Vesting Period

November 21, 2023 - Around 2 mins mins to read

Understanding the Vesting Period

The vesting period, also referred to as the token lockup period, is a specific timeframe in which the tokens sold during the pre-sale stage of an ICO are restricted from being sold. While some projects allow immediate transfer of tokens upon receipt, others enforce a lockup period for various reasons.

Each project has its own unique approach to token distribution, so it is recommended to directly inquire with the team if you have any questions about the process.

Lockup periods come in different forms and are often used alongside mechanisms like soft caps and bonus tiers. Each type of lockup has its own advantages and disadvantages.

Key Reasons for Implementing a Token Lockup

A healthy token economy requires a majority of tokens to be held by investors rather than being immediately available on the market. By locking up tokens, the project team can better assess the value of their token. It also prevents developers from quickly selling off their tokens after trading begins, thereby safeguarding the interests of token holders.

Token lockups also serve as a deterrent against price crashes caused by individuals selling large quantities of tokens as soon as they are listed on an exchange. This is often part of an anti-dump policy aimed at building trust among investors regarding the project’s long-term viability.

Therefore, the lockup period imposes restrictions on token holders, giving them ample time to reconsider their decision to sell.

Benefits of Token Lockup for Investors and Project Teams

Here are some advantages of having a lockup period:

Protection for early investors against significant price fluctuations, as sellers must wait for a predetermined duration before selling their assets. This provides stability to the token price and ensures that early participants in the project have time to utilize the platform or receive dividends.
Token lockup allows time for product development and launch, especially in cases where there is no prototype yet. During this period, investors can assess the project’s progress and decide whether to hold onto their tokens or exchange them for other currencies like Ether or Bitcoin.
It also helps reduce unprofessional hype surrounding projects. Many token buyers view “pump and dump” schemes, where insiders or institutional investors artificially inflate project value to sell their assets at higher prices, as unethical.

Glossary