Token vesting is a one of important tool to keep the project token ecology stable and healthy and prevent dumping tokens by paper hands speculators.
Many indivisual investors still decide investments without any serious consideration on vesting schedule and how much portion of tokens are allocated through pre-IEO stages to early big hand investors and devs.
Blockchain projects release their tokens to the general public via a crowdsale event.
People who wish to support a new token participate in the crowdfund by purchasing their tokens using stable coins, exchange/ platform coins or layer1 coins like ETH, SOL etc.
At the end of the crowdfunding period, each participant receives tokens corresponding to how much they invested.
And some amount of tokens that are bought by specific group are vested for a certain period of time that automatically controlled by smart contracts.
What Is Vesting?
It’s a certain amount of tokens that are held aside for some period of time for the team, partners, advisors, and others who are contributing to the development of the project.
Smart contracts usually lock a certain amount of funds until contract conditions are met.
For example, startups that use the blockchain technology can lock a certain amount of tokens: the team can reserve 15% of coins, for instance, which will be gradually released once a month/quarter/year during the project process for financial purposes.
In general terms, the process of releasing these coins is called vesting.
Vesting is usually used to show that the team is highly interested in the project, and will continue working on project development.
Additionally, vesting lowers market price manipulations.
There is often a several-year “cliff”, meaning that the individual must be with the company for a couple of years to release the first increment of tokens.
An example of such vesting schedule
- 20% of the vested tokens are released in 6 months
- 50% — in 1 year
- 100% — in 2 years
The reason why this structure is beneficial is that if a single or several entities controlled, for example, 20% of all tokens issued from the date of the token generation event, they could easily create supply fluctuations that can be harmful to the token ecosystem and price.
In simple terms, this creates a definite risk for the given token stability.
Recent Trend of Token Vesting and Distribution
Likely influenced by an increasing number of management teams coming from outside the sector itself, the trend we see is that management is retaining a somewhat larger number of tokens as an incentive aligning their interest in creating a vibrant, prosperous community or project with the interests of token holders and users.
While insiders retain a large number of shares, the general trend appears to be moving from teams holding 6–8% of tokens in 2015–16 to closer to 20–25% recently, but the allocation portions are differnet by project.
Arguably more significant is the lengthening vesting schedules for insider token holdings.
Whereas 0–24 months was typical for vesting schedules up through 2016–during which vesting was incredibly rare at all–now vesting schedules are now stretching into the 36–48 month time frame and are another strong measure of management commitment to a project.
Source: dreamteam