Beyond the Vesting Schedule - Interpreting Token Release Impact on Secondary Market
This article has been produced by Nomiks, Web 3.0 firm specialised in Token Economics Design and monitoring.
The concept of Vesting
As we mentioned in a previous article, at Nomiks we conceptualized and categorized the value emitted by the protocol when it releases its token during a Vesting. It was important to clarify this concept and make the right distinctions.
And in the right place at the right time!
In the design phases of a project tokenomics, it is indeed imperative to define an acquisition schedule and to formulate an issuance model in order to allocate resources, but after the TGE (Token Generation Event), these aspects, under the responsibility of the tokenomist, are transferred, so to speak, to a market maker or to the protocol itself (in case the latter manages its secondary market autonomously).
As we like to put it :
This shift from the thinking of the tokenomist to the operations of a market maker means the beginning of the immutability of the offer, marking the transition from a design phase to a Governance and Control phase.
But that’s not the end of the tokenomist’s task, we think. This article takes stock of our thinking on Vesting, and pursues it to the point where project autonomy takes over from programming, decision from calculation, life from automatism.
A look back at what we’ve learned
Following in the footsteps of Lauren Stephanian from Pantera Capital, but with a slightly different approach, we have come to identify certain relationships between acquisition type, issuance type, and the secondary market.
Unlock value includes two types of emissions: referred to in our conceptualization as Next vesting event or Daily reward unlock value.
- Next Vesting Event refers to a vesting policy that, by definition, blocks tokens for a period of time before they are gradually returned to the holder. These events indicate the release of a quantity of tokens allocated to one of the initial supply allocations (e.g. Team, Advisors, Treasury, etc.). The events are Time-based meaning immutable parameters once the TGE has been performed; in most cases it will not be changed once the Smart Contract has been deployed.
- A Daily reward unlock value on the other end is Trigger-based : The idea is that token contracts conditionally release tokens as rewards to participants for certain actions or events (such as participating in securing the network, staking, etc.). Such triggers can be programmed (at the smart contract level) to activate upon certain events or user actions, provided that a quantifiable objective is met in either case. This type of issuance can be the result of a supply release or inflation.
Let’s summarize in a figure the different paths for a Token, from its generation (enclosed in the Token contracts) to the secondary market, that we have finally identified. For the long-term, viability of the ecosystem actually depends to a large extent on the existence of such an active secondary market, where tokens can be freely traded between participants. It plays a crucial role in determining the perceived value of the tokens and the overall liquidity of the ecosystem, facilitating the entry and exit of investors and users, while supporting the ongoing financial valuation of the project.
The Actions /allowance (in yellow) from the figure are three possible pathways for liquidity to enter from the generation smart contract (in orange) to this secondary market (in violet). Each pathway has its own triggering parameters (in green). The three possible paths are indicated by the arrows.
- Token contracts -> Daily reward unlock value -> Secondary market
- Token contracts -> Next vesting event-> Secondary market
- Token contracts -> Next vesting event-> Treasury → On-demand sale or financing event-> Secondary market
Treasury (in blue) is a pool through which liquidity flows from unlocks. It is an allocation provided in the initial distribution, and its management is at the discretion of the protocol according to its liquidity supply needs. Treasury, as a liquidity reserve, is essential not only for day-to-day management, but also for financing long-term operations and project development. In this respect, the third path, which begins with ‘Token Contracts’ and transits through ‘Next Vesting Events’, plays an essential role in regulating liquidity within the ecosystem. After the initial generation of tokens, they are temporarily blocked and allocated in the Treasury. This blocking is dictated by pre-determined, codified vesting policies.
When funds are required, a Treasury can facilitate immediate financial actions such as on-demand token sales or financing events. These actions are also triggered but according to the project’s liquidity needs, enabling financial flexibility and adaptability. For example, if the project needs to finance new developments or cover operational expenses, it can sell part of its tokens on the secondary market. This helps to introduce liquidity into the market, while ensuring that the project remains financially viable.
Treasury management can vary widely, from discretionary management by a team to decentralized governance by a DAO (Decentralized Autonomous Organization). In DAO governance models, decisions on the sale of tokens or the use of reserves are often made through token-holder votes, which can increase transparency and align the interests of participants with those of the ecosystem.
When we look at the mechanisms by which tokens move from their initial contracts to the secondary market, it’s clear that the type of issuance plays a critical role in defining the flow and utility of tokens. Whether it’s a time-based release or a trigger-based release, each method has its implications on how tokens are used and circulate within the ecosystem. As such, understanding these pathways is fundamental for stakeholders seeking to optimize token utility and improve market strategies.
