Overview
Liquidity risks encompass dangers related to a token’s trading liquidity - the ability to buy or sell without significantly impacting the price. Low, unlocked, or manipulated liquidity is a major risk factor for token investors.
Insufficient liquidity can trap your funds or result in massive losses from slippage. Always check liquidity depth before trading.
Why Liquidity Matters
- Price Impact: Low liquidity means large trades move prices significantly
- Exit Ability: You need liquidity to sell your holdings
- Rug Pull Risk: Unlocked liquidity can be removed instantly
- Market Manipulation: Low liquidity makes manipulation easier
Types of Liquidity Risks
Insufficient Liquidity
- Not enough funds in trading pools
- Large trades cause extreme slippage
- May be impossible to exit large positions
Unlocked Liquidity
- LP tokens not locked in a timelock contract
- Owner can remove liquidity at any time
- Primary mechanism for rug pulls
Fake Liquidity
- Liquidity added then immediately removed
- Creates illusion of safe trading
- Often combined with wash trading
Concentrated Liquidity
- Few wallets control most liquidity
- Can be removed in coordination
- Single point of failure
Detection Indicators
| Tag | Severity | Description |
|---|
low_liquidity | High | Insufficient liquidity for safe trading |
unlocked_liquidity | High | LP tokens not locked |
liquidity_removable | High | Owner can drain liquidity |
short_lp_lock | Medium | Liquidity lock expires soon |
concentrated_lp | Medium | Few wallets hold most LP |
Liquidity Metrics
| Metric | Safe Range | Risk Indicator |
|---|
| Total Liquidity | $50k+ | Below $10k is high risk |
| Lock Duration | 6+ months | Under 1 month is concerning |
| LP Concentration | Distributed | Top holder over 50% is risky |
| Lock Contract | Reputable locker | Unknown locker is suspicious |
API Example
# Get liquidity pool data for a token
curl -X GET "https://api.webacy.com/tokens/0x123.../pools?chain=eth" \
-H "x-api-key: YOUR_API_KEY"
{
"pools": [
{
"address": "0xpool...",
"liquidity_usd": 125000,
"token0": "0x123...",
"token1": "WETH",
"lp_locked_percentage": 85,
"lock_expires": "2027-06-01T00:00:00Z"
}
],
"total_liquidity_usd": 125000
}
Slippage and Price Impact
Slippage increases dramatically with low liquidity:
| Trade Size | $10k Liquidity | $100k Liquidity | $1M Liquidity |
|---|
| $100 | 1% impact | 0.1% impact | 0.01% impact |
| $1,000 | 10% impact | 1% impact | 0.1% impact |
| $10,000 | 50%+ impact | 10% impact | 1% impact |
Red Flags
- Liquidity under $10,000 - Very high slippage risk
- No lock or short lock - Rug pull possible at any time
- Lock expiring soon - Monitor closely near expiration
- Unknown lock contract - May have backdoors
- Declining liquidity - Insiders may be exiting
- Single LP provider - Concentrated risk
Protection Strategies
- Check total liquidity - Ensure enough for your trade size
- Verify LP locks - Use reputable lock checkers
- Calculate price impact - Know your slippage before trading
- Monitor lock expiration - Set alerts for unlock dates
- Check LP distribution - Avoid concentrated LP ownership
- Use limit orders - When available, to control slippage
Evaluating Liquidity Locks
A proper liquidity lock should have:
- Reputable lock contract - Team.Finance, Unicrypt, PinkSale, etc.
- Sufficient duration - Minimum 6 months, ideally 1+ year
- Majority locked - At least 80% of LP should be locked
- Verified on-chain - Independently verifiable, not just claimed
Liquidity Monitoring
Use webhooks to monitor liquidity changes:
# Set up webhook for liquidity events
curl -X POST "https://api.webacy.com/webhooks" \
-H "x-api-key: YOUR_API_KEY" \
-H "Content-Type: application/json" \
-d '{
"token": "0x123...",
"chain": "eth",
"events": ["LIQUIDITY_CHANGE"]
}'
