Understanding and Navigating Token Vesting in Cryptocurrency

Despite still being a fairly new concept, more than 420 million people worldwide now own cryptocurrency.

Many of these people still have a lot to learn, and for those who haven’t invested in any, it can all seem incredibly complicated. There’s a huge amount to understand, and one of the lesser-known elements is token vesting. Gaining a better understanding of token vesting could help you make better investment choices moving forward.

So what is token vesting and how does it work? Keep reading to find out.

What Is Token Vesting

Token vesting is when a specific token amount is locked up for a set time frame. During this time, investors can’t buy or sell the token as they can with other cryptos. The token is released gradually over a specific period.

It’s a fairly common practice that a lot of projects use. It helps to promote long-term commitments from project team members and investors. Some DeFi projects also use it as it can prevent premature token sales until holders have full access to their tokens.

How Does Token Vesting Work?

By securing tokens, the vesting period helps to protect the integrity of a project. The team will establish a vesting unlock schedule that will outline the token unlocks over time.

Once a time frame has been determined, they’ll create a smart contract that will enforce the token unlock period. The process of unlocking tokens can be either automated or manual. Tokens are typically unlocked in segments known as ‘cliffs’.

Project developers communicate vesting schedules and granting processes to investors and the public through various channels. This allows investors to know when they’ll have access to their tokens. This kind of transparency is vital in crypto projects as it highlights the commitment and honesty of the team, helping to build trust and credibility.

Types of Token Vesting

As the world of crypto has expanded, the variety of projects has increased massively. There are currently three main types of token vesting and the type that a project team uses will depend on the project’s goals.

Linear Vesting

This is a simple approach that follows a linear pattern. The token releases are fixed, occurring in equal amounts.

For example, the project may release 20% of the tokens at regular intervals. There will be a predetermined timeframe that dictates the overall duration of the vesting schedule.

Graded Vesting

For this approach, there are different release rates throughout the vesting schedule. As such, each token release will be for a different amount of the tokens available.

The team might decide, for example, to release tokens in the following amounts: 10%, 15%, 20%, 25%, 30%. Unlocking a larger amount each time will help build momentum and excitement behind the project, attracting more investors as time goes by.

Cliff Vesting

This type of vesting begins when an investor meets certain criteria; this often comes after a probation period. Before meeting these criteria, the tokens will be fully locked.

After passing the probationary period, the vesting will begin and investors will start gaining access to the tokens based on a predetermined schedule. A linear or graded approach can be used for this method.

Benefits of Token Vesting

Not all projects implement token vesting. Those that do choose this route as it presents certain benefits.

Protect Against Price Fluctuations

One of the major concerns around the crypto market is volatility. Crypto vesting limits access and avoids a sudden release of all available tokens.

Providing immediate access tends to lead to a huge amount of sales in a short time causing massive fluctuations in the price of a cryptocurrency token. A controlled periodic release eliminates the risk of this happening.

Reduces Market Manipulation

Market manipulation is another big issue in the world of cryptocurrency. Keeping tokens locked ensures no one can trade them, helping to stabilise the market.

This helps reduce the risk of market manipulation. Pump and dump projects are all too common, so taking this approach can help keep a project safe and secure. If market manipulation does occur, it can essentially destroy a project, so preventing this is essential.

Space for Project Development

Token vesting occurs early on, typically during pre-sale events. Doing this can help generate more funds for a project. The team can then use these funds to get any unfinished tasks done and ensure the project can keep up with its roadmap.

Throughout the vesting period, the team can improve tokenomics and work on marketing to attract more investors. Investors can also observe the project throughout this period. Paying attention to how it progresses will help them make better-informed decisions about their investments.

Consistent Distribution of Tokens

Token vesting allows cryptocurrency companies to balance the market supply of their tokens. Releasing them in intervals will ensure investors can’t sell them all off at once. This will help to maintain consistency in terms of supply and demand which will help keep the project stable.

Participating in Token Vesting

If you want to take part in token vesting, you need to start by looking at projects and platforms that are launching tokens. DropsTab is the perfect example where you can find plenty of upcoming token unlocks.

It’s vital that you do the necessary research into any tokens or projects you’re interested in investing in. You should never invest in something you don’t fully understand. Don’t rush into things; make sure you’re confident with your choices.

Once you’ve found a token you want to invest in, you can take part in pre-token sale events. You’ll gain access to your tokens throughout the vesting period and can visit your chosen platform to claim your tokens.

Your Crypto Investments

When investing in cryptocurrencies, there are plenty of approaches you can take. Token vesting is very popular, as getting tokens early on offers a huge amount of potential in terms of profits. With that in mind, there’s always a degree of risk, so make sure you research any trading token before investing.

At DropsTab, we have information on a huge selection of upcoming token unlocks, so there’s plenty you can look into. Take a look at our token vesting page today to see the unlocks that are on their way.