Token launches are one of the most common fundraising methods used by blockchain projects. These tokens have varying values depending on elements like time, offer, and need. The value will decrease if early investors flood the market by selling all of their tokens. New cryptocurrency ventures set up crypto vesting mechanisms to prevent such kinds of risk.
What is Cliff Vesting?
Cliffs are the amount of time that must elapse prior to the start of the token release. Depending on the goal of an allocation, the cliffs’ length can change. Vesting is a method by which assets (such as stocks or tokens) are locked and released gradually over a certain amount of time. This means that until they are released, these assets cannot be sold, given away, or used in transactions. As this release happens gradually, it lessens the market shock that would occur if a huge amount of tokens were unlocked all at once.
In the traditional finance industry, cliff vesting is usually referred to as a form of vesting schedule that is used for employee benefits, including stock options and retirement programs. An employee who is subject to a cliff vesting schedule typically has a vesting term before they are completely vested in their benefits. The employee is not eligible for any benefits prior to the completion of the vesting term. The goal is to encourage staff members to work for a business for a longer period of time.
How does vesting work in the Crypto industry?
Crypto vesting is the process of locking tokens for project participants and early investors for a set period of time before releasing them. When a project achieves specific and transparent predetermined milestones, smart contracts are used in cryptocurrency vesting to release the retained tokens. The milestones, as determined by the project’s original members, may be time-based (the length of time since the project began) or stage-based (the conclusion of particular project stages).
The retained tokens are time-bound and released according to a vesting schedule. This timetable outlines the length of time, the percentage of tokens that will be paid out to each early investor, as well as the window during which those investors can sell the tokens they purchased during the initial coin offering (ICO).
The token lock-up or vesting period designates the time period before the release. This time frame can be anywhere between six months and a few years after the token was first introduced to the market. The release of a specific portion of the held token after every six to eighteen months or even longer is made possible by vesting schedules. Crypto vesting operates by locking up tokens for a set amount of time, to put it simply. You are unable to use the vesting amount until the vesting term has passed.
Why choose Crypto Vesting? What are the benefits?
1. Support Token Decentralization
It takes time to build a safe decentralized cryptocurrency network, which is the goal of crypto vesting. It gives the creators the time they need to continue developing a token with inherent worth.
2. Decrease Market Fluctuations
A substantial amount of the project’s tokens shouldn’t be unnecessarily controlled by a single individual or a small group of people, which is why vesting helps disperse tokens. If left uncontrolled, just one person or small group might easily cause changes in the supply of goods on the market. These market swings lower the token’s value and result in losses for small-scale investors.
3. Avoid Market Manipulation
When the crowdfunding time is ended, vesting makes sure that no early investor or project developer floods the market. Additionally, they are unable to artificially generate a hyper-scarcity by hoarding tokens and manipulating the token supply. Because there is less chance of market manipulation, it is simpler to spot frauds that produce worthless coins after taking money from investors.
4. Build Sense of Loyalty
To foster resilience and commitment to see the project develop into everything it was intended to be, crypto vesting works by purposefully delaying the delivery of the project tokens to the owners. With the promise of rewards after a lengthy wait, it encourages players to stick around and play the long game.
5. For Investment Purpose
With cryptocurrency vesting, you can invest in cryptocurrencies while keeping onto your holdings until you sell or trade them. You become an early investor eligible for vested tokens if you take part in the ICO of a coin you think has potential. You can later sell these tokens to receive an incredible return on your investment.