Once investors start buying token from the exchange, the liquidity pool will accumulate more and more coins of established value (e.g., ETH or BNB or Tether). If liquidity is unlocked, then the token developers can do what is infamously known as "rugpull". This pool of funds gets deposited in the exchange and liquidity provider receives liquidity pool (LP) tokens in return, which can be used at a later point to withdraw the pool funds. Liquidity is created by pooling in the new token along with another token of established value (e.g., ETH or BNB or stablecoin like Tether) in an exchange like Uniswap or PancakeSwap. Without this pool, the investors will have to wait for someone to match their buy or sell order and there is no guarantee that the trade will be completed at all. Liquidity, simply put, is a pool of funds that crypto token developers need to create to enable their investors to buy and sell instantly. Let us start with understanding what liquidity means for cryptocurrency and why you may want to lock it.
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