Clear DefinitionsVesting
1 min read
Pronunciation
[vest-ing]
Analogy
Imagine an employee is granted stock options in a company, but they don't get all the shares immediately. Instead, the shares 'vest' over time – perhaps they get 25% after one year, and the rest gradually over the next three years. This encourages the employee to stay with the company long-term to receive their full allocation. Token vesting works similarly for project stakeholders.
Definition
A process in cryptocurrency projects where tokens allocated to certain stakeholders (like founders, team members, advisors, or early investors) are locked up for a specified period and gradually released according to a predetermined schedule. This prevents large token holders from selling off all their tokens immediately after launch, promoting long-term commitment.
Key Points Intro
Vesting locks up tokens for stakeholders, releasing them gradually over time to ensure long-term alignment.
Key Points
Tokens allocated to team members, investors, or advisors are locked and released over a set period.
Prevents immediate sell-offs ('dumping') by insiders after a token launch or funding round.
Aims to align the incentives of stakeholders with the long-term success of the project.
Vesting schedules often include a 'cliff' (an initial period before any tokens are released).
Example
A crypto project might allocate 15% of its total token supply to the founding team, subject to a 4-year vesting schedule with a 1-year cliff. This means no team tokens are released for the first year. After the first year, 25% of their allocation becomes available, and the remaining 75% is released linearly (e.g., monthly or quarterly) over the next three years.
Technical Deep Dive
Vesting schedules are often implemented using smart contracts. These contracts hold the locked tokens and contain logic that allows the beneficiary to withdraw vested tokens only after specific dates or block numbers have been reached according to the schedule (e.g., linear release, milestone-based release). These smart contracts make the vesting schedule transparent and automatically enforceable.
Security Warning
Investors and community members should scrutinize a project's vesting schedules for team and early investors. Short vesting periods or lack of cliffs can be red flags, indicating potential for early dumping that could harm token price and project stability.
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