Liquidity Locking Overview
How do you maximize the attractiveness of your project and ensure investor trust? Liquidity locking plays a huge component here and is one of the most distinguishable signallers of project trustworthiness. Every project, especially presales, should be locking some of their liquidity.
What is Liquidity Locking?
Liquidity locking involves storing liquidity provider (LP) tokens in smart contracts for a pre-determined amount of time (locking/unlocking date). These smart contracts are called liquidity lockers. When developers add tokens to liquidity pools, they receive LP tokens representing the liquidity provided in the form of new tokens. Developers can at any time use the LP tokens to withdraw liquidity.
Liquidity lockers allow developers to preemptively lock away a set % of liquidity upon token launch for a specific period of time of their choosing. This prevents instant rugging upon launch (prevents them from being able to withdraw all project liquidity and disappear with it). It’s an approach that ensures developers don’t have control of users’ funds.
The point is simple — When an investor sees that a majority of the project’s liquidity is locked (whether presale stage or afterwards), they feel safer purchasing the token. This also encourages investors to purchase larger shares of the projects’ tokens.
Can I Create My Own Locks?
Some developers may lock tokens in their own self-created time-lock smart contracts. However, creating your own personal liquidity locker contract is not widely accepted because these cannot be trusted. If you are the owner of the locker holding your project’s token, you can easily manipulate the contract and withdraw the funds. Therefore, it’s much more credible to involve 3rd party platforms like the most trusted lockers in the industry; UniCrypt’s.
The whole idea of liquidity locking was conceptualized by UniCrypt and actualized in June 2020. More on why our locking tech is the industry standard and known as the most trustworthy here (insert prev medium article link).
UniCrypt Locker Features:
Lock Splitting: Split your lock and create multiple sub-locks — For example, 100% of liquidity can be locked however if say 10% needs to be withdrawn at any given date, the lock can be split into two, where 90% remains locked owing to the lock-splitting support.
Relock Feature: Relock your tokens. It is not needed to perform a withdrawal to relock your LP tokens for a longer time. You can act upon the lock directly from the user interface. Very convenient for developers and token investors.
Incremental Locks: Our lockers allow developers who have already locked their tokens to add more tokens in the same lock. If, for instance, developers locked 80% but feel like they should increase that amount to 100%, the developers are at liberty to do so at their own convenience.
Transfer of Ownership: This feature is very important. It allows a lock owner (the wallet where the LP tokens are locked from) to change the lock ownership in order to give it to another wallet. Some use cases : company wallet migrations (e.g. mutisig wallets), outsourced development teams…
Vesting Solutions: When a developer locks portions of his total token supply to release them gradually over a period of time, the process is referred to as token vesting, and the time span in which the release takes place is known as the vesting period. Developers may use vesting services in multiple scenarios : Vesting early investors (companies or retail), airdropping users over time, reinforcing trust and credibility by locking their token reserves. On top of that, vesting contracts are fully decentralized and leveraging smart contract only… which means the vesting parameters are immutable.
How To Lock Liquidity on UniCrypt
First, navigate to UniCrypt’s main page and choose the AMM; in this case, we chose UniSwap V2. Afterward, select the lock liquidity section > click connect wallet then > new lock.
Step 1: Enter Your Pair Address
Before adding the pair address, you must ensure the DEX pair is ready. Moreover, you must ensure that the LP tokens are in the wallet connected to the decentralized app. The token contract address is then pasted in the “Pair name or address…” field. At this point, you can find the token pair on the app.
Step 2: Configure the Liquidity Lock
Secondly, you need to consider setting the parameters of the liquidity lock while adhering to UniCrypt’s guidelines. Here are the steps to configure the liquidity lock;
- Please select the number of tokens, keeping in mind that you cannot withdraw them once you lock them.
- Set the unlock date. Remember, liquidity locks are time lock smart contracts storing LP tokens. As such, you must set a fixed duration in which you are planning to withdraw the tokens. Using UniCrypt, you need to set the withdrawal date.
Since locking liquidity is about a guarantee and about perception, when thinking of how long and how much % to lock — be logical as to what you believe will foster investor confidence. Locking 80% for 1 year is a good start, but lock a combination that makes sense for the dev team and project roadmap.
- Lock ownership unique tokens. In this section, the token developer is allowed to lock tokens and declare a different owner. For instance, a developer locks LP tokens and says that once unlocked, a particular address holder will withdraw.
- Get a 10% discount on fees. If a developer is locking liquidity with a referrer’s address, they can receive a discount. However, the token locker must have 3UNCX tokens. The fee on regular locks is calculated as a Flat fee (ETH,xDai, BNB) + 1% of LP tokens Locked.
Step 3: Confirm Your Lock
Confirm the set up by clicking Approve and Lock.
Withdrawing LP Tokens
After the lapse of the lock duration, you will now need to unlock and withdraw your tokens. You will choose the AMM where you locked the liquidity. Click lock liquidity > connect wallet > Edit/withdraw.
A new page opens with a field where you will fill in the token pair address. That opens a page where you can view the locked LP tokens. At this point, you can choose to withdraw or relock.
There’s no denying that we’re currently in a bear market and we’ve been pondering on how to help shorten this cycle. We could say that if DeFi networks as a whole were to earn back general investor trust after the several breaches and scandals we have seen this year, jointly employing liquidity locking mechanisms would be an excellent place to start.
As the most established liquidity lockers in the industry with a solid presence in the space, we are going to be encouraging projects of all sizes and calibers to lock some of their liquidity. This is to set an example for the industry, and to help signal to cold investors that investing in crypto tokens can still be done with some peace of mind.