What does vesting mean in crypto?
Vesting in crypto refers to the process of locking down cryptocurrency tokens or coins for a predetermined period before they can be fully accessed or transferred.
Vesting is commonly used in initial coin offerings (ICOs), token sales, and other cryptocurrency-related fundraising activities to encourage long-term dedication and deter early participants from hastily transferring their tokens.
Different types of vesting in the crypto space include time-based, milestone-based, hybrid, and reverse vesting.
Understanding Crypto Vesting
Vesting in cryptocurrency involves temporarily locking up tokens or coins. This is often used during initial coin offerings (ICOs), token sales, and other fundraising activities related to cryptocurrency. The main purpose of crypto vesting is to promote long-term commitment. It helps prevent early participants from quickly selling off their tokens and then withdrawing their involvement from the project.
The Vesting Process
Vesting schedules, which are subject to change, usually consist of a waiting period (known as the cliff) followed by regular periods of release. For instance, tokens may have a one-year cliff and then be made available in equal monthly payments after that. This vesting process is frequently applied to team members, advisors, participants, and founders to ensure their continued dedication to the project and to align their interests with the project’s long-term objectives.
Implementing Vesting
Smart contracts on the blockchain are usually used to implement vesting, ensuring that the regulations are clear and automatically applied. This mechanism helps build trust among the community and participants, as it shows a commitment from key stakeholders to the project’s long-term objectives.
Tokens are then unlocked via various methods following their vesting period. In this process, tokens previously locked for a predetermined period are released, and token holders can progressively access their assets over time, which frequently happens in stages or increments.
Types of Vesting in Crypto
There are different types of vesting in the crypto space, including time-based, milestone-based, hybrid, and reverse vesting.
With time-based vesting, tokens are progressively released to holders over a set amount of time.
Milestone-based vesting releases tokens upon the achievement of certain project milestones.
Hybrid vesting combines elements of both time-based and milestone-based vesting.
Reverse vesting involves tokens being released all at once, with the potential for them to be repurchased if certain conditions are not met.
Benefits of Vesting
Vesting in crypto projects ensures long-term commitment from the team or advisors, protects token holders from extreme price fluctuations, and reduces the ability of bad actors to create a pump-and-dump scam.
The vesting period also allows time for the project to develop and launch products and services, providing a consistent environment for the project's development.
