Vesting is very important in the launch of a crypto project especially one that aims to succeed. It is a phase that involves investors and the development team of a crypto project.
Crypto investors need to study the whitepaper of a crypto project wherein the vesting schedule is included. A crypto project needs funds to launch, investors, therefore, play a key part in this funding. Vesting, therefore, makes the funding go as planned.
In this article, we’ll discuss what crypto vesting is all about, how it works, and its benefits for both investors and the project team.
Table of Contents
What is Crypto Vesting?
Vesting in cryptocurrency is the period a project’s token is set aside before distribution. It is the process of holding, locking, and releasing a project’s token.
In this phase, investors who have put their money into a crypto project need to wait for some time before gaining full control of the assets they have invested in.
Investors can get a certain percentage of the assets spread over a year or more. For example, a project may decide to give out 25% at first, another 25% in the next sixth months and the remaining 50% to be given out in the next year. However, some investors may not like to invest in a crypto startup if the vesting schedule takes a longer period.
Vesting can be described as a measure put in place to caution both investors and the project’s team. Investors are prevented from selling their assets at once, which could lead to a crash in the token’s price. The project team is also prevented from leaving the project halfway and scampering with funds.
Investors and developers are recipients of the token after the lock-up period. The owners of the project’s token can decide to hold, sell, or exchange for another token.
How Does Vesting Work?
A vesting schedule is being set by a smart contract which will give details about the token’s lock-up process. This is always stated in the project’s whitepaper, website, or newsletter as the case may be.
Each project decides what the vesting schedule looks like. The percentage of assets given out and the duration at which it is given differs from project to project.
Tokens set aside in this case for investors and the developer’s team are referred to as ”vested tokens”.
How is the Vested Token Released?
The vested tokens can be awarded in two ways. They are listed below.
1. Manual Vesting
This is done by the crypto project’s development team. The project keeps a record of the vesting schedule and gives out the tokens via airdrops at the time set. Investors are informed about the process and time to get the tokens.
2. Automated Vesting
In this case, the vested token is awarded by a platform other than the developers. The vesting schedule, token lock-up, and release are handled by the third party.
Benefits of Crypto Vesting
There are several benefits of having scheduled vesting in the process of launching crypto projects. They are discussed below.
1. Protects Against Market Fluctuations
It is a fact that market fluctuations are common with cryptocurrencies. Having tokens locked up for a period helps to scale through the effect of market downturns.
Therefore, the risk of having huge market spikes or drops is minimized before they get on a decentralized or centralized exchange.
2. Provides Token Stability
Vesting prevents investors from selling off their crypto assets which could lead to a coin crash. This however boosts the stability of the token’s price. It also gives the token popularity and boosts the public’s confidence in its product.
3. Gives the Project Team Time to Develop their Product
Vesting gives the developers of the project to develop their products before it is finally released to the public. The team can also use the time to get the product in the mind of people via awareness. Investors also have time to assess the project and check its progress. This will determine if they’ll hold, sell, or exchange the project’s tokens when they are released.
4. Investors can Get the Best Value for their Assets
Early investors can benefit from the lock-up by waiting for a boost in the token’s value. This can be when the product gains visibility and attract a critical mass of people.
5. It Prevents Crypto Scam
Vesting helps to prevent the developer team from running with the funds received from investors. This type of crypto scam is referred to as ”Rug Pulls”. Investors that are interested in ‘‘pump and dump” schemes are not enabled when vesting is scheduled.
Crypto vesting also known as token vesting or token lockup is an important phase before the launch of a crypto project. Locking up tokens after funds for a project has been received by developers and assets released instalmentally to investors benefits both parties.