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What Is Crypto Vesting?

2023-08-10 02:35:20

Purpose of Vesting

How Does Crypto Vesting Work?

Crypto Vesting Schedules: How Tokens Are Released

Types of Vesting Schedules

- Linear vesting

- Graded vesting

- Cliff vesting

How are the vested tokens granted?

- Manual vesting

- Automated vesting

Benefits of Crypto Vesting

Crypto vesting refers to the process wherein certain tokens or coins are set aside in a contract and released over time to individuals, often founders, employees, or investors, as a reward for their efforts or investments. It is a trustworthy mechanism that ensures tokens aren't immediately dumped into the market and aligns incentives between stakeholders and project developers.

Purpose of Vesting

The primary purpose of vesting in the crypto sphere is to incentivize long-term commitment and performance. By holding back a portion of tokens from immediate access, it ensures that individuals or entities are motivated to continue contributing positively to the project's development or uphold their investment stance.

How Does Crypto Vesting Work?

When an individual is promised tokens as part of an agreement, instead of receiving them immediately, they get them based on a vesting schedule. This schedule defines when and how many tokens will be available for the individual to access.

Crypto Vesting Schedules: How Tokens Are Released

There are several types of vesting schedules, ensuring the transparent distribution of tokens based on various criteria:

Linear Vesting: Tokens are released at a steady rate over the vesting period. For instance, if someone has 100 tokens over a 100-day period, they might receive 1 token every day.

Graded Vesting: Vesting occurs in significant chunks. For example, 25% of tokens might be released every 6 months over a 2-year period.

Cliff Vesting: No tokens are released until a specified date. After this 'cliff', a significant portion or all of the tokens become available at once.

How are the vested tokens granted?

The process of granting vested tokens can vary:

Manual Vesting: Requires human intervention. An entity manually releases tokens based on the vesting schedule.

Automated Vesting: Uses smart contracts to automatically release tokens once certain criteria or times are met. This method is often preferred for its transparency and reduced risk of human error.

Benefits of Crypto Vesting

Vesting in the cryptocurrency realm provides several benefits:

Aligned Interests: It ensures that team members or investors remain committed to a project for the long haul.

Market Stability: By preventing a large influx of tokens at once, vesting can help reduce market volatility.

Trustworthiness: With automated vesting in place, stakeholders can have peace of mind knowing that the release of tokens is governed by transparent and immutable smart contracts.

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