Top 5 token unlocks 2023–2024: How to trade them
Changes in crypto supply are in investors’ spotlight, especially when bears take over. Token unlocks, a vital part of tokenomics, have the power to sway prices up or down. Follow our guide to leverage their profit potential based on asset utility and market supply and demand.
🔓 What are token unlocks?
Cryptocurrency projects allocate their tokens to founders, supporters, and contributors during seed and funding rounds. As VCs and angel investors get a discount, they may be tempted to dump their holdings once the crypto is listed on public exchanges. Projects must align incentives with the community to prevent this selling, as it may trigger a price crash.
To that end, the distributed tokens have a vesting period, determining when they may be traded or transferred. When it expires, the crypto is released to be bought and sold. Entering the market, it inflates the available supply — often dramatically.
Example
The February 2022 unlock of 100 million Moonbeam (GLMR) sent the price into a tailspin. It lost 30% within an hour. $400 million worth of tokens brought profit to those who had opened short positions in anticipation.
While unlocks are generally treated as bearish catalysts, the actual impact depends on the willingness of the recipients to sell. If the demand for the newly untied tokens exceeds their amount, the price climbs up, and vice versa.
You can find details of a project’s token release in its tokenomics and/or whitepaper (publicly available documents).
🔎 Types of token unlocks
A project may release all its tokens at once or spread the process over a certain period. That is why you may encounter these phenomena:
- Cliff unlocks — unlocking all tokens (Y amount) simultaneously on a predefined (X) date.
- Linear unlocks — unlocking tokens at a fixed rate over a certain period, like 1% daily to release 31% of the total supply over a month.
- Alternative types — for instance, releasing a fixed percentage of tokens per transaction block or allocating it to liquidity providers as a reward.
Finally, the same term can apply to any instance of distributing new tokens, including token sales and airdrops. These events also make crypto available to the public for purchase, transfers, and other actions.
Whatever the case, projects unlocking new crypto face the threat of a rising sell-side pressure. To prevent the token price from sinking, growth in circulating supply must come with a boost in demand. That is why traders, investors, and speculators watch unlocks closely.
📈 Exploring and trading token unlocks
The impact on each token depends on the prevailing sentiment. If the recipients choose HODLing to selling, the adverse effects are mitigated. In some cases, unlocks have even triggered rallies.
Traders may short unlocks — open short positions in advance to profit from the dips. Those dips may also present buying opportunities to those willing to get in on the project cheaply.
To decide how to prepare for an unlock, consider the following:
1. Unlock size
Compare the amount of the tokens to be released to the circulating supply and the daily trading volume. The more significant its size, the stronger the looming sell pressure.
This happened in October 2021 with the Flow (FLOW) token: with $5 billion of downward pressure, the price halved in one day. The selling continued as investors were still making 100x profit. To date, the cryptocurrency has failed to recover.
2. OTC activity
Holders of locked tokens can sell them on an OTC market. The more active it is, the more likely the OTC price is to approach the public one.
This mechanism limits the sellers’ profit. Meanwhile, the buyers take on more risk and are more likely to be committed to the project.
3. Liquidity generation events
One of the ways to generate pre- and post-unlock demand is through positive narratives. For instance, the project may offer a high yield on staking, a chance to swap their tokens for valuable NFTs or participate in an ecosystem fund. This creates an environment where the price is likely to jump.
4. Perpetual futures
Perpetual derivatives allow the market to price in the sell pressure better. These are agreements between two parties to buy or sell the underlying asset at a specific price in the future.
Perpetual futures are helpful for private investors, secondary buyers, and traders.
- Investors can hedge locked tokens.
- Secondary buyers can hedge exposure following an unlock.
- Traders can short the tokens, anticipating a post-unlock dump.
5. Tokenomics
This broad term encompasses a project’s token distribution, utility, token amount locked, and emission schedule. When designed well, tokenomics can ensure sustainable demand as opposed to a brief narrative-fueled pump.
It is also worth considering fully diluted valuation (FDV). This metric reflects the total value of a crypto project assuming 100% of its tokens are in circulation.
- If the locked amount is much more significant than the circulating supply, you are looking at a low-float project. The fully diluted valuation is much larger than the market cap in this case.
- A high-float project is the opposite, combining a substantial circulating supply with a relatively small share of locked tokens. The fully diluted validation is similar to the market cap.
Finally, consider the Adjusted Revenue/Token emissions, which gauges the demand for a token relative to its supporting utility. For example, 2x revenue compared to emissions suggests the user base is active, and negative impact is less likely.
That is the case with GMX, where stakers get 30% of fees from swaps and leveraged trades. Its revenue/emissions ratio trends higher, confirming a healthy distribution at this decentralized exchange.
6. Unlock price action history
Past performance is never guaranteed to repeat itself. That said, token unlocks history provides additional insights for informed decisions.
