When a new coin is launched, developers are throwing words around like “two million dollars in liquidity is locked” or “95% of tokens are locked for 1 year.” These claims may seem impressive, at least when you know what they mean by that. But they don’t always tell the whole story.
Locking liquidity is a common security measure aimed at preventing price manipulation or investors from rug pulls.
Developer’s claim is one thing, but the reality can be a bit different. In this guide, we’ll explain why it’s important to know where the reality is at and also show you a few different ways of how to check if a token’s liquidity is locked. Let’s dive in!
What does it Mean when Liquidity is Locked, and Why is it Important
Having locked liquidity is one of the most important security measures when it comes to crypto coins and tokens. It guarantees that investors’ money is somewhat safe from manipulative price movements or from rug pulls.
Rug pulls usually happen on decentralized exchanges. In this scam, the developer lures investors to invest in their project and then, all of a sudden, removes all liquidity from the liquidity pool. And just like that, investors are left with a token that is completely worthless and untradeable. If you wish to learn more about rug pulls, check out our guide on How to spot a crypto rug pull.
But when the liquidity of the token is locked, no one can do that because, well, it’s locked. That means that a certain amount of tokens or funds have been locked up in a smart contract for a specified period of time and can’t be sold or traded during that time.
However, the person that locked those tokens into the liquidity pool is still entitled to take them out, but only after that locking period. This ownership is represented by an LP token that you are given after providing liquidity, and that represents your share in that particular pool.
So technically, if the token wasn’t that good of an investment, traders can all take out their liquidity after the locking period is over, crashing down the price. So locked liquidity doesn’t save all, but it’s one of the effective tools to stabilize the price and prevent market manipulation.
What Happens when Liquidity is Unlocked
When liquidity is unlocked, it means that the tokens that were previously locked up in a smart contract become available for trading or sale.
Thanks to the nature of the liquidity pool, the unlocking typically happens gradually over time. That’s because not all traders have locked their tokens at the same time.
If the tokens have a strong and loyal following, the release of liquidity will not usually have a significant impact on the price, as investors may continue to hold onto their tokens, and more tokens are locked up.
But it can be a dangerous time for less established coins.
Different Ways to Check if the Liquidity of a Token is Locked
There are a few different ways in which you can check if there is any liquidity of a token locked and, if so, how much.
The most basic way is to use a block explorer and check the token’s contract address. If there is any liquidity in the contract, you can check the code to confirm that the liquidity is locked and for how long.
The method using block explorer requires a bit of knowledge to know where to look. But many online tools can tell you that without any trouble. Let’s take a look.
Check Locked Liquidity using Block Explorer
We can assure you that you’ll feel like a blockchain wizard after extracting the details right from the block explorer.
1. You first want to open a block explorer depending on the token you are checking, If you are checking an Ethereum-based token, open ETH explorer for BNB, open BNB explorer, etc. We’ll check Floki in this guide because we can actually check if our finding is correcting using one of the tools you will find later in this article. Since Floki is an ERC-20 token, we’ll open etherscan.
2. Then open the contract of your token. Simply search for it using the search box. If your token is less established, and you can’t find it using just the name, copy the contract address from CoinMarketCap and paste it there.
3. Once you are on the token’s page, switch to the “Holders” tab. In this tab, you can see all the wallet that holds our token, ranked from largest.
4. Now comes our first detective work. We’re looking for a contract address that holds locked tokens. Contract addresses have a little icon beside them. But not all contract addresses hold liquidity. In Floki’s case, the first contract address (that you can see ranked third) is a Floki treasury. And the one we’re looking for is ranked 12th. When you find the address, tap on it.
5. Ignore everything you see on the page and tap on the address in the “filtered by token holder” section.
6. Now, you will see a lot of other stuff that you don’t understand. Ignore all that and tap “Token tracker.” Below that, you will see liquidity pools of the token (of the contract liquidity contract address). In our case, it’s “Uniswap.”
7. Now we’re finally getting somewhere. If you switch to the “Holders” tab, you can see addresses that have a stake in that liquidity pool. In 99% of cases, you’ll need to click the biggest holder. And with Floki, that’s the case, as you can see an address tagged as “LP Lockers.”
8. The quantity that this address holds is the quantity that is locked in the liquidity pool. But we’re not finished yet. The liquidity can unlock in two days, and you don’t want to throw your money in that. So let’s check for how long the liquidity is locked.
9. When you are on the address’s page, stay on the “Transfers” tab and open the transaction that went in, by clicking on the “Txn Hash.”
10. We’re nearly there. Here you can see all the transaction details. But none of these are saying for how long the liquidity is locked. To check it, you need to switch to the “Logs” tab. Once there, you are looking for a value labeled “unlockDate,” or for a weirdly-looking number because not always the number will be labeled. That’s because the data comes in Hex, you are seeing a standard decimal system because the block explorer translated it.
11. As a last step, we need to convert the time stamp to something we can understand. To do so, visit UnixTimeStamp and paste in the number. And it will give you the answer to when the liquidity will be unlocked.
As you can see, the liquidity of Floki will be unlocked in 264 years. Which is the same value we found when checking using a third-party tool.
And one last thing. Sometimes the liquidity will be locked with a third party like Team Finance. In that case, it might look completely different in the block explorer, or you won’t be able to find it at all. But at least it’s fun to play around with block explorer like this.
Check if the Liquidy is Locked using Online Tools
Because there are dozens of online tools that will analyze the token for you and tell you what amount of liquidity is locked, we won’t walk you through all of these. Instead, we chose a few that are interesting enough and offer a lot more. All of them are pretty intuitive, so you won’t need a step-by-step guide.
Unicrypt is a DeFi protocol for almost everything you, as an investor or creator of your own projects, would need.
It allows you to launch your own Initial Offerings, create your own staking pool, and among others, check what portion of the token’s circulation is locked.
Simply search for the token you want to check and switch the tabs to “LOCK LIQUIDITY.”
Team.Finance is a very similar project to Unicrypt. It’s a to-go token management company that allows you to search through the list of projects that locked their liquidity with them.
Simply visit the website, go to the “All Tokens” tab, and search for your token.
DEXTools is an analytics platform that provides real-time data and insights on the most popular DeFi protocols and assets.
It is probably the best app for checking locked liquidity since it tracks nearly two million tokens across nearly one hundred networks.
Visit the website and enter your token into the search box. Then in the left part of the screen, besides the trading graph, you can see “Pool info” with the information of what is the total liquidity and what portion of it is locked.
If you want to learn more about this platform, you should check our comprehensive guide that reviews all the interesting features of DEXTools.
If you are looking for investment opportunities within decentralized, unregulated tokens, you should always check if by any chance isn’t the majority of the supply held by the creators and if a part of it is locked.
Usually, at least 85% lock is ideal to maintain price stability and avoid scammy projects.
To check if a token’s liquidity is locked, you can use many different online, third-party tools or stick with the old, good block explorer. Honestly, it’s a bit harder to check it using a block explorer, but you can find much other interesting information about your token during the process.
Speaking of block explorers, if you want to sharpen your knowledge, don’t forget to check our guide on How to read block explorers.