Vesting is a term specific to the crypto ecosystem. It ensures, over time, a “win-win” relationship both on the side of the developers of a project and on the side of the investors.
But what exactly are we talking about behind this term “vesting”? How does it work? What are its benefits and benefits? So many questions that we will answer to understand the importance of vesting before investing in a crypto project.
What is vesting?
This English term can be translated as “acquisition”. Concretely, it is a release process for tokens held by investors after the lock-in phase.
You should know that vesting can vary greatly depending on the crypto project to which it is attached. Each investor or potential investor can know the details of the vesting model by going through the whitepaper implemented by the project development team. You will find there all the necessary information on the different blocking and acquisition periods in particular.
This is part of what is known as “tokenomics”, i.e. “the token economy”. The idea behind this term is to convince investors of the relevance of the token to help build a strong ecosystem around the crypto project.
How does vesting work?
After checking the existence or not of the vesting in the whitepaper of the project, we have to look at how the so-called “lockup” period will unfold and the resulting acquisition of tokens. This can be done in different ways: either delivered by the team itself, or via a dedicated platform, or by a smart contract.
In a second step, it will be necessary to study the “duration/quantity” relationship. The investor should beware of unlocking tokens too quickly. A serious project will not hesitate to unlock the tokens after a few years. That allows on one side to avoid “rug pull” (a project leader abandons it while keeping the investors’ money). On the other side, this prevents investors or speculators from plunging the price of the token when they are released.
To note : the quantity of tokens that can be recovered by investors depends on the acquisition curve defined in the project. It can be linear, exponential or logarithmic.
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What are the pros and cons of vesting?
The token lock regulates the volatility of a cryptocurrency. Indeed, this avoids the massive sale of tokens and therefore speculation and increased volatility. The tokens being distributed gradually on the blockchain, their sale can only be done in small quantities.
It is also a good solution for protect future investors by preventing the first to arrive, a few months or years earlier, from massively selling their assets and thus causing the value of the token to fall.
Finally, we see with some crypto projects that vesting makes it possible to acquire cheaper tokens over time. Indeed, “discounts” may be provided depending on the duration of the vesting. This therefore allows the investor to buy cheaply by reducing his unit cost price (PRU) in return for a longer blocking of the tokens.
The only real risk with vesting is that time is ultimately against the investor. It is quite possible that a project falls through or that the token suffers after several months or years a drop in value.
Conclusion: This mechanism brings security to a crypto project
The vesting is a mechanism inseparable from the crypto universe. He ensures the stability of a project over time and its viability for both developers and investors. It also protects participants during private or public sales.
However, this process is not without risk. Indeed it is clearly a bet on the future with the token locking system. You have to believe in the project in the long term and hope for a strong valuation of the token linked to the project.
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