What is Vesting in Crypto?
Vesting in crypto involves setting aside some of a coin’s total supply and releasing them into the market after certain conditions have been met. The period in which the tokens are locked up is known as the vesting period or token lock up, and investors cannot transact or trade those specific tokens during this time. This helps reduce market manipulation and token dumping to improve a project’s stability.
Typically, as vested coins are released, a project or network will award those coins to early investors in the project as a reward for their ongoing loyalty in the project.
This model that has been in use in traditional financial markets, where it is used to distribute shares, stocks, and stock options to executives of a company.
Crypto vesting helps a project create a healthy token economy. The vesting period may be several months or several years, and the tokens may be released in stages or all at once at the end of the period.
Some benefits includes:
- It protects token holders from extreme price fluctuations.
- It reduces the ability of bad actors to create a pump-and-dump scam.
- The vesting period allows time for the project to develop and launch products and services.
What Are the Different Types of Vesting Schedules?
Vesting schedules are the period in which the tokens are locked, and these schedules can be fixed or flexible. There are three types of vesting schedules.
Linear Vesting Schedule
It involves releasing the vested tokens in a linear amount and time. This means that the amount of tokens and periods are proportional. For example, 10% of the vested tokens are released every 6 months.
Graded Vesting Schedule
It allows different amounts of vested assets to be released over different periods of time. The schedule can be customized to the project’s preference. For example, 10% of the vested assets can be released in 6 months, a further 15% can be released 3 months after, and a final 5% after 6 months.
Cliff Vesting Schedule
It specifies when a vesting program begins. In this model, an investor would become vested after holding their liquidity in the project for a specific period of time. Once an investor reaches that threshold time period, the process then follows a linear or graded vesting technique after the successful completion of the cliff time limits.