disclosures.
In summary - while not overtly criminal given minimal promotion and disclosures, attempting to profit in this manner does carry securities enforcement and civil litigation risks that could lead to penalties, disgorgement orders, etc if brought to court. It occupies an area of questionable legality. Consulting an attorney versed in cryptosecurities would help fully assess the risks.
- Simply creating and selling one's own cryptocurrency token does not violate criminal laws against fraud or theft absent blatantly false statements or hacking/stealing funds. There may still be civil liability though (see below).
Is it Legal to Create a Cryptocurrency? Creating a cryptocurrency is generally legal, although some countries and jurisdictions have partially or fully banned cryptocurrency.
In many jurisdictions, creating a cryptocurrency is not illegal. However, if it meets the criteria set by whatever test regulators in each country use, it will likely be considered a security in that country, thus becoming an ICO. In the U.S., the Howey Test is used.
A regular user can create a liquidity pool on 1inch with the Balancer protocol in just a click, configuring its size and the weight of each currency. One way to earn an income in the crypto space is by creating and running a liquidity pool — a pool of tokens locked on a smart contract.
On a decentralized exchange, liquidity correlates directly with the amount of tokens locked in a liquidity pool. If a token lacks liquidity, holders may not be able to sell their tokens when they wish. Many DeFi exchanges allow market makers to create multiple liquidity pools with various tokens.
Introduction: My name is Melvina Ondricka, I am a helpful, fancy, friendly, innocent, outstanding, courageous, thoughtful person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
