Vesting is a strategy that crypto projects use to restrict token sales within a specific period. Typically, tokens that projects offer at the presale stage are the ones that attract crypto vesting strategy. Holders of these tokens are project team members, such as developers and partners. Vesting crypto prevents the issue of buying and selling tokens within no time, a phenomenon associated with rug pull schemes. Here we explore the meaning of the crypto vesting schedule and the main kinds of crypto lockups.
Benefits of vesting for token sales
Up to this point, you know vesting crypto definition. But why do projects adopt this technique instead of allowing immediate token sales? Having a vesting period for crypto has various benefits for project owners and investors. Here are the main perks of vesting crypto:
- Protects early token buyers against market swings: the essence of crypto vesting is to prevent quick token sales once the listing exercise is over. The tactic’s primary purpose is to avoid wild market spikes and drops. So, the token benefits from a specific level of rarity, and its worthiness is stable. So, early adopters find more time to enjoy perks from the project by waiting for the token’s value to soar.
- Minimizes pump and dump schemes: the dump and pump investors are impatient. They want to conduct token sales soon after buying. Such investors find the idea of a vesting period for crypto unattractive. They are interested in creating buzz around the token, enhancing its value, and selling it quickly. So, crypto vesting prevents these investors from attaining their objectives.
- Strengthens the token: the real vesting crypto meaning is to impede massive selloffs of the assets. Using a crypto vesting schedule enhances a token’s price stability. Also, it boosts the popularity of a new project, improving investors’ confidence.
- Creates enough time for project development: projects issue a crypto vesting schedule during a pre-sale period. This is the time when the development of the project is in progress. So, projects lock up tokens to help them access crucial funds in project development.
How does crypto vesting work?
When a project wants a crypto vesting schedule, it develops a digital agreement that creates the rules of its token sales. Projects can share their vesting schedules on common resources, such as websites and emails.
Projects are free to determine the correct vesting period and decide when to allow token sales. For example, a project can introduce a two-year vesting schedule. Such a project can allow the first token sales after six months and the second sale after 12 months. The third token sales will occur after 18 months, and the final one will happen after 24 months.
How to grant vested tokens
The following are the ways of granting locked-up tokens:
- Manual vesting: the business retains a register of its crypto vesting schedule. When the time is due, it releases the tokens to all the concerned parties.
- Automatic vesting: under this approach, an intermediary platform handles the vesting schedule and administers the token release at the right time.
Forms of vesting schedules
The objectives of a crypto project help determine the type of vesting schedule to pick. Here are the main kinds of vesting schedules:
1. Linear vesting crypto
In linear vesting crypto, the tokens are shared equally over a particular time. For example, a project can release 25% of its locked-up tokens every year for a total of 48 months.
2. Graded vesting
This is a custom sharing schedule where the project determines to release the tokens gradually over a particular period, like months or years. For example, a project can issue 30% of its locked-up coins after six months, 50% in the second year, and 20% in the third year.
3. Cliff vesting
This form of crypto vesting denotes the presence of a cliff, which is a time when no coins are released. Projects can postpone the issuance of a vesting schedule for up to 6 months. When the cliff period is over, the project can develop either a graded or a linear vesting schedule.
Now you understand the vesting crypto definition and its importance to the project. Projects have various options when they want to implement a vesting schedule. They can either select a linear, graded, or cliff vesting schedule. All these kinds of vesting schedules are well-elaborated above.