Crypto Vesting

The concept of vesting is not new. Like most of the terms used in DeFi and crypto, vesting has its roots in traditional finance. In the conventional market, companies often include partial ownership of the business in senior or key employees’ compensation packages to motivate them to perform well or stay longer at the organization.

The process by which employees acquire equity, stock options, or other employer-specific contributions is called vesting. In the crypto and DeFi space, during the pre-sale period of an initial coin offering (ICO) or other crowdfunding events, a percentage of a project’s token supply is often put aside in a cold wallet and held for a specific period of time.

The process of holding, locking, and releasing those tokens is referred to as vesting.
Vested tokens, which often take up a fairly substantial chunk of a cryptocurrency’s total supply (20-25%), are earmarked for the project’s development team, its partners, advisors, and other assorted contributors.

The tokens are used to incentivize the teams to create prosperous and vibrant projects and communities. A few years ago, the average vesting schedule for a token was usually 0-24 months, but nowadays, it can stretch anywhere between 36 and 48 months.

This increase in the length of the vesting period is largely meant to foster loyalty and commitment from a project’s management team.

To illustrate how vesting works, let us take the example of a crypto startup setting aside 20% of its token supply for the management team. Those tokens will then be gradually released after set intervals during the length of the vesting schedule.

For instance, 25% of the vested tokens may be released after six months, 50% after 12 months, and 100% after 24 months.

Apart from the management team, early investors in crypto projects are also usually subjected to vesting. This is done to prevent investors from selling off their coins immediately after ICOs and IDOs (Initial DEX Offerings), which often creates huge surpluses of tokens in the market and causes their prices to drop massively.