Token vesting refers to the process by which tokens are gradually released over time, rather than being made immediately available after a token unlock or launch. Token vesting is also used in token allocation cases where projects wish to pay out tokens to employees, stakeholders, and the like, over time in a trustless manner.
Tokens are typically held in a smart contract that specifies the terms of the vesting agreement. The vesting schedule determines when and how many tokens will be claimable by the stakeholder.
There are two schedule formats:
1. Linear, also known as Time-Based — such as releasing a certain percentage of tokens each month, week, or even block.
2. Milestone-based — tokens are released only after certain conditions have been met, such as the completion of a project or the achievement of a specific goal.
Token Vesting Helps Build Community Trust
Vesting contracts are often used in ILOs or other fundraising events (not limited to the blockchain industry) to help prevent early investors or team members from selling all of their allocations immediately after a project launches or unlocks. By gradually releasing tokens over time, token vesting helps promote stability in the ecosystem by protecting investors from potentially damaging volatility.
It additionally helps ensure smooth relations between projects and employees or VCs (Venture Capitalists). Projects may encounter extr eme sell pressure after launch from the part of VCs or employees. Vesting schedules mitigate & reduce conflicts of interest.
Whether tokens are initially locked up for a period or not, token vesting ensures the same level of security of a lock as funds are kept in a smart contract with immutable settings. Storing funds this manner with a reputable service provider like UNCX Network is the most secure way to ensure they aren’t hacked, stolen by malicious third parties (outsourced teams included).
More information on why UNCX Network’s locker’s are the most reputable in the industry can be found here:
“Why can’t I just vest tokens manually?”
Project owners might think about doing everything in-house. It would likely imply additional resources such as time and development costs. Also, by opting for the custom solution, it is likely the data related to vesting will be harder to be integrated by third parties such as data aggregators. Leveraging a reputable decentralized vesting service is ideal for the following reasons:
- Save on transaction fees by performing bulk locks (also known as locking ‘en masse’).
- Save on time, by automatically vesting tokens to thousands of people.
- Mitigate the risk of human made transactional errors.
- Build community trust by making schedule information transparent and accessible. Token vesting also comes with the guarantee of tokens being locked in an immutable contract until they have been claimed by users once they become withdrawable.
- Security -> Protection from internal (e.g. a team member) or external malicious actors
Token Vesting Best Practices
> Define a clear vesting schedule: This should outline when and how many tokens will be released.
> Leverage smart contracts: providers like UNCX Network provide smart contracts for token vesting. These contracts guarantee transparency and adherence to the vesting schedule.
> Communicate your plan: Inform your stakeholders about the vesting schedule and conditions.
> Ensure legal compliance: Get legal advice to ensure your token vesting process complies with relevant regulations.
> Allocate tokens appropriately: Distribute tokens among team members, advisors, investors, and users in a way that aligns with your project’s goals (ideally, long-term).
> Implement an initial lock-up period: This can prevent early token sales that might create unnecessary volatility on the market.
> Plan for unforeseen situations: Your vesting plan, even if immutable once in place, should include provisions for potential unexpected situations.
(For Investors) Metrics & Supply Allocation
Savvy investors analyzing whether a project is trustworthy or not look for various criterias in a project’s vesting schedule post launch/unlock date. Below, we are showing an example/range of supply allocation plan based on what we could observe on the market.
Please note that these are approximate ranges and the actual percentages can vary greatly based on the specifics of the project and its goals.
Again, keep in mind that this is about token allocation, vesting will typically happen over years.
Founders and Team: 15–20%. This allocation acts as an incentive for the team to work towards the success of the project. The vesting period should typically extend over a few years with a “cliff” (a period before any tokens vest), to ensure commitment.
Advisors: 5–10%. These are for individuals or groups that guide the project strategically and technically. Their tokens often have a shorter vesting period.
Investors: 10–20%. These tokens are usually allocated through private sales, pre-sales, and public sales (ICOs/IEOs/IDOs). They may have a lock-up period to prevent immediate selling.
Community Rewards: 10–20%. This is used to incentivize and reward the user base, including airdrops, staking rewards, liquidity provision rewards, and other forms of user engagement.
Reserve: 10–20%. This is a contingency fund to support future project needs, unforeseen costs, or strategic initiatives.
Partnerships and Integrations: 5–10%. Tokens set aside for building partnerships, collaborations, and integrations that can enhance the value and ecosystem of the project.
Ecosystem Development and Marketing: 15–25%. Tokens are used to fund marketing, business development, and ongoing product development, ensuring the project continues to evolve and attract new users.
If you also wish to learn more about LP locking, we recommend reading this article on the matter: ➡️ https://medium.com/@unicrypt/liquidity-locking-overview-112329ecfaaa