What is Vesting?
Vesting is the process by which tokens or rights become available for use over time based on predefined conditions.
What is Vesting?
Vesting is the process by which a token allocation becomes available based on a specific timeframe or conditions. It can be used to release tokens allocated to the team, investors, or advisors in increments rather than transferring them all at once. Being allocated tokens is not the same as having a balance that can be sold today.
The schedule can be linear: tokens may be unlocked in equal amounts each month. Other arrangements include a waiting period where no unlocks occur initially. This period is called a cliff. Once the waiting period ends, a bulk unlock followed by regular unlocks can be performed.
Simple Schedule Example
Suppose 120,000 tokens are allocated to an individual and there are no unlocks for the first 12 months. If 5,000 tokens are unlocked each month for the next 24 months, it takes three years to reach the full allocation. However, if there is also a bulk unlock at the end of the first year in a real project, the calculation is different. The phrase “three-year vesting” alone does not explain the monthly amount.
The start date is also important. The day the token is first listed, the date of the investment contract, and the network launch date may all be different. Calculations are made based on whichever event the schedule recognizes as the starting point.
Why Does the Schedule Matter?
Unlocked tokens can increase the sellable supply in the market. However, it cannot be said that they will all be sold immediately just because an unlock occurs. Tokens can be staked, moved to another account, or held. Who the recipient is and the liquidity in the market influence the outcome.
Whether vesting is implemented via an on-chain contract or merely through a legal commitment also creates different risks. Can the administrator change the schedule, can the allocation be revoked, and can the data be independently verified? Without these details, seeing a long lock-up period solely as a guarantee remains incomplete.