HOW TOKEN VESTING WORKS IN CRYPTO PROJECTS

Token vesting in crypto projects is a mechanism to gradually release tokens to stakeholders such as team members, advisors, investors, or partners over a predefined period rather than all at once.

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🕒 6:51 PM

📅 Jul 06, 2025

✍️ By faultybaba

Importance of Vesting 

1. Market Stability: Controls token supply to avoid sudden inflation

2. Prevent Dumping: Gradual releases reduce the risk of large sell-offs that could tank the token price.

3. Trust Building: Signals to the community that the team is focused on long-term value creation.

4. Align Incentives: Encourages long-term commitment from team and investors.

⚠️ Risks and Considerations

i. Overly Long Vesting: Can demotivate team members or lock up investor capital excessively.

ii. Market Impact: Even with vesting, large unlocks can lead to price volatility if not managed well.

iii. Transparency Issues: Poorly communicated vesting schedules can erode community trust.

How It's Enforced

1. Smart Contracts: Automate the vesting logic to ensure no one can cheat.

2. Centralized Lockups: In some cases, exchanges or project teams manually enforce vesting.

🔒 Types of Vesting

1. Linear Vesting: Tokens are released steadily over time. Example, 1/24th of the total each month for two years.

2. Milestone-based: Tokens unlock when specific goals are achieved. Example, product launch.

3. Graded Vesting: Varies by period. Example, 40% in year 1, then 20% yearly.

Vesting Participants
 
Team and Advisors: Vesting ensures they remain committed to the project’s success over time.

Investors: Early backers (e.g., seed or private sale investors) often receive tokens at a discount but are subject to vesting to prevent dumping.

Community: Tokens allocated for community rewards or project funding may also vest to manage supply and maintain price stability.

🗝️ Key Parameters:

*Cliff: A period where no tokens are released (e.g., 1 year).

*Vesting Period: Total duration over which tokens are fully released (e.g., 2–4 years).

*Release Frequency: How often tokens are unlocked (e.g., monthly, quarterly).

*Token Lockup: Initial period where tokens are completely inaccessible.

Projects often share vesting details in whitepapers or tokenomics sections on their websites...