A common misconception in the cryptocurrency space is that a liquidity lock guarantees a token's safety. However, this is not entirely true. While a liquidity lock does prevent the creator of a token from draining the trading pool, it also provides a revenue stream for the creator through trading fees.
Liquidity Lock Mechanism
When a token is launched on a decentralized exchange, a liquidity pool is created by depositing the new token alongside a valuable asset, such as a stablecoin or the chain's native asset. The depositor receives liquidity provider tokens, which can be redeemed to withdraw the pool's contents. A liquidity lock sends these provider tokens into a time-locked contract, preventing the creator from redeeming them and draining the pool.
The Gap in Safety Literature
While the guides and safety checklists are correct in stating that a liquidity lock prevents the rug pull, they are incomplete in their analysis. The lock does not remove the creator's ability to extract revenue from the token, but rather converts it into a subscription-based model. The creator can earn trading fees on every swap, regardless of the token's success or failure.
Launchpad Fees
Launchpads, such as those in the Pump.fun lineage, have automated token creation and solved the rug pull structurally by locking the liquidity permanently. However, these platforms also pay creator fees, which can be claimed by the address that created the token. This arrangement rewards builders whose tokens sustain real volume, but also provides an incentive for creators to launch tokens that may not be successful, as they can still earn fees from trading activity.