Daily unlock value & secondary market
As we delve deeper into the dynamics of token circulation, it becomes important to further explore the nature and impact of these issuances, focusing particularly on the Daily reward unlock value. This type of issuance not only contributes to the supply in circulation, but also influences the strategic decisions made by various players within the ecosystem.
The issuance of a Daily Reward Unlock Value is intrinsically linked to specific triggering events such as the launch of a core network, game or application. This type of unlocking is designed to reward participants for their active contributions to the ecosystem, such as participation in network security, staking, or active engagement in games or apps developed on the platform. These events are not only important milestones for the platform, but also serve as catalysts for increasing the circulating supply of tokens.
The main feature of the Daily Reward Unlock Value is that it gradually increases the total supply of tokens available. However, this increase in supply does not translate immediately or necessarily into tokens entering the secondary market. The flow of these tokens is highly dependent on the behavior of the beneficiaries who receive them.
Recipients of these tokens can be developers, participants in staking programs, or active users in various applications or games on the platform. Each type of beneficiary has his or her own objectives and strategies with regard to the tokens received. Some may choose to sell their tokens immediately for a quick profit, thus contributing to the liquidity of the secondary market. Others, however, may see long-term value in holding their tokens, anticipating future appreciation based on the platform’s success. What’s more, it’s also possible that these players will reinvest their tokens directly in the platform, whether through additional staking or by participating in other governance or funding mechanisms, thereby strengthening the ecosystem and supporting its growth and stability.
In conclusion, while the Daily Reward Unlock Value serves as a mechanism to increase supply in circulation, its direct impact on the secondary market is modulated by the strategic decisions of token holders. This dynamic creates a complex environment where individual strategies strongly influence the liquidity and valuation of tokens within the market.
To realize this concept, the reader can conveniently refer to the DeFiLama Token Unlocks interface. There you will find a column Daily Unlocks, which shows both the amount in tokens and the value of the unlock at the current price in USD.
The capture above shows a key dashboard for understanding the dynamics of Daily Reward Unlock Values across different tokens and blockchain projects. This table summarizes key information such as ‘Token Price’, ‘Market Capitalization’ (Mcap), percentage of ‘Unlocked’ tokens versus ‘Max’ available, as well as details on ‘Daily unlocks’ and upcoming key events for three different projects.
Let’s take the example of these three different projects: Xana, Rarible, and Biconomy. Each row of the table provides a perspective on how tokens are distributed and managed over time:
- Xana shows a percentage of 43% of tokens unlocked, with 5 billion XETA unlocked daily. This indicates an aggressive unlocking strategy that could impact the liquidity and volatility of the token on the secondary market. The next major event is scheduled in less than a day, which could be a critical moment for investors and users alike.
- Rarible shows an almost complete 99% release percentage, with unspecified daily releases, but a significant $268,500 tied to the next event. This may indicate a maturity approach where most tokens are already in circulation, reducing the impact of future releases on the token price.
- Biconomy has unlocked 73% of its tokens, with significant daily unlocks of 732,573 BICOs worth $368,966. This shows that Biconomy still has a significant amount of tokens to distribute, which can play a key role in the strategic decisions of token holders and potential investors.
Each project has its own characteristics and unlocking strategies that directly affect liquidity, volatility and market perception. Daily reward unlock values and scheduled events provide critical data points for assessing how token distribution can impact the secondary market. Market participants need to monitor these indicators closely to make informed decisions about their investment and exposure to these projects.
It is also possible to find equivalent information on TokenTerminal through the Key Metrics tab when opening a project’s page.
The use of analytical platforms such as TokenTerminal can significantly enrich our understanding of cryptocurrency market dynamics. In particular, the ‘Key Metrics’ tab provides a detailed insight into the performance and tokenomics strategies of various projects. By adding the ‘Token Incentive’ metric to the interactive chart, users can visualize not only token allocations and unlocking events, but also how these incentives affect investor behavior and the token price.
The image we’re looking at here is a perfect example of this tool in action. It shows the price histograms of an unknown token over a 90-day period, allowing users to track price fluctuations that correlate with token unlocking events or other incentives. This type of visualization is crucial for investors who want to understand the factors that influence price fluctuations.
A closer look at these histograms reveals how certain price spikes or drops coincide with specific token unlocking events. For example, a sudden increase in supply due to a major unlocking event may cause a temporary price drop, while the anticipation of such an event may have caused prices to rise in the preceding days or weeks.
This granular analysis accessible through TokenTerminal provides not only real-time data, but also historical context to help assess the potential impact of unlocking strategies on the market. For stakeholders in the cryptocurrency ecosystem, such as investors, analysts and market participants, this information is essential for making informed and strategic decisions.
Conceptually a Daily Unlock Reward Value encompasses various forms of application that require an understanding of the specific design elements of a protocol. For example, if a protocol distributes rewards with the goal of optimizing a specific objective, such as improving the staking ratio or increasing the Total Value Locked (TVL), it may use a specialized reward function. This function, as we’ve discussed in detail in A Tailored Reward Function Methodology, can take multiple (data-based) metrics as input and determine a dynamic payout rate for the token accordingly.
Let’s summarize the process as follows:
The image below shows a process diagram that illustrates the steps involved in designing and implementing an unlock value in the context of token creation. At the beginning we see the Token Designer conceptualizing an Experimental unlock value. This initial phase is crucial because it defines how tokens will be distributed through daily rewards. The flow then splits in two based on the results of a simulation that evaluates the sustainability impact of this unlock strategy.
If the simulation predicts a positive impact, the experimental unlock value will be adopted by the market maker as the Final unlock value, indicating that it is ready to be introduced into the real market. On the other hand, if the simulation indicates an unfavorable or uncertain impact, the process may require an adjustment based on empirical or stochastic data to fine-tune the unlock strategy.
The market maker defines a final unlock value that is used for monitoring and risk management. Continuous data analysis is used to ensure that the unlocking strategy is working as intended and does not introduce unexpected risks into the market. Finally, Liquidity Sizing represents the step of sizing the liquidity required to support the unlocking strategy in the real market, ensuring that tokens can be traded efficiently without causing major market disruptions.
This process illustrates the rigorous approach required to successfully integrate reward unlocking values into a cryptocurrency ecosystem, ensuring that each step is supported by sound analysis and informed decision-making.
Vesting event & secondary market
Having explored the intricacies of daily reward releases and their impact on market liquidity and token valuation, we now turn our attention to another key aspect of the token economy: vesting events. Just as daily releases provide a continuous flow of tokens into the ecosystem, vesting events serve as predetermined points in time when a significant amount of tokens are released in accordance with initial smart contract agreements or detailed in various project documentation such as GitBooks, white papers or launchpad pages.
Acquisition events are critical moments for project teams and investors, as they often involve the release of tokens held by founders, early investors, or for operational reserves. As with daily releases, the effects of acquisition events spill over into the secondary market, adding to its complexity. When we look at these acquisition mechanisms, we need to consider the delicate balance they strike between ensuring long-term commitment from token holders and providing sufficient liquidity to the market. This balance often determines future market strategies and the health of a project.
Furthermore, while some tokens from acquisition events will inevitably end up on the secondary market, potentially impacting price and liquidity, others may be privately traded or held in anticipation of future growth. Understanding the multifaceted outcomes of these events is essential to comprehensive market analysis.
On a dashboard like the one TokenUnlocks presents to us, we get a concise but information-rich overview of token release events for multiple cryptocurrency projects. Each row of the chart presents key metrics for a given project, reflecting the current state of the market and future events that could influence liquidity and price dynamics. Let’s explore the information presented with a focus on the Upcoming Unlock which is our Next vesting Event spotted at the beginning of this article.
- PIXEL: The current price is $0.417, showing a recent increase of 7.80%. With a market cap of $321.63 million and an outstanding supply of $771.04 million, 16.5% of tokens have been unlocked. The upcoming unlock is $22.44 million, or 7.05% of the outstanding offering, which could have a significant impact on the market if these tokens were sold. There is less than an hour and a half until the next unlock event. The issue rate for the next 7 days is also 7.05%, indicating potentially significant inflation in the short term.
- ALGO: The Algorand token is trading at $0.177, up 7.92% in 24 hours. The market capitalization is $1.44 billion with an almost fully unlocked supply of 98.6%. The next release represents a relatively small value of $403.14 thousand, which is only 0.03% of the outstanding supply, suggesting minimal impact on the market. The forecast inflation rate for the next 7 days is 0.20%.
- ID: With a price of $0.733 and a recent increase of 6.04%, the market capitalization is $315.37 million. With 28.3% of the total offering unlocked, the upcoming unlocking event is estimated at $13.46 million, or 4.29% of the outstanding offering. The counter indicates that there are just over two and a half days until the next launch. The issue rate for the next 7 days is also 4.29%.
- CTSI: The price of Cartesi is $0.205, with a significant increase of 10.67%. Its market capitalization is $160.75 million and 89.6% of the total float is outstanding. The upcoming release represents $4.35 million or 2.73% of the outstanding offering. The next release event is in approximately four days and the expected inflation rate for the week is 2.85%.
- PENDLE: PENDLE has a price of $5.98, up 1.36%, and a market capitalization of $579.77 million. The outstanding offering is not shown, which could mean that data is not available or that the project has a different release strategy. The next release is estimated at $238.30 thousand, representing 0.04% of the outstanding offer, with an inflation rate of 0.29% for the coming week.
Treasury stakes & secondary market
Beyond the straightforward transaction from smart contracts to the secondary market, there exists a nuanced intermediary: the Treasury. We’ve observed that a fraction of the value unlocked through vesting events often transitions into the treasury. This strategic allocation positions the treasury not just as a reservoir of funds, but as a substantial stakeholder wielding influence over the distribution and liquidity of the released supply.
In this light, it is important for investors and analysts to discern the treasury’s composition, particularly distinguishing between the tokens it holds from its native protocol and other assets. Such differentiation offers insights into the protocol’s financial health and decision-making autonomy. A platform like TokenTerminal aids in this analysis by providing two distinct metrics: ‘Net Treasury’ and ‘Treasury’. The ‘Net Treasury’ metric is particularly insightful as it denotes the total treasury value excluding the USD valuation of its own tokens, thus presenting a clearer picture of external asset holdings. The ‘Treasury’ metric, on the other hand, includes the USD valuation of the protocol’s own tokens, offering a perspective on how the protocol values its internal economy.
This distinction is crucial for assessing the treasury’s potential impact on the market. A large holding of its own tokens could suggest a future selling pressure on the secondary market or an opportunity for reinvestment into the project’s growth. Conversely, a diverse ‘Net Treasury’ could indicate robust external financial health and the ability to weather volatility in its own token’s price.
To fully appreciate the strategic implications of the Treasury in token economics, one can refer to the specific metrics outlined in Figure 6, which clearly delineate these categories and enable stakeholders to make informed decisions based on the treasury’s composition and the anticipated trajectory of the token supply.
Unlocking Tomorrow: Nomiks’ Pioneering Algorithm for Tokenomics Intelligence
The landscape of token economics is a complex tapestry woven from the threads of strategic design, market forces, and behavioral finance. Our foray into the implications of ‘Unlock Value’ has elucidated the pivotal role of daily rewards, treasury stakes, and vesting events in shaping the ebb and flow of secondary market liquidity. At Nomiks, we have committed to honing the precision of our analytical toolkit, marrying data with foresight to anticipate the ripples each token release may send across the market.
Embarking on the development of an innovative algorithm, we aim to distill the essence of our discussions into a tripartite input system. By incorporating daily reward unlock value, treasury stakes breakdown, and upcoming vesting events, and analyzing their influence and correlations, we are crafting a scoring function that stands at the forefront of predictive analytics in tokenomics.
This quantitatively-driven approach does not just aim to identify assets that might be at risk; it seeks to forecast the subtleties of market reactions, enabling stakeholders to navigate the complexities of token release strategies with confidence.
As we harness the rich datasets curated from existing dashboards, we transform raw numbers into actionable insights. The vision we bring to life with our SaaS Builder platform transcends mere calculation — it is about creating a nexus where insights, strategy, and innovation converge. The model we are perfecting is more than a gauge of inflation — it is a compass for navigation in the ever-evolving seas of the cryptocurrency market.
Nomiks is dedicated to streamlining the process of monitoring the impact of Unlock Value on the secondary market. We are poised to begin developing an algorithm incorporating the three inputs identified in our discussions. These three points will be integrated into a scoring function, with weights determined through quantitative analysis (influence & correlation analysis). This approach will enable the identification of assets at risk, providing a nuanced and data-driven method for assessing potential market impacts.
Moving forward, the aim is to enhance the model’s output by implementing a scoring system. This development will constitute the continuation of this series on Vesting :
- Two ways of understanding Event-driven Vesting : https://medium.com/@Nomiks/two-ways-of-understanding-event-driven-vesting-a7b11360184e
- Vesting : the Good Practices.: https://medium.com/@Nomiks/vesting-the-good-practices-6a189b408131
- Beyond the Vesting Schedule — Interpreting Token Release Impact on Secondary Market: https://medium.com/@Nomiks/beyond-the-vesting-schedule-interpreting-token-release-impact-on-secondary-market-3c34a649aede
Stay tuned for further exploration into the nexus of token release strategies and market dynamics, as we continue to build and refine the tools that empower our understanding of the digital economy.
This article was written and Léo Delion our Token Designer at Nomiks and reviewed by by Pascal Duval, our Research Analyst
