An updated take on vesting: the Rari Vesting Plan
Something that was built with crypto in mind.
It is clear that the “standard” vesting model is outdated. It has unfortunately become the Silicon Valley norm for teams to just assign stock or tokens on a four year vesting schedule with a one year cliff without even thinking why. This model is truly outdated and is unable to properly align incentives for a multitude of reasons. Some of the gripes I have with it include:
- Crypto moves too fast, a four-year lockup is literally ancient
- With time-based vesting what if I get fired a day before I vest? I lose
- What if I I quit the day after I vest? The company loses
- Crypto enables instant liquidity, why are we using vesting instruments built for illiquid assets?
However, there are significant advantages to the standard vesting schedule. Some of these include:
- Ensuring shareholder recipients are aligned with the company before receiving shares (through a cliff)
- Ensuring there is not too much sell-side pressure on the market at any one time
We are in the land of crypto. We are supposed to be innovating, however, we’re just adopting old standards from a broken system. This is why I propose the Rari Vesting Plan. It is my take on a solution.
The idea behind the Rari Vesting Plan is to enable shareholders to sell at anytime but force a dynamic penalty depending on when they are selling their shares. We can walk through how this works….
The dynamic penalty
The Vesting Plan begins with determining how many tokens (Y) a shareholder gets across X years. In Rari’s case, we are spreading the plan across 2 years. We then find the monthly penalty decrease by doing (100/(X*12)) or in our case: 100/(2*12). This comes to a ~4.166% monthly penalty decrease. This means that each month that the user attempts to sell a piece of Y, they are subject to the penalty decrease, a variable dependent on X (penalty per month is viewable below). There are potentially other models that could be explored here that could use non-linear functions to potentially highlight other incentives.
We then use this penalty information and map it against the monthly share distributions. Below you can see a chart that models what the Rari Vesting Plan looks like when spread across 24 months and with a 100,000 share distribution.
This means that intrinsically the true withdrawable amount is plotted on this chart below:
With this updated model, it gets the best of the old vesting schedules by minimizing sell side pressure and ensuring incentive alignment without having to deal with some of the consequences leftover by legacy finance.
At Rari, we want to prioritize you guys, our community. That’s precisely why specifically at Rari we’re distributing 87.5% of the token to the community! If you guys don’t like this vesting plan, we can work to overhaul it on behalf of governance. Let’s build something with the future in mind.
I’d like to hear your thoughts. We want to try something new, something that helps further align our shareholders to the project. If you’d like to chat around this or have any ideas, feel free to direct message me on twitter here.