Crypto Vesting Period: All you need to know
Funding is a major problem every crypto startup faces when starting up. Hence the need to raise funds by making some tokens available to the public through pre-sale events, Initial Coin Offerings (ICOs), or fair launches. This gives Angel Investors, Venture Capitals, as well as individuals the opportunity to buy those tokens cheaply and earlier.
These funds are then used by the crypto project to further develop their project. But what will be the fate of the project and that of smaller investors when the big holders sell all their tokens at the same time?
This is why it is important to understand what crypto vesting period means.
What is Crypto Vesting Period?
A crypto vesting period is a period of time during which investors or the project team hold onto a certain amount of a project’s token.
During this period, the vested token is not available for sale or trading. After the vesting period has ended, all investors or project teams are free to sell the token on the market. Vesting periods are often used by many projects to ensure that the employees have a stake in the project’s success.
Many projects offer their employees stock options or other forms of equity that vest over time. Vesting periods can also be used by investors to help manage their risks. By investing in cryptocurrency with a vesting period, investors can take a long-term view and reduce their exposure to market volatility.
This can help them protect their investments from the ever-changing price of cryptocurrencies. Hence the need for every investor and crypto enthusiast to understand fully how different types of Crypto vesting periods affect their investment.
Types of Crypto Vesting Period
It is important to understand the different types of vesting periods and how they can affect the value of your tokens. By understanding the different types of vesting periods and how they work, you can make informed decisions about when to trade or liquidate your tokens.
There are different types of vesting periods that each project can decide to use for their project, but there are three major types that are common in the crypto space.
- Linear vesting period
This is a type of vesting period in which a project releases an equal amount of its vested token over a set period of time.
For example, project Fear Inc with the token $FEAR vested its token for four years using the Linear vesting type. This implies that the project will release 25% of its vested token each year till the fourth year.
- Graded vesting period
This is a type of vesting period in which the vested tokens are released in increments over a set period of time.
For example, if the vesting period is four years, then 20% of the tokens can be released after the first year, 25% after the second year, 25% after the third year, and the remaining 30% after the fourth year.
This type of vesting period is common in employee compensation, where employees receive their tokens in increments over a set period of time. However, if a team member leaves without verified approval before the end of the vesting period then he/she will not receive the remaining fraction of his/her vested token.
- Cliff vesting period
This is a type of vesting period in which a project decides to release all its vested tokens at once after a set period of time.
If a certain project “Ronaldo” decided to vest some certain amount of token “$Goat” for 3 years, the token will remain locked up till after the third year before it can be tradable or sellable. This type of vesting is mostly used in ICOs and IGOs where all investors are only allowed to sell after a certain period of time, usually the end of the ICO or IGO.
Importance of Crypto Vesting Period
Crypto vesting periods are an important concept for those who are looking to use cryptocurrency for either investing or as a form of payment.
This period of time is important for a variety of reasons, and understanding it can help ensure that you are making informed decisions when it comes to investing in or using cryptocurrency. This reason includes and is not limited to;
- It helps prevent investors from scams
Vesting crypto eliminates buyers interested in pump-and-dump skims. Such investors find waiting for a specific period before selling their assets unattractive. They aim to generate hype around a token to enhance the coin’s price and sell it soon. So, vesting crypto prevents such schemes.
- It helps in reducing token volatility
Having a vesting period can help reduce the volatility of the investment by ensuring big investors don’t sell off all their tokens at once.
When tokens are securely locked in a vesting program, they’re more likely to retain their value or even increase in value if the company is viewed as successful. This also assures early investors that their crypto investment is safe, and is likely to grow in value.
- It gives developers time to build their projects
Vesting gives the developers time to build their projects before they are finally released to the public. The team can also use the time to get the project into the minds of people through awareness. Investors also have time to assess the project and check its progress. This will determine if they’ll hold, sell, or exchange the project’s tokens when they are released.
Crypto vesting periods are a vital part of investing in and using cryptocurrency. By understanding the concept and how it works, you can ensure that you are making informed decisions when it comes to investing in or using cryptocurrency. Taking the time to research the vesting period of the project you are investing in can help protect you from scams and reduce your risk.
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