Understanding locking liquidity is vital for everyone who wants to invest in a token. Liquidity is a pool of funds that allows people to buy and sell tokens immediately. Usually, a pool is set up by the project’s team to make it easy for investors to buy and sell them instantly without having to wait for someone else to want to buy or sell the token. Liquidity pools are necessary for decentralized exchanges. For instance, the team behind a token may lock liquidity on PancakeSwap to make the exchange process easier for investors.
Projects create liquidity by pooling their native tokens with popular cryptocurrencies like Ether or BNB to be considered legitimate.
Teams tend to tell their communities of plans to liquidity lock their pools to prevent the founders from withdrawing it and leaving investors in the lurch. It is important because history has seen scam project teams draining the liquidity and running away. By locking the pool, the tokens in it can’t be moved or redeemed for a particular period.
Believing a team when they say that the liquidity is locked without confirmation may not be wise. It is easy to confirm the claim. All you have to do is:
- Copy the token’s contract address
- Head to bscscan.com if it is a BSC token, solscan.io if it is a Solana-based token, or ether scan if it is an Ethereum-based token.
- Look up the page with the liquidity addition details.
- Click on the TX hash, then head to the part where you can see the liquidity pool tokens transferred to the developer’s wallet.
- Check the wallet to look at the LP holdings of the developer.
- Confirm that it is zero.
- Check if the holdings were moved to the burn address.