Understand vesting in just 3 minutes

Vesting is a term specific to the crypto ecosystem. Ensure, over time, a “win-win” relationship both on the side of the developers of a project and on the side of the investors.

But what exactly are we talking about behind this term “concession”? How does it work? What are its advantages and benefits? So many questions that we will answer to understand the importance of granting rights before investing in a crypto project.

What is the award?

This term in English can be translated as “acquisition”. Specifically, it is a process of releasing tokens held by investors after the blocking phase.

You should know that vesting can vary greatly depending on the crypto project you are attached to. Each investor or potential investor can find out the details of the consolidation model by going through the White paper implemented by the project development team. There you will find all the necessary information about the different blocking periods and acquisition in particular.

This is part of what is called the ” tokenomics that is, “the token economy”. The idea behind this term is to convince investors of the relevance of the token to help build a strong ecosystem around the crypto project.

How does the award work?

After verifying the existence or not of vesting in the project’s whitepaper, we have to see how the so-called “lockdown” period will play out and the consequent acquisition of tokens. This can be done in different ways: whether delivered by the team itself, or through a dedicated platform, or by a smart contract.

In a second step, it will be necessary to study the “duration/quantity” relationship. The investor should be careful about unlocking tokens too quickly. A serious project will not hesitate to unlock the tokens after a few years. That allows on the one hand to avoid the “pulling of the carpet” (a project leader abandons it and keeps the investors’ money). Secondly, this prevents investors or speculators from driving down the price of the token when released.

Annotate : The amount of tokens that investors can recover depends on the acquisition curve defined in the project. It can be linear, exponential or logarithmic.

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What are the pros and cons of the award?

The token lock regulates the volatility of a cryptocurrency. In fact, this prevents a massive sale of tokens and thus speculation and increased volatility. The tokens are progressively distributed on the block chainthey can only be sold in small quantities.

It is also a good solution for protect future investors by preventing the first to arrive, a few months or years before, from massively selling their assets and thus causing the value of the token to fall.

Finally, we see with some crypto projects that vesting makes it possible to acquire cheaper tokens over time. In fact, “discounts” may be offered depending on the duration of the concession. Therefore, this allows the investor to buy cheap by lowering their cost per unit (PRU) price in exchange for a longer lockup of the tokens.

The only real risk with vesting is that time is ultimately against the investor. It is quite possible that a project fails or that the token suffers after several months or years a drop in value.

Conclusion: this mechanism provides security to a cryptographic project

The allotment is a mechanism inseparable from the cryptographic universe. The ensures the stability of a project over time and its viability for both developers and investors. It also protects participants during private or public sales.

However, this process is not without risks. In fact, it is clearly a bet for the future with the token locking system. You have to believe in the project for the long term and expect a strong valuation of the token linked to the project.

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