🔴 Key Red Flags
To sum up, whether or not the price falls depends on various factors. Watch out for the following:
▪ Large discount for early investors and a high profit margin at the moment of unlocking
▪ Lack of liquidity for the trading pair and few buy orders
▪ Large unlocked volume relative to market capitalization
▪ So-called “flipper” investors — funds with a bad reputation that dump their tokens right after their unlock
💡 Top 5 unlocks to watch
Here are five notable events on the token unlock schedule for 2023–2024. Some of these tokens have a daily distribution schedule or annual unlocks designed to support their inflation goals.
#1 AVAX
Avalanche is a Layer-1 smart contract blockchain tailored to Web3 development. Scalable, affordable, and high-speed, it outshines Ethereum with up to 4,500 transactions per second and over 140K in testing. Users can contribute to this open-source project and deploy Dapps in under 60 seconds.
Avalanche’s AVAX is used to secure it through validator rewards and pay transaction fees, which are all burnt to support scarcity. It has an FDV of $6.7 billion, twice as big as the market cap as of October 2, 2023. Over half of all tokens have been unlocked — 431.5 million of 720 million.
The next cliff unlocking event will release 9.54m AVAX — 2.69% of the circulating supply worth $87.98 million — on November 24, 2023.
#2 IMX
Immutable X is a Layer-2 scaling solution 600 times more efficient than Ethereum. Focused on gaming, it provides speed (up to 9,000 TPS), agility, and end-to-end solutions, helping developers build faster and mint millions of carbon-neutral NFTs.
The IMX token is an ERC-20 crypto used for protocol fees and staking. All ecosystem participants — from traders to artists to marketplaces — get IMX rewards.
59% of the maximum supply has already been unlocked. The next cliff unlock on October 7, 2023, will add 18.08 million IMX, or 1.55% of the available supply, worth $10.60 million. The FDV of $1.2 billion is significantly larger than the current market cap of $714 million.
#3 BLUR
Blur is an NFT marketplace and aggregator catering to the needs of professional traders — those focused on high volumes and frequency. It offers zero fees for buyers and sellers and cutting-edge features like real-time price feeds, customizable creator royalties, portfolio management, and cross-marketplace NFT comparisons.
BLUR’s primary use case is native governance. It is also used for rewards — participants who uphold creator royalties get more of it. Despite being launched in October 2022, Blur has already overshadowed OpenSea by trading volume.
The ERC-20 token has a supply capped at 3 billion, with 34% released so far. BLUR’s market cap of $188.2 million is almost a quarter of the FDV ($584.4 million).
The subsequent unlocking on February 14, 2024, will reduce the daily distribution to Community Treasury, advisors, investors, and core contributors by a quarter — to 62 million BLUR, worth $412.8K at press time.
#4 SOL
Solana is an innovative blockchain reducing congestion through a proprietary proof-of-history consensus mechanism. It boasts high speed (over 65K TPS), low fees, and scalability. Like Ethereum, Solana supports smart contracts, including DEXs and lending apps — billions of dollars worth of crypto.
The native crypto is used for direct and delegated staking, transaction fees, and voting rights. Through SOL, the platform hosts Dapps, marketplaces, and other DeFi-supporting protocols.
There is no capped maximum supply, with 558 million SOL tokens unlocked so far and an FDV of $13.5 billion. On February 10, 2024, Solana will add roughly 77K SOL, worth $1.85 million, as part of its annual inflation event. These tokens will mostly be allocated to stake-holders.
#5 GALA
Gala Games is a play-to-earn platform with over 1.3 million monthly active users and over 26,000 NFTs sold, including one worth $3 million. It is a leader in blockchain gaming, where users earn crypto and NFTs as they progress through their favorite titles. By acquiring Ember Entertainment, Gala Games has added over 20 million users to its audience.
Primarily, GALA (ERC-20 and BEP-20) is a medium of exchange between ecosystem participants and payment for digital assets, such as NFTs. It also gives voting rights and supports in-game rewards.
The current fully diluted valuation is $758.1 million. Just 19% of all GALA tokens have been released, with distribution at a declining daily rate.
The next token supply event, scheduled for July 21, 2024, will slash the rate for Founder’s Node Operators and the Gala Games Conservatorship in half to 2.14 million GALA (around $32K).
☝️ Key takeaways
- Token unlocks release previously restricted tokens into circulation, usually enabling the public to buy and sell them.
- As these events increase the supply of a token, they also impact its price.
- Generally perceived as a bearish factor, unlocks may also trigger rallies based on surging demand.
- Traders can prepare for unlocks by exploring tokenomics, watching OTC activity and liquidity generation events, and using perpetual futures.
- Top 5 unlocks to watch in 2023–2024 are those of AVAX, IMX, BLUR, SOL, and GALA.
