There are three islands in this story. The first island cultivates sugar cane and produces more sugar than the inhabitants need. The second island produces a lot of salt. The third island is located between the Sugar Island and the Salt Island. The people on the third island built three warehouses and stocked them with sugar and salt, which made trading between the two islands much easier. The commercial ships no longer needed to sail back and forth between Sugar Island and Salt Island. Instead, they could go to the third island. However, the warehouses on the third island didn’t have enough space for all the sugar and salt, so the contractors built giant warehouses on the third island and invited the merchants from both islands to deposit large amounts of sugar and salt. The merchants received benefits for facilitating the exchange process between the two commodities. But there was a problem with the security of the warehouses. Some of the warehouses were more secure than others, the degree of security is as follows:
The first store: The store has a strong lock that cannot be removed, which prevents the owner from accessing any amount of sugar or salt, except when carrying out exchange operations. The lock only allows the owner to access the specific quantity required for the operation, and once the operation is complete, the lock resets and remains locked forever.
The second store: It has a temporary yet strong lock that prevents the store owner from damaging its contents for five years, with an option to renew.
The third store: The third warehouse doesn’t have a lock, but it contains higher levels of salt and sugar than the first and second ones. This is because the store owner has advertised it extensively and many social media influencers have spoken about its accuracy and usage of the latest security systems.
One day, the merchants woke up to find out that the owner of the third store had fled with all of the goods. Five years later, the same thing happened with the owner of the second store. However, the first store always operated without any issues.
In the world of cryptocurrency, it’s extremely risky to purchase a token on a decentralized exchange if its liquidity has not been locked. Before investing any amount in any digital currency, you must ensure that the tokens’ liquidity is locked. This is important regardless of the honesty, fame, or reputation of the currency’s founder. Failing to lock liquidity puts all buyers’ funds at risk of being withdrawn with the push of a button. This is a malicious tactic known as a ‘Rug Pull’, during which the cryptocurrency team abandons the project and runs away with investors’ funds.
What What is meant by locking the cryptocurrency liquidity?؟
It is when a cryptocurrency owner locks their assets on a decentralized platform, and they are prevented from withdrawing the liquidity for a specified duration and amount.
Liquidity lock advantages:
Increased investor’s confidence and trust: A cryptocurrency with a locked liquidity creates a feeling of security.
Currency price stability: Having a locked liquidity pool helps stabilize currency prices by providing a stable base for trading.
Enhance project reputation: Projects with locked liquidity tend to be viewed more favorably in the cryptocurrency community, as they demonstrate transparency and dedication to their investors.
Attracting new investors: Conscious investors limit their investments to projects with locked liquidity and are attracted to them.
How can I ensure the liquidity is locked and the duration of the lock is true?
To check if a digital currency is locked, there are two methods. The first method involves visiting the smart contract page of the decentralized platform where the liquidity pool was created, such as Pancakeswap. Then, click on the Holders box and look for an address with a contract icon next to it. If the contract icon is present, click on the address and look for the expiration time of the lock on the Contract page. If that is not available, search in the transactions field for a transaction with a Lock token icon next to it and click on the title of that transaction. Then, click on Logs at the top of the page to find the Unlock Time, which shows the duration of the lock expiration. After obtaining the number of seconds, convert it to a date using a website that can do so.
The second method is to enter the smart contract address on cryptocurrency websites like dextools.io to check the reliability of the currency and if the liquidity pool is locked.
When a cryptocurrency team locks the liquidity, they usually announce it on their website and social media. Investors should review the lock certificate and visit the website to find out the percentage of currencies whose liquidity has been locked and the duration of the lock. Once investors have confirmed that all liquidity has been locked permanently, they can move on to inspecting other important aspects.