What Is Vesting?
Also known as: Vesting Schedule, Token Vesting, Cliff and Vesting
In short
Vesting is the gradual release over time, according to a predetermined schedule rather than all at once, of tokens allocated to team members, investors or advisors in a crypto project.
The concept of vesting comes from equity vesting in the traditional startup world. A typical vesting schedule first has a waiting period called a cliff; no tokens are released before this period ends. Afterward, tokens are unlocked linearly, monthly, quarterly or at every block. For example, in a four-year schedule with a one-year cliff, a quarter of the allocation may be unlocked at the end of the first year, with the remainder spread over the following three years.
The purpose of vesting is to align the interests of the team and early investors with the project's long-term success and to prevent a large amount of tokens from entering the market at the same time. The schedule is usually enforced by a smart contract, so the rules can be verified on-chain by anyone. Some projects also apply vesting to tokens they distribute via airdrop.
The dates when vested allocations are released, that is, token unlocks, are closely watched in the market for expected selling pressure. Whether a project clearly publishes its vesting terms and whether the locks can be verified on-chain is an important indicator of transparency.
Last updated: · This content is for information purposes only and is not investment advice.