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Crypto Law/Level V · Builders and launchers/5.1 Launching a token/Lesson 5

Liquidity locks and revoked authorities

What locking liquidity, revoking mint and freeze authorities and renouncing contract ownership actually do on-chain, and why the law treats every claim about them as a statement of fact.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Burn LP tokens and set mint and freeze authority to None with SetAuthority. Each step costs only a network fee and is permanent, but it does not cover tokens insiders already hold.
  2. Prefer a burn to a time-lock. A burn needs no lock contract, has no expiry and does not depend on trusting third-party code; a lock protects only the LP tokens in it, and only until its unlock date.
  3. Before saying ‘renounced’, check for an upgradeable proxy admin, a fee authority and a permanent delegate, because any of these makes the claim misleading. Name every power you still hold.
  4. Giving up mint, freeze, upgrade and fee powers supports the view under SEC Release 33-11412 that no central party is left. Keep a freeze power only if you need it, for example to obey court orders, and disclose that.
  5. State locks precisely, giving the lock contract, the share of LP tokens locked and the unlock date. SafeMoon’s ‘locked’ claim, made while insiders could withdraw liquidity, ended in a 100-month sentence.

MaterialsThe Solana Program Library token documentation on mint authority, freeze authority and SetAuthorityOpenZeppelin’s documentation for Ownable.renounceOwnership and for upgradeable proxiesThe SEC’s complaint against SafeMoon LLC (E.D.N.Y., 1 November 2023)A block explorer page showing a token’s mint, freeze authority, LP token holders and any lock contract

Wonder

  1. If the LP tokens are burned, can anyone still pull the liquidity?
  2. What does ‘mint authority revoked’ prove, and what does it leave open?
  3. Can a creator be prosecuted for saying liquidity is locked when it is not?

Explore

  1. On an automated market maker, a token trades against a liquidity pool holding the token and a paired asset such as SOL or ETH. Whoever deposits into the pool receives LP tokens, which can be redeemed to withdraw the deposit. Withdrawing that liquidity suddenly is the classic ‘rug pull’ (lesson 6.2.1). To reassure buyers, creators ‘lock’ liquidity by sending the LP tokens to a time-lock contract that releases them on a set date, or ‘burn’ them by sending them to an address from which they can never be moved. A lock is temporary and only as good as the lock contract’s code; a burn is permanent.
  2. Token programs also carry control switches. On Solana’s SPL Token program, a mint’s mint authority can create new tokens at any time, and the SetAuthority instruction can irreversibly set it to None, fixing the supply. A freeze authority can freeze any holder’s token account so it cannot be used; setting it to None permanently disables freezing and thawing, and any accounts already frozen stay frozen. On Ethereum and similar chains, contracts built on OpenZeppelin’s Ownable pattern can call renounceOwnership, which leaves the contract without an owner, so functions reserved to the owner can never be called again.
  3. None of these is a complete guarantee. Revoking the mint authority does nothing about tokens insiders already hold. Renouncing ownership means little if the contract sits behind an upgradeable proxy whose administrator can swap in new code, a design OpenZeppelin documents in detail. Solana’s newer token extensions add other powers, such as a permanent delegate that can transfer or burn tokens from any account for that mint and that holders cannot revoke. A lock covers only the LP tokens actually placed in it, and only until it expires. Every claim of safety has to be checked against the full set of keys and permissions.
  4. The law treats these claims as facts. In its complaint of 1 November 2023, the SEC alleged that SafeMoon’s creator told investors, through marketing, the whitepaper and the website, that assets in the liquidity pool would be locked for at least four years. But each time the token’s 5% liquidity fee was added to the pool, the defendants received LP tokens that let them withdraw pool assets at will, which they repeatedly did. When the public learned on 20 April 2021 that the pool was not locked as claimed, the price fell by nearly 50%. Chief executive Braden John Karony was later convicted and sentenced to 100 months (lesson 5.1.6).
  5. Control also matters for classification in the United States. The SEC’s interpretation of 17 March 2026 defines a ‘central party’ as a person or group with operational, economic or voting control of a crypto system, and says a functional crypto system has no central party overseeing participation or distributing rewards. Retained mint, freeze, upgrade or fee-setting powers can point to continuing control, while giving them up can support the view that no one is left to perform essential managerial efforts (lesson 3.1.4). A freeze power can also serve legitimate ends, such as complying with a court order (lesson 4.3.7), so keeping or revoking it is a trade-off.
  6. Accurate wording follows from the mechanics. A builder who says ‘liquidity locked’ should be able to name the lock contract, the share of LP tokens locked and the unlock date; ‘renounced’ should identify which powers were given up and which remain, including upgrade and fee authorities. A practical check: on a block explorer, look up a token’s mint and freeze authorities, the holders of its LP tokens, any lock contract and its unlock date, and any proxy administrator, then compare each finding with the project’s public claims. Lesson 6.3.2 covers how to present these facts honestly to holders.

Key facts

  • On Solana’s SPL Token program, SetAuthority can irreversibly set a mint’s mint authority to None, after which no further tokens can be minted.
  • If a Solana mint’s freeze authority is set to None, freezing and thawing are permanently disabled and accounts already frozen stay frozen.
  • OpenZeppelin’s renounceOwnership function leaves a contract without an owner, so functions restricted to the owner can no longer be called.
  • The SEC alleged that SafeMoon promised its liquidity would be locked for at least four years while the defendants held LP tokens allowing them to withdraw pool assets at will.
  • According to the SEC, SafeMoon’s price fell by nearly 50% after the public learned on 20 April 2021 that its liquidity pool was not locked as claimed.
  • SEC Release No. 33-11412 defines a ‘central party’ as a person or group having operational, economic or voting control of a crypto system.

Exercise nine, six, three, one

9CollectList up to 9 control points of a token you can inspect on a block explorer (some lists will be shorter), such as mint authority, freeze authority, contract owner, proxy administrator, fee settings, LP token holders and lock contracts.
6ClusterSort them into 6 categories: powers permanently given up, powers still held by one wallet, powers held by a multisig or timelock, liquidity burned, liquidity locked until a date, and items you could not verify.
3DistillReduce the 6 to 3 groups: protections a buyer can verify are permanent, protections that expire or depend on someone’s continued restraint, and claims a buyer has to take on trust.
1CrystallizeWrite 1 sentence describing the remaining power in your example that a buyer is most likely to overlook, and what it would let its holder do.

Fact check

Dates, figures and claims checked against the published sources listed below.

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