The world of cryptocurrencies is booming, and among the many technical terms circulating, the concept of " vesting " is one of the most crucial for investors. But what does it actually mean? vesting in crypto refers to a mechanism for the gradual release of tokens, often used to prevent massive amounts of tokens from being sold immediately after their distribution. This helps stabilize prices and align the interests of developers, investors, and users, but it is also feared by investors because it implies token inflation
Why is this so important? Imagine you're launching a promising crypto project. You give your developers and early investors a large amount of tokens, but you want to ensure their long-term . By delaying full ownership of the tokens, you guarantee that these stakeholders have a financial incentive to see the project succeed over time .
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Which investors are subject to crypto vesting ?
All investors are subject, directly or indirectly, to crypto vesting schedules.
Investors directly subject to vesting are generally those who participate in the early stages of funding a crypto project, such as institutional investors, founders, development teams, and sometimes even private or retail investors who have participated in private sales (pre-sale).
Investors indirectly subject to vesting are all those who have purchased a token. All tokens will have a more or less high and more or less linear rate of inflation.
The different types of crypto vesting
There are primarily three types of vesting (also called releases) in crypto: linear release, step-by-step release, and performance-based or milestone-based release.
Linear relaxation
Linear release is the simplest and most common. In this model, tokens are released regularly over a set period. For example, if you have 100 tokens submitted over 10 months, you will receive 10 tokens each month until all have been released.
Step-by-step release
The phased release, also known as "cliff vesting ," is a bit more complex. Here, tokens are only released at specific times, often after reaching a certain milestone or key date. For example, you might receive no tokens for the first six months, then receive 50% all at once, with the remaining 50% released gradually thereafter.
Performance-based (milestone) release
Milestone-based token release is contingent upon the achievement of specific objectives. This could be the development of a key technology, reaching a certain user base, or any other predefined criterion. Tokens are released only when these milestones are met, providing a strong incentive to achieve the project's goals.
Why can vesting be advantageous for crypto projects?
Investor loyalty
First, vesting helps retain early investors. By delaying full ownership of tokens, projects ensure that early investors have a long-term interest in the project's success. They can't simply sell all their tokens at the beginning and leave.
Prevention of mass sales
Secondly, it prevents massive token sales that could cause the market price to plummet. This helps maintain a degree of stability, which is crucial for investor and user confidence.
Token market stabilization
Finally, it plays a key role in stabilizing the token market. By preventing a massive and instantaneous release of tokens, vesting helps maintain a balance between supply and demand, thus reducing price volatility.
The risks of crypto vesting for investors
Limited liquidity risks
The first risk is limited liquidity. If you are an "early" investor who followed the initial phases of a project, your tokens are subject to crypto vesting ; you cannot sell them immediately, which can be problematic if you need liquidity quickly.
Potential market dilution
Another risk is the potential for market dilution . As tokens are released, the supply on the market increases, which can drive the price down if demand does not keep pace.
Dependence on the success of the project
Finally, vesting depends on the long-term success of the project. If the project fails or does not achieve its objectives, the tokens may lose all their value before being fully released.
How to evaluate a crypto's vesting plan before investing
Analysis of vesting duration
A longer period may indicate a long-term commitment from investors, but it also means that you will have to wait a long time before you can sell your tokens if you are among the "early" investors.
Understanding the token release schedule
Next, it's crucial to understand how the tokens will be released. Is it a linear vesting , a phased vesting, or a milestone-based vesting? This will influence the availability of your tokens and their impact on the market.
If you're an investor who has only purchased a token, understanding the vesting schedule can be crucial in some cases. Large releases at certain milestones can lead to significant selling pressure from early investors, potentially resulting in substantial dilution of your token's value.
Verification of the alignment of stakeholders' interests
Finally, ensure that the founders' interests are aligned with those of the investors. A good indicator is to see if the founders themselves are subject to a similar vesting plan.
Impact of vesting on token valuation
Effects of crypto vesting on price volatility
When a large quantity of tokens is released all at once, it can trigger a massive sell-off, causing a sudden price drop. However, a well-designed vesting can mitigate this volatility by spreading the token release over a longer period.
The influence of crypto vesting on investor perception
vesting can also influence investor perception. A well-designed vesting plan can be seen as a sign of seriousness and long-term commitment, which can attract more patient and dedicated investors.
Practical advice for investing in projects with vesting
Strategies to maximize return on investment
Be patient and plan for the long term. Projects with vesting periods can offer substantial rewards for those willing to wait. Make sure you fully understand the timeline and adjust your strategy accordingly.
How to manage waiting periods
It's easy to get frustrated seeing token prices fluctuate without being able to sell them. Remember why you invested and stay focused on your long-term goals.
Common mistakes to avoid with crypto vesting
Misunderstandings about crypto vesting conditions
It is crucial to fully understand the terms and conditions of vesting before investing. Failure to do so can lead to unpleasant surprises, such as the inability to sell tokens when desired.
Underestimating the patience required
vesting is a long-term strategy. If you are not confident in the future success of the project, it may not be a good option for you.
Neglecting liquidity risks
Investing in tokens with a vesting means you may have to wait before you can sell them. It's important to plan accordingly and not rely solely on these assets for your liquidity needs.
Tools to track crypto vesting calendars for tokens
TokenUnlocks
TokenUnlocks vesting schedules in detail. It offers an overview of the different token release phases for numerous projects, helping you anticipate potential market movements. You can view clear charts showing the exact token unlock dates, which is crucial for informed investment planning.
DropsTab
DropsTab , meanwhile, is an equally valuable resource, combining vesting data vesting other key information on crypto projects, such as investors and funding sources. This makes it a versatile tool for investors who want a comprehensive view of market dynamics and upcoming token-related events.
The future of vesting in cryptocurrencies
Possible innovations in crypto vesting models
We could see the emergence of new vestingmodels, such as dynamic vestingthat adapt according to the performance of the project or the market.
Conclusion on the importance of vesting in crypto
vesting is a powerful tool in the world of cryptocurrencies, offering a solution for aligning the long-term interests of developers, investors, and users. While it has some drawbacks, including limited liquidity and the risk of market dilution, it remains an essential strategy for maintaining the stability of crypto projects. Before investing, it is crucial to understand the timeline and carefully assess the project's long-term potential. With the right strategies and a little patience, it can prove very beneficial for savvy investors.
FAQ about vesting in cryptocurrencies
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What is vesting ? vesting is a method of progressively releasing tokens over a defined period, where the tokens are distributed regularly vesting
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How vesting affect the value of a token? Vesting vesting off, but it can also lead to market dilution when the tokens are released.
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Can I sell my tokens during the vesting ? vesting tokens are not available for sale until the vesting is over or the release conditions are met.
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How can you tell if a crypto project has a good vesting ? A good vesting should align the interests of founders and investors, have a reasonable duration, and clear and transparent conditions for the release of tokens.
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Yoann
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
