Developing higher standards for decentralized offerings: ErgoDEX rolls out a Liquidity Locking feature
Perhaps not everyone knows that a Decentralized Exchange not only serves as a trading venue for users but can also be used by launching projects as a platform for initial offerings. The process of launching a token via a DEX is called an IDO.
IDO stands for Initial Decentralized Offering. The purpose of an IDO is to fund a new project on the initial stages in a decentralized way via a DEX. The way this works is that a new project creates a new liquidity pool on the DEX and provides the initial liquidity to the pool, for example ERG/”New_Project_Token”. This allows users to trade the platform’s new token directly on the DEX.
An IDO has a number of advantages over an ICO and many other types of initial fundraising practices. Since it is a permissionless decentralized system, this means it will cost a very small amount of fees to launch. It also means lots of liquidity will be available at the beginning for users to get involved. There is no waiting time to list an IDO and it will be available for all users to purchase immediately.
However, there are also some downsides of an IDO too. Since it is completely permissionless, there is always a possibility of the new project being able to rugpull investors. For example, a scammer can launch his own token on the DEX and tie it to a valuable cryptocurrency. After the investors increase the value of the newly created token, the scammers withdraw all the assets from the liquidity pool.
To address this issue for the safety of users, ErgoDEX is introducing a Liquidity Locker feature.
This feature can be used by the teams of developers willing to hold an IDO to lock the desired portion of liquidity in the ErgoDEX pool for a desired period. If at the start of an IDO a team decides to lock some significant amount of liquidity of their pool for a reasonable period, it gives confidence to the investors that the locked liquidity stays in the pool until a certain blockchain height (blocks) is reached, creating trust-based relationships between both sides.
Liquidity Locking is a widely used practice in IDOs on DEXes like Uniswap where developers can use a separate application such as Unicrypt to lock their liquidity. ErgoDEX brings the tool to a new level of convenience. Liquidity Locking is fully integrated into the ErgoDEX UI making ErgoDEX a first class platform for IDOs.
From the perspective of a developer willing to lock his liquidity the feature is accessible through the LP dashboard.
On the other side, users can see how much liquidity the developer locked for a particular pool on the pools stats page.
On a final note, it is important to repeat that users should always do their own research about new projects launching in the cryptocurrency ecosphere. Don’t rely on others as it may lead to you losing your funds.
On our own behalf, we will always put the protection of the users first and make efforts to improve security and usability